A TRANSACTION DATA STUDY OF DAY-OF-THE-WEEK AND INTRADAY PATTERNS IN OPTION RETURNS

In this study common stock, call, and put option returns from 1983 to 1985 are examined by day of the week and time of day. Stock and call return patterns generally are similar, both having relatively low weekend returns and relatively high returns late in the trading day. Put options have high weekend returns, but do not have low returns late in the trading day.     

TRANSACTION COSTS AND DAY-OF-THE-WEEK EFFECTS IN THE OTC/NASDAQ EQUITY MARKET

A potential explanation is examined here for the observed day-of-the-week effect in equity returns—systematic daily patterns in percentage bid-ask spreads. Using OTC/NASDAQ data over 1973–1985, strong return day-of-the-week effects are documented while mean dealer percentage spreads are essentially unchanged over the week. These results provide evidence that systematic percentage spread changes do not contribute to the observed return anomaly.     

A COMPREHENSIVE EXAMINATION OF VOLUME EFFECTS AND SEASONALITY IN DAILY SECURITY RETURNS

In this study, an integrated model of return seasonality is developed and the hypothesis that seasonality is associated with changes in relative trading volume is examined. Return regularities associated with the turn of the month, the week of the month, and holiday closings are documented. Beyond these effects, neither the turn of the year nor the January effect is significant for large firms. Relative volume is shown to display calendar regularities similar to those in returns, and tests indicate a causal relationship flowing from volume to returns.     

INTEREST RATE SENSITIVITY OF BANK STOCK RETURNS: SPECIFICATION EFFECTS AND STRUCTURAL CHANGES

In this paper the interest rate sensitivity of bank stock returns under alternative econometric specifications and the changes in the sensitivity over time are studied. Results indicate that the sensitivity depends on the econometric specification and the period considered. Bank stock returns show a sensitivity to long-term government security returns and innovations, but not to short-term government security returns and innovations except under one specification. Since 1980, banks seem to have reduced their interest rate risk exposure. Finally, while long-term returns are positively associated with stock returns, short-term returns show a positive association only since 1980.     

THE EFFECTS OF OVERPAYMENT AND FORM OF FINANCING ON BIDDER RETURNS IN MERGERS AND TENDER OFFERS

In this paper I examine the effects of overpayment and form of financing on bidding firms' stock returns and the determinants of the form of financing in mergers and tender offers. First, I find that in the 1980s potential overpayments to target shareholders and the form of financing are important for explaining cross-sectional differences in bidding firms' returns upon the announcement of mergers or tender offers. Second, I find that in the 1980s cash offers were likely to be chosen by cash-rich firms relative to their industry, and stock exchange offers were likely to be chosen by normal cash-generating firms relative to their industry. The latter finding is consistent with the pecking order hypothesis and casts doubt on recent signaling explanations of the form of financing.     

HOLIDAY CLOSINGS AND SECURITY RETURNS

This paper documents unusual return patterns for securities around holiday closings. Returns for trading days immediately before holiday closings (pre-holiday trading days) are unusually high regardless of weekday, year, or holiday closing. Returns for trading days following holiday closings (post-holiday trading days) are high only if they occur at the end of the week. Tests indicate that pre-holiday returns do not respond to a closing effect, and that the post-holiday returns do not result from a time-diffusion process. Holiday trading day returns question the tax-loss selling explanation of the turn-of-the-year effect and display a significant small firm effect outside of January.     

SECURITIES INVENTORIES AND EXCESS RETURNS

In this paper, the inventory positions of government security dealers are analyzed for signs of their superior information relative to other participants in the market. Testing the 1966–1980 period on a monthly basis, it does not appear that information on the maturity composition of dealers' positions can be used, either concurrently or when it becomes publicly available, to earn excess returns.     

SUSTAINABLE GROWTH AND STOCK RETURNS

We examine relations between sustainable growth and stock returns over 1964–2007. Findings indicate that high sustainable growth firms tend to have low default risk, low book‐to‐market ratios, and low subsequent returns. Of the four sustainable growth components, we find that the net profit margin is the major determinant of subsequent returns. Results persist after controlling for asset growth and capital expenditure growth. Additional tests indicate that the sustainable growth effect is attributable to risk and not to mispricing.     

LEVERAGED BUYOUTS AND SHAREHOLDER RETURNS

This study examines the risk-adjusted stock returns realized by shareholders of firms acquired through leveraged buyouts to assess the economic gains associated with this type of acquisition. Stockholders of firms acquired through leveraged buyouts realize significant positive abnormal returns as a result of the buyout announcement. The findings support the notion of value creation in leveraged buyouts.     

MACRO-ECONOMIC FACTORS AND STOCK RETURNS

This paper explores the economic nature of return factors by incorporating a multifactor return generating process into the traditional CAPM. It attempts to remedy the arbitrage pricing theory, which is not capable of assigning proper economic meanings to return factors. There are at least three significant factors associated with general production, investment, financial, and employment variables. These economic factors explain the risk-return relationship as well as those obtained by the arbitrage pricing theory.     

EXCHANGEABLE DEBT CALLS AND SECURITY RETURNS

Exchangeable calls are not convertible into the calling firm's common stock but into the common stock of a target firm in which the calling firm has an ownership position. In addition to reducing leverage, exchangeables change the asset composition of the calling firm through the divestiture of the calling firm's ownership stake in the target firm. In contrast to the evidence on convertible calls, our findings indicate that announcements of exchangeable debt calls are not associated with an abnormal capital loss for the calling firm shareholders. For target firms, announcements of exchangeable calls reduce shareholder wealth. A lower probability of takeover resulting from diffusion of ownership concentration of the target firm's common stock may contribute to this result.