A Further Investigation of the Weekend Effect in Stock Returns

This study uses a longer time period and additional stocks to further investigate the weekend effect. We find consistently negative Monday returns (1) for the S & P Composite as early as 1928, (2) for Exchange-traded stocks of firms of all sizes, and (3) for actively traded over-the-counter (OTC) stocks. The OTC results are based on bid prices and therefore appear to reject specialist-related explanations. For the 30 individual stocks of the Dow Jones Industrial Index, the average correlation between Friday and Monday returns is positive and the highest of all pairs of successive days. The latter finding is inconsistent with fairly general measurement-error explanations.     

Short Selling and the Weekend Effect in Nasdaq Stock Returns

We examine daily short selling of Nasdaq stocks to explore whether speculative short selling causes a significant portion of the weekend effect in returns. We identify a weekend effect in speculative short selling whereby it constitutes a larger percentage of trading volume on Mondays versus Fridays. We find an opposite effect in dealer short selling, consistent with market makers adding liquidity and stability. Our main finding is that speculative short selling does not explain an economically meaningful portion of the weekend effect in returns, even among the firms most that are most actively shorted. This finding contradicts some prior studies.     

On Stock Market Returns and Returns on Investment

This article presents general conditions under which it is possible to obtain asset pricing relations from the intertemporal optimal investment decision of the firm. Under the assumption of linear homogeneous production and adjustment cost functions (the Hayashi (1982) conditions), it is possible to establish, state by state, the equality between the return on investment and the market return of the financial claims issued by the firm. This result proves to be, in essence, robust to the consideration of very general constraints on investment and the inclusion of taxes.     

Does Monetary Policy Have Asymmetric Effects on Stock Returns?

This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of a monetary policy stance are adopted. Empirical evidence from monthly returns on the Standard & Poor's 500 price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear-market regime.     

Political Connection and Stock Returns: A Longitudinal Study

A stock market should display informational efficiency and, therefore, should appropriately reflect the value of political connections, if any value exists. Using a comprehensive data set that incorporates both obvious and less obvious political connections to firms in Thailand, we provide a longitudinal study which shows that higher realized stock returns are systematically associated with political connectedness. Consistent with the view that such a relationship provides economic rents, this finding is particularly prominent in more regulated industries. The politically connected premium is higher for higher level political connections and when the political bodies hold an equity stake in the firm.     

Asymmetry in Stock Returns Following Block Trades on the Australian Stock Exchange: A Note

A number of recent US. studies have examined the price impact of large (block) trades using intraday data. A major finding is that the price movement following block trades continues upwards following purchases but reverses following sales. This asymmetry in price behaviour, which suggests that block sellers pay a liquidity premium while block buyers do not, has been described as 'intriguing' and a 'key puzzle'. The purpose of this note is to determine whether the phenomenon exists on the Australian Stock Exchange. Evidence consistent with the 'puzzling' asymmetry is shown to exist when returns are measured from the block trade until the close of trade. Contrary to US. findings, which have shown that prices appear to reverse following both block purchases and sales in transaction time analysis, the asymmetry in price behaviour is also demonstrated to exist in transaction returns for the ASX. All results are found to be robust to a number of research design innovations and data partitions.     

A Consumption-Based Explanation of Expected Stock Returns

When utility is nonseparable in nondurable and durable consumption and the elasticity of substitution between the two consumption goods is sufficiently high, marginal utility rises when durable consumption falls. The model explains both the cross‐sectional variation in expected stock returns and the time variation in the equity premium. Small stocks and value stocks deliver relatively low returns during recessions, when durable consumption falls, which explains their high average returns relative to big stocks and growth stocks. Stock returns are unexpectedly low at business cycle troughs, when durable consumption falls sharply, which explains the countercyclical variation in the equity premium.     

A Regime-Switching Model of Long-Term Stock Returns

Abstract

In this paper I first define the regime-switching lognormal model. Monthly data from the Standard and Poor’s 500 and the Toronto Stock Exchange 300 indices are used to fit the model parameters, using maximum likelihood estimation. The fit of the regime-switching model to the data is compared with other common econometric models, including the generalized autoregressive conditionally heteroskedastic model. The distribution function of the regime-switching model is derived. Prices of European options using the regime-switching model are derived and implied volatilities explored. Finally, an example of the application of the model to maturity guarantees under equity-linked insurance is presented. Equations for quantile and conditional tail expectation (Tail-VaR) risk measures are derived, and a numerical example compares the regime-switching lognormal model results with those using the more traditional lognormal stock return model.     

A Note on the Predictability of UK Stock Returns

This note presents evidence on the predictability of UK stock returns using a database of companies in the FTSE-Allshare Index newly constructed towards the beginning of 1998. The tests used are autocorrelations at various lags and variance ratios for several aggregations of base observations. The evidence is consistent with that published for US stock returns, namely that daily stock returns contain a strong element of predictability.     

A Dividend Payment Effect in Stock Returns

This paper presents evidence for the period 7/62-12/89 that individual NYSE and AMEX stocks provide relatively high average excess returns on the payment dates of quarterly cash dividends and several subsequent trading days. Additional results indicate that returns during the payment period: (a) are not a manifestation of the January, monthly or dividend yield anomalies; (b) are positively related to the stock's dividend yield; and (c) are higher for firms that have dividend reinvestment plans. These findings are consistent with a tendency by stock-holders to reinvest dividend income into the stock of the paying firm, thereby increasing demand for the stock and raising its price. Additional evidence links the returns on these days with (previously-documented) excess returns around the ex-dividend date.     

Stock Returns and Real Activity: A Century of Evidence

This paper analyzes the relation between real stock returns and real activity from 1889–1988. It replicates Fama's (1990) results for the 1953–1987 period using an additional 65 years of data. It also compares two measures of industrial production in the tests: (1) the series produced by Babson for 1889–1918, spliced with the Federal Reserve Board index of industrial production for 1919–1988, and (2) the new Miron and Romer (1989) index spliced with the Federal Reserve Board index in 1941. Fama's findings are robust for a much longer period—future production growth rates explain a large fraction of the variation in stock returns. The new Miron-Romer measure of industrial production is less closely related to stock price movements than the older Babson and Federal Reserve Board measures.     

Weather Effects on Stock Returns and Volatility in South Asian Markets

We study the effect of mood-proxy variables on index returns and volatility in six South Asian markets. Our mood-proxy variables include six weather (temperature, humidity, cloud cover, air pressure, visibility, and wind speed), three weather indicator variables (fog, thunder storm and rain or drizzle) and two biorhythmic variables (SAD and lunar phases). We adopt a robust approach and attempt to select the best parsimonious econometric model for each market. Our findings suggest that mood-proxy variables have some convincing influences in South Asian capital markets. In some instances, these variables are influencing returns while in other instances they are influencing volatility.     

Common Stock Returns and Rating Changes: A Methodological Comparison

This paper examines the adjustments in a firm's common stock price during the eleven months before and during the month of announcement of a bond rating change. Based on several different measures of abnormal security return, the findings are consistent with the proposition that bond downgradings convey information to common stockholders. For bond upgradings, the price adjustments were statistically insignificant in the month of announcement, although in the eleven preceding months, upgraded firms exhibited positive abnormal returns. While the results do not fully support earlier research, we stress that the main contribution of this article lies in the scrutiny it gives to issues of methodology in assessing the possible price effects of bond reclassifications.