Capital Gains Tax Overhang and Price Pressure

I study whether the capital gains tax is an impediment to selling by some investors and if so, to what degree associated delayed selling affects stock prices. I find that selling decisions by institutions serving tax‐sensitive clients are sensitive to cumulative capital gains, a pattern not observed for institutions with predominantly tax‐exempt clients. Moreover, tax‐related underselling impacts stock prices during large earnings surprises for stocks held primarily by tax‐sensitive investors. The corresponding price reactions are less negative (more positive) with higher cumulative capital gains. This price pressure pattern is more severe when arbitrage is more costly.     

Capital Gains Taxes and Equity Trading: Empirical Evidence

Individual investors have an incentive to defer selling appreciated stock until it qualifies for tax‐favored, long‐term capital gains treatment. Shackelford and Verrecchia [2002] show that these incentives can affect equity trading around public disclosures. This article provides some empirical support for their theory with evidence of price increases and equity constrictions around announcements of quarterly earnings and additions to the S&P 500 index. We find share returns rise and trading volume falls with the incremental taxes saved by deferring the sale of appreciated property. The price increases, however, are temporary, reversing in subsequent trading days. The results are consistent with buyers believing the compensation to sell before long‐term qualification (through higher prices) is less costly than holding an inappropriately weighted portfolio. This finding—that personal capital gains taxes affect equity trading—adds to a growing literature that challenges longstanding assumptions that firm value is independent of shareholders and their taxes.     

Simple Technical Trading Rules and the Stochastic Properties of Stock Returns

This paper tests two of the simplest and most popular trading rules—moving average and trading range break—by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, our results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH-M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models.     

Correlated Trading and Returns

A German broker's clients place similar speculative trades and therefore tend to be on the same side of the market in a given stock during a given day, week, month, and quarter. Aggregate liquidity effects, short sale constraints, the systematic execution of limit orders (coordinated through price movements) or the correlated trading of other investors who pick off retail limit orders do not fully explain why retail investors trade similarly. Correlated market orders lead returns, presumably due to persistent speculative price pressure. Correlated limit orders also predict subsequent returns, consistent with executed limit orders being compensated for accommodating liquidity demands.     

Learning by Trading and the Returns to Human Capital in Developing Countries

Recent evidence shows that the returns to labor and the skillpremium both increase in developing countries after trade liberalization,despite the low skill content of their exports. The author explainsthis apparent puzzle by arguing that trade increases technologytransfers from industrial to developing countries and that thetransfer technology is biased in favor of skilled labor. Therelative demand for skilled labor increases during the transitionfollowing liberalization, and so the gains enjoyed by skilledlabor are temporary, even in the absence of supply responses.The gains become longer lasting when the transferred technologyis also skill-biased.     

Individual Investor Trading and Stock Returns

This paper investigates the dynamic relation between net individual investor trading and short‐horizon returns for a large cross‐section of NYSE stocks. The evidence indicates that individuals tend to buy stocks following declines in the previous month and sell following price increases. We document positive excess returns in the month following intense buying by individuals and negative excess returns after individuals sell, which we show is distinct from the previously shown past return or volume effects. The patterns we document are consistent with the notion that risk‐averse individuals provide liquidity to meet institutional demand for immediacy.     

Capital Gains, Dividend Yields, and Expected Inflation

One explanation for the negative relationship between short-horizon stock returns and inflation is that inflation proxies (inversely) for expected future real output. In this paper, I examine the possibility that inflation also proxies for variation in real price/dividend ratios (excess returns). I show that when the covariance between real price/dividend ratios and inflation is nonzero, the relationship between returns and expected inflation differs for the two components of returns: dividend yields and capital gains returns. My empirical evidence demonstrates that dividend yields and capital gains are related differently to expected inflation in U.S. and foreign markets.     

Trading Volume and Cross-Autocorrelations in Stock Returns

This paper finds that trading volume is a significant determinant of the lead-lag patterns observed in stock returns. Daily and weekly returns on high volume portfolios lead returns on low volume portfolios, controlling for firm size. Nonsynchronous trading or low volume portfolio autocorrelations cannot explain these findings. These patterns arise because returns on low volume portfolios respond more slowly to information in market returns. The speed of adjustment of individual stocks confirms these findings. Overall, the results indicate that differential speed of adjustment to information is a significant source of the cross-autocorrelation patterns in short-horizon stock returns.     

Capital Investment,Innovative Capacity,and Stock Returns

We study the dynamic implications of capital investment in innovative capacity (IC) on future stock returns, investment, and profitability by modeling the unique effects of IC investment on uncertain option generation/exercise and postexercise revenue. The model highlights the diverse effects of IC investment on expected returns in different postinvestment regimes and yields the novel prediction that, under the neoclassical assumption of nonincreasing revenue returns, IC investment is positively related to subsequent cumulative stock returns with a lag. The model also predicts a positive effect of IC investment on future investment and profitability. We find strong empirical support for these predictions.     

Trading and Returns under Periodic Market Closures

This paper studies how market closures affect investors' trading policies and the resulting return-generating process. It shows that closures generate rich patterns of time variation in trading and returns, including those consistent with empirical findings: (1) U-shaped patterns in the mean and volatility of returns over trading periods, (2) higher trading activity around the close and open, (3) more volatile open-to-open returns than close-to-close returns, (4) higher returns over trading periods than over nontrading periods, (5) more volatile returns over trading periods than over nontrading periods. It also shows that closures can make prices more informative about future payoffs.     

Dynamic Trading with Predictable Returns and Transaction Costs

We derive a closed‐form optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with different mean‐reversion speeds. The optimal strategy is characterized by two principles: (1) aim in front of the target, and (2) trade partially toward the current aim. Specifically, the optimal updated portfolio is a linear combination of the existing portfolio and an “aim portfolio,” which is a weighted average of the current Markowitz portfolio (the moving target) and the expected Markowitz portfolios on all future dates (where the target is moving). Intuitively, predictors with slower mean‐reversion (alpha decay) get more weight in the aim portfolio. We implement the optimal strategy for commodity futures and find superior net returns relative to more naive benchmarks.     

Skewness of Returns, Capital Adequacy, and Mortgage Lending

We calibrate a simulation model of credit value-at-risk for mortgage lending to UK experience. Simulations to capture the skewness of returns that might arise in the context of a financial crisis suggest that the IRB calculations of the new Basel Accord can substantially understate prudential capital adequacy. The same model shows that raising capital requirements has only a small impact on bank funding costs. We conclude that Pillar 2 supervisory review should increase capital requirements above IRB levels for secured bank assets—those whose returns can potentially fall furthest, relative to other, normally “riskier” assets, in extreme outcomes. JEL classification: G21, G28, R31. Presented at the December 2003 conference at the University of Tor Vegata, Rome. We are grateful for comments from William Lang, Mario Onarato, Larry Wall, and from an anonymous referee. All errors and omissions are our own responsibility. “The lady doth protest too much, methinks. The Queen's response to the players in Hamlet, Act 3, scene 2.     

The Effect of SEC-Ordered Suspensions on Returns, Volatility, and Trading Volume

This study evaluates the effect of SEC-ordered suspensions on securities' returns, volatility, and trading volume during 1963–1987. It is found that there is a permanent devaluation of these securities during the suspension. This result, however, is sensitive to the announced reason for the suspension. Both the variance and the trading volume are found to be substantially higher than normal in the presuspension period. This trend continues in the immediate postsuspension period. The variance and volume levels return to more normal levels only at a much later date. We conclude that trading suspensions are not associated with the immediate elimination of unusual market activity.     

Corrections for Trading Frictions in Multivariate Returns

When observed stock returns are obtained from trades subject to friction, it is known that an individual stock's beta and covariance are measured with error. Univariate models of additive error adjustment are available and are often applied simultaneously to more than one stock. Unfortunately, these multivariate adjustments produce non-positive definite covariance and correlation matrices, unless the return sample sizes are very large. To prevent this, restrictions on the adjustment matrix are developed and a correction is proposed, which dominates the uncorrected estimator. The estimators are illustrated with asset opportunity set estimates where daily returns have trading frictions.     

Earnings Quality, Insider Trading, and Cost of Capital

Previous research argues that earnings quality, measured as the unsigned abnormal accruals, proxies for information asymmetries that affect cost of capital. We examine this argument directly in two stages. In the first stage, we estimate firms' exposure to an earnings quality factor in the context of a Fama‐French three‐factor model augmented by the return on a factor‐mimicking portfolio that is long in low earnings quality firms and short in high earnings quality firms. In the second stage, we examine whether the earnings quality factor is priced and whether insider trading is more profitable for firms with higher exposure to that factor. Generally speaking, we find evidence consistent with pricing of the earnings quality factor and insiders trading more profitably in firms with higher exposure to that factor.     

A Model of Returns and Trading in Futures Markets

This paper develops an equilibrium model of a competitive futures market in which investors trade to hedge positions and to speculate on their private information. Equilibrium return and trading patterns are examined. (1) In markets where the information asymmetry among investors is small, the return volatility of a futures contract decreases with time-to-maturity (i.e., the Samuelson effect holds). (2) However, in markets where the information asymmetry among investors is large, the Samuelson effect need not hold. (3) Additionally, the model generates rich time-to-maturity patterns in open interest and spot price volatility that are consistent with empirical findings.     

Private Equity Performance: Returns, Persistence, and Capital Flows

This paper investigates the performance and capital inflows of private equity partnerships. Average fund returns (net of fees) approximately equal the S&P 500 although substantial heterogeneity across funds exists. Returns persist strongly across subsequent funds of a partnership. Better performing partnerships are more likely to raise follow‐on funds and larger funds. This relationship is concave, so top performing partnerships grow proportionally less than average performers. At the industry level, market entry and fund performance are procyclical; however, established funds are less sensitive to cycles than new entrants. Several of these results differ markedly from those for mutual funds.     

追求资本、风险、收益的动态平衡——我国商业银行风险管理机制改革的四大关系

我国商业银行风险管理体制需要重塑,陈四清行长站在一线管理者的角度,认为在此过程中应该妥善处理好四大关系。我国商业银行的改革已经涉入银行产权改革的深水区,主要商业银行通过财务重组、引进战略投资者、IPO走向资本市场的“三步曲”,将产权的单一化彻底转变为产权的多元化和规范化,从而使商业银行的股东和利益相关者对管理者的约束大大增强,使资本对银行经营行为的约束大大强化。我国商业银行股东之间、股东与利益     

交易偏好、公司特征与股票收益——基于我国个体投资者交易数据的实证检验

噪音交易是影响股票收益的重要风险因素,对于那些噪音交易活跃、套利成本较高的股票,噪音交易者需求变动对股票价格的影响更为显著。本文以我国个体投资者2006年-2011年的交易数据为样本,按照公司特征对样本股进行分组,发现个体投资者对小盘、低价、高账面市值比、高收益和高特质波动的股票具有更强的交易偏好,且对股票需求的变动存在显著的系统相关性,个体投资者需求变动对股票价格的影响程度与其交易偏好有关。本文的研究结论为个体投资者交易行为理论提供了有价值的实证支持。