OTC MARKET SWITCHING AND STOCK RETURNS: SOME EMPIRICAL EVIDENCE

In this study the effect on the common stock returns of 278 firms that switched OTC market segments from 1982 to 1987 is examined. It is hypothesized that abnormally positive returns are associated with news of the move from the NASDAQ to the NASDAQ National Market System (NMS) and that the market responds more favorably during pre-NMS inclusion for stocks with low versus high liquidity before switching. Using event study methodology, results support these hypotheses. Unlike post-listing studies, the evidence reveals no anomalous return behavior during the post-NMS inclusion period studied.     

INTEREST RATE CHANGES AND COMMON STOCK RETURNS OF FINANCIAL INSTITUTIONS: REVISITED

In this paper the interest rate sensitivity of common stock returns of financial firms is re-examined. Considered here are (1) current, anticipated, and unanticipated changes in interest rates; (2) depository and nondepository firms; and (3) three different-maturity interest rate indices. Results lend strong support for a negative effect of both current and unanticipated interest rate changes. Although some exceptions are observed, stock returns of most subsectors of both financial and nonfinancial firms are not sensitive to anticipated interest rate changes. The findings of this study are robust to the choice of a particular model of interest rate expectations.     

MACROECONOMIC VARIABLES AND SEASONAL MEAN REVERSION IN STOCK RETURNS

In this paper I investigate whether seasonal mean reversion in stock portfolio returns is related to common macroeconomic risk factors. I decompose excess returns into explained and unexplained returns using a multifactor pricing model. The explained excess returns exhibit January mean reversion; the unexplained excess returns do not. The mean reversion can be attributed to the components of return related to unexpected inflation, bond default premium, and market risk. The results do not depend on the time-series properties of the portfolio betas. Bond default premia and excess market returns are mean reverting in January.     

SKEWNESS AND KURTOSIS IN JAPANESE EQUITY RETURNS: EMPIRICAL EVIDENCE

In this paper, the distribution of equity returns on the Tokyo Stock Exchange is examined from 1965 to 1984, and significant and persistent skewness and kurtosis are found. The deviation of security returns from normality declines with increasing portfolio size and appears to be greater than the non-normality evidenced in U.S. security returns. Further, these deviations from normality persist even after controlling for January and firm size effects.     

THE RELATIONSHIP BETWEEN THE VARIABILITY OF INFLATION AND STOCK RETURNS: AN EMPIRICAL INVESTIGATION

Several researchers find a negative correlation between the rate of inflation and stock returns. This phenomenon may be explained by the variability hypothesis, which posits that the negative correlation is caused by the combination of a positive relation between the rate of inflation and the variability of inflation and a negative relation between the variability of inflation and stock returns. An autoregressive conditional heteroscedastic model of inflation is used to measure the variability of inflation. Empirical results do not support the ability of the variability hypothesis to explain the negative correlation between stock returns and inflation.     

BUSINESS CYCLES AND STOCK MARKET RETURNS: EVIDENCE USING INDUSTRY-BASED PORTFOLIOS

Much evidence has emerged recently that suggests stock returns are predictable. In representative agent consumption-based asset pricing models, asset returns are related to aggregate output and consumption through changes in the intertemporal marginal rate of substitution. An alternative view is that the amount of variation required in the intertemporal marginal rate of substitution is too large to be rationally explained. We shed further light on this debate by investigating whether the stock returns of certain sectors of the economy can predict future market returns even after controlling for the information contained in the aggregate market index. In the consumption-based models, aggregate output and consumption affect the discount rates of all assets synchronously; no particular sectoral return should have any more predictive ability than the others. We find evidence that the stock returns of five industry-based portfolios have significant information about future market returns that is not in the market index. This stylized empirical result is not consonant with existing models relating output to stock returns.     

TRADING‐VOLUME SHOCKS AND STOCK RETURNS: AN EMPIRICAL ANALYSIS

We examine high‐volume premiums based on weekly risk‐adjusted returns. Significant average weekly abnormal high‐volume premiums up to 0.50% per week are documented for 1962–2005. Most premiums are generated in the first two weeks and monotonically decline as holding periods are extended. Evidence of reversal is found as the holding periods are extended. Premiums depend on realized turnover in the holding period. The last finding supports the theories of Miller and Merton. Finally, we test whether premiums are compensation for taking additional risk. Negative skewness, idiosyncratic risk, and liquidity risk do not explain the high‐volume premiums.     

STATISTICAL PROPERTIES OF DAILY RETURNS: EVIDENCE FROM EUROPEAN STOCK MARKETS

This paper attempts to model the distributional properties of daily stock returns on several European Stock Exchanges. The empirical findings reveal the presence of non-linear dependencies that cannot be captured by the random walk model. A model of return-generating process that fit the data empirically is the Generalized Autoregressive Conditional Heteroskedastic GARCH (1,1) process with a conditional student- t distribution.     

AN EMPIRICAL EXAMINATION OF FINANCIAL LIBERALIZATION AND THE EFFICIENCY OF EMERGING MARKET STOCK PRICES

The efficient markets hypothesis in finance suggests that as equity markets are liberalized and made more open to the public, equity prices should reflect the increased availability of information and be more efficiently priced. In this paper, we examine whether emerging market equity prices have become more efficient after financial liberalization. Using two sets of financial liberalization dates, a battery of econometric tests, and data from sixteen countries and three composite portfolios, we find that in spite of theory suggesting the opposite, liberalization does not seem to have improved the efficiency of emerging markets. In fact, most of our statistical tests indicate that the markets were already efficient before the actual liberalization.     

SOME EMPIRICAL EVIDENCE ON THE USE OF FINANCIAL LEASES

In this paper, the impact of certain firm-specific factors on the level of financial leases used by corporations is examined. An industry analysis indicates that firms in certain industries tend to lease more than other firms. A Tobit analysis of the degree to which approximately 600 firms lease assets indicates that certain factors—including the debt ratio, presence of mortgage debt, level of subordinated debt, presence of restrictions on leasing, number of bonds in a firm's capital structure, and the firm's debt rating—are significantly related to the degree of leasing. Other factors, including the firm's tax rate, were not found to be significant, contrary to popular expectations.     

STOCK PRICE AND DEGREE OF NEGLECT AS DETERMINANTS OF STOCK RETURNS

In prior research the neglected firm effect persists even after controlling for firm size. Several recent studies show that the size effect is a stock price effect. In the present study we investigate whether excess returns on neglected stocks are a manifestation of a stock price effect. Although material evidence supporting an independent neglected firm effect is still found, results are much weaker than in prior studies. Examining a large sample of New York Stock Exchange and American Stock Exchange stocks from 1977 to 1988, we find that both January and non-January months do not have a statistically significant neglect effect after controlling for a price effect.