STOCK RETURNS AND VOLATILITY ON CHINA'S STOCK MARKETS

We examine time‐series features of stock returns and volatility, as well as the relation between return and volatility in four of China's stock exchanges. Variance ratio tests reject the hypothesis that stock returns follow a random walk. We find evidence of long memory of returns. Application of GARCH and EGARCH models provides strong evidence of time‐varying volatility and shows volatility is highly persistent and predictable. The results of GARCH‐M do not show any relation between expected returns and expected risk. Daily trading volume used as a proxy for information arrival time has no significant explanatory power for the conditional volatility of daily returns. JEL classification: G15     

PREFERRED STOCK ARBITRAGE OF MUNICIPAL BOND MARKET SEGMENTATION

This paper discusses how tax and regulatory constraints in the municipal bond market can affect preferred stock yields and give rise to arbitrage opportunities in the preferred stock market. The potential for profit is illustrated with an example that also serves to highlight the unique characteristics of recently developed forms of preferred stock.     

THE RISE IN MANAGERIAL STOCK OWNERSHIP

Despite the widespread view from Berle and Means onward that ownership of U.S. companies has become increasingly separated from managerial control, the authors report that managerial ownership of public corporations is markedly higher today than in 1935. Using a comprehensive sample of the 1,500 publicly traded firms in 1935 and a comparable sample of 4,200 firms in 1995, their study finds that managerial ownership increased from an average of 13% in 1935 to 21% in 1995. In terms of real (1995) dollar values, average managerial ownership increased from $18 million to $73 million over the same 60‐year period. One potential explanation for this increase is that greater reliance on managerial ownership has substituted for less reliance on other incentive alignment devices, such as pay‐for performance and the market for corporate control. The authors, however, report just the opposite. The use of such other corporate governance mechanisms has generally also increased over time, suggesting that the top managements of today's publicly traded corporations face greater pressure from investors and boards of directors than managements earlier in the century. An alternative explanation concern possible changes over time in the effects of certain company characteristics on the costs and benefits of using managerial ownership as a control device. While most of the characteristics the authors examined had the same relationship to managerial ownership in both periods, the role of volatility was different. In 1935, managerial ownership was inversely related to firm volatility; that is, higher volatility was associated with lower managerial ownership. In 1995, however, the relationship of managerial ownership to volatility was “nonlinear”; managerial ownership was positively related to firm volatility at low and moderate levels of volatility but the relationship turns negative when firm volatility is high. The overall lower level of volatility today, together with advances in capital markets and financial theory that have reduced the costs of hedging, appear to have reduced the costs of managers holding large stakes in their firms.     

中国股市需要“停车修理”

A股为何会回到"1时代"?导致当前中国股市信心不足的原因:其一,800多家等待IPO的企业和再融资让市场异常恐惧,这些等待IPO的企业继续在发审委排队,按照目前的发行速度,至少需要5年,如此下去不但给市场带来巨大的扩容压力,也会让市场的资源配置功能彻底丧失。如果资本市场不能有效支持实体经济,真正的优质企业无法上市融资,投资者买不到好股票,市场必然会进入恶性调整。其二,限售股解禁、减持的压力让股市资金供需严重失衡,因为股权分置改革带来的"成本分置"后遗症需要很多资金来填补"全流通",来缓解大小非、大小限的套现压     

MARKET TIMING OF INTERNATIONAL STOCK MARKETS USING THE YIELD SPREAD

We use probit modeling to forecast bear stock markets in the United States and in eight major foreign stock markets. In general, we find that the U.S. yield spread contains more important market‐timing information than does the home‐country yield spread for profitable market timing. At a 35% probability screen, our simulations show that the U.S. dollar (representative local currency) investor could earn a median compound annual return across eight foreign (non‐U.S.) stock markets of 15.75% (17.67%) by following a market‐timing strategy versus a median buy‐and‐hold return of 13.56% (16.55%).     

THE NONPARALLEL WEEKEND EFFECT IN THE STOCK AND BOND MARKETS

Explanations for the day-of-the-week effect are either market-specific conventions (timing delays in settlement and clearing, dividend payout arrangements) or cross-market events (bad news delayed until the weekend). Although a market-specific rational is confined to one market, cross-market events affect at least two markets. In this research we investigate the weekend effect in the stock and Treasury markets. Our findings suggest the weekend effect is nonparallel across financial markets. Thus, the weekend effect is more likely due to unique features of the individual markets than to events affecting both stock and Treasury markets simultaneously.     

“转融通”引来的资金活水：有效对接货币市场与证券市场

在过去,证券公司只是单纯地凭经纪业务取胜,靠天吃饭,而转融通业务的推出标志着—个全新的金融创新时代的到来。     

PROBABILITY OF PRICE REVERSAL AND RELATIVE NOISE IN STOCK AND OPTION MARKETS

In this paper we take a new approach to the study of the interrelation between stock and option markets by extending Stoll's (1989) model of cost components of the bid-ask spread to include an error component in prices. Building upon Stoll's estimates of the probability of price reversals, we determine which of the option or stock markets carries more noise. The empirical results indicate that option markets are noisier than stock markets. Such findings are consistent with the view that option markets serve as a testing ground for noisy new information because of their comparative advantage regarding transaction costs, liquidity, and potential leverage.     

STOCK SPLITS AND MARKET ANOMALIES

Previous studies of market efficiency have reported conflicting results when examining stock splits. Recent studies reporting market inefficiencies have made several methodological improvements, but have failed to control for the possible confounding effects of “unexpected” changes in corporate earnings announced near the stock split event. Stock splits are often issued around the time that firms experience large increases in corporate earnings. Therefore, an explicit treatment of earnings announcements in an event study of stock splits may yield further insights. This study found no market inefficiencies associated with splitting securities that experienced moderate changes in corporate earnings. However, anomalies were associated with splitting securities that experienced large increases in corporate earnings. These results suggest that previous findings of market inefficiencies, attributable solely to the stock split event, may be due in part to unexpected changes in corporate earnings.     

A NOTE ON FIRM SIZE, INFORMATION AVAILABILITY AND MARKET REACTIONS TO US STOCK OWNERSHIP REPORTING ANNOUNCEMENTS

This note examines cross-sectional differences in market reaction to five percent stock ownership reporting announcements. The results presented here document an inverse relationship between firm size and market reaction. Specifically, the announcement day market reaction is 310 percent larger for a portfolio of small firms compared to a portfolio of large firms.