Innovation source,advancement stage and company stock returns

The purpose of this paper was to measure the short- and long-term impact of innovation announcements on the stock returns of service companies. In order to study the predictors of the abnormal stock returns, the study takes the adoption and diffusion theory as its conceptual background. The research was based on an event study and buy-and-hold methods. It encompassed 398 announcements released for 121 companies in EU member states between February 2011 and December 2016. The study deepens the dialogue on the role of the source of innovation and its advancement stage. It indicates a positive market reaction to high innovation advancement stage announcements in comparison to low advancement stage ones. Furthermore, it suggests a positive market reaction to in-house development in comparison to collaborative development and copying. Finally, the research signals that the innovation advancement stage complements its source by clarifying its relationship with abnormal market value changes.     

Index options open interest and stock market returns

This study finds that the growth of index options open interest has a significant relation with future stock market returns. We propose a theoretical model that considers hedgers and informed traders in the options market and suggests that hedgers fully utilize options according to their expectations of future stock returns. The empirical results show that the growth of out-of-the-money call options open interest is significantly related with future stock market returns. These findings provide supporting evidence for our theoretical model.     

Macroeconomic shocks and the co-movement of stock returns in Latin America

This paper studies the economic sources underlying the co-movement of real stock returns in Latin America. Following the literature on structural vector autoregressive models (SVARs), I use long-run restrictions to identify three structural shocks: demand, supply, and portfolio shocks. For some countries, portfolio shocks are important factors behind real stock returns. Furthermore, these shocks seem to be important in explaining cross-country co-movement patterns. However, these findings are not statistically strong due to the degree of uncertainty about the estimates of the importance of each structural shock and the cross-correlation coefficients. Therefore, macroeconomic shocks (supply and demand) cannot be neglected in accounting for the dynamics of real stock returns.     

Option-implied betas and the cross section of stock returns

We investigate the cross-sectional relationship between stock returns and a number of measures of option-implied beta. Using portfolio analysis, we show that the method proposed by Buss and Vilkov (2012, The Review of Financial Studies, 2525, 3113–3140) leads to a stronger relationship between implied beta and stock returns than other approaches. However, using the Fama and MacBeth (1973, Journal of Political Economy, 8181, 607–636) cross-section regression methodology, we show that the relationship is not robust to the inclusion of other firm characteristics. We further show that a similar result holds for implied downside beta. We, therefore, conclude that there is no robust relation between option-implied beta and returns.     

The impact of crisis events on the stock returns volatility of international airlines

This paper adopts the generalized autoregressive conditional heteroskedasticity model to examine the relationship between the weekly returns of shares of the international airlines in 1996–2010. It also incorporates major international crisis events and observes the influence of different aspects on the volatility of returns of company shares. Different events exhibit significantly different regional volatility impulses in the countries in which the airlines are located. The Asian financial crisis enhances the returns volatility effects of Asian airline companies. The global financial crisis significantly intervenes with the returns volatility of airline companies around the world. The results suggest that major international events may all have risk effects on the returns on the share prices of airlines.     

Show me the money: Option moneyness concentration and future stock returns

Informed traders often use options that are not in-the-money due to higher potential gains for a smaller upfront cost. Thus, trading activity by option moneyness should be a gauge of informed option trading. We construct a dollar volume-weighted average moneyness measure to capture option trading activity at different moneyness levels. Stock returns increase with this measure, suggesting more trading activity in options with higher leverage predicts future stock returns. Our results hold cross-sectionally and at the portfolio level yielding a Fama–French five-factor α of 12% per year for all stocks and 33% per year for high implied volatility stocks.     

A smiling bear in the equity options market and the cross-section of stock returns

We propose a measure for the convexity of an option-implied volatility curve, IV convexity, as a forward-looking measure of risk-neutral tail-risk contribution to the perceived variance of underlying equity returns. Using equity options data for individual US-listed stocks during 2000–2013, we find that the average realized return differential between the lowest and highest IV convexity quintile portfolios exceeds 1% per month, which is both economically and statistically significant on a risk-adjusted basis. Our empirical findings indicate the contribution of informed options trading to price discovery in terms of the realization of tail-risk aversion in the stock market.     

Understanding the antecedents of collateral learning in new product alliances

Recognizing that strategic alliances represent an important means for developing knowledge in critical arenas such as new product development, the authors advance the notion of collateral learning that assesses knowledge acquisition internal to a firm in the alliance. To examine its antecedents, the authors build on the behavioral theory of the firm and propose strategic importance and performance vulnerability as the motivational components and organizational similarity and alliance experience as the awareness components advocated in the theory. Results from 133 alliance firms suggest that both the motivational and awareness components are important in influencing collateral learning in new product alliances. Specifically, to develop collateral learning, firms should have extensive alliance experience and an acknowledged stake in their alliance partners. The results also support the theorized U-shaped relationship between organizational similarity of the alliance partners and collateral learning. Thus, collateral learning is facilitated when organizations are either similar or dissimilar, while medium levels of organizational similarity facilitate collateral learning to a relatively lower extent. Although performance vulnerability is found to be associated negatively with collateral learning, extensive alliance experience can attenuate this negative effect.     

Impacts of short-term interest rates on stock returns and exchange rates: Empirical evidence from EAGLE countries

In this study, we estimate Bayesian vector autoregression (BVAR) and time-varying structural VAR (TVP-VAR) models for Brazil, Indonesia, Mexico and Turkey to analyze the impacts of short-term interest rates on stock prices and exchange rates considering the relationships between these variables. BVAR and TVP-VAR models’ estimations indicate that monetary policy decisions of these countries lead to capital movements as well as capital movements may create a considerable amount of variation in exchange and stock markets both in the periods of economic stability and financial crisis. We also reveal that increases in interest rates intending to prevent capital outflows may lead to decrease in stock returns, which in turn may deteriorate the real economic activity in Indonesia, while changes in short-term interest rates in Brazil, Indonesia and Turkey cannot be used as a tool to stabilize the value of their home currencies against the USD. Our study highlights the importance of formulating an optimal monetary policy framework accompanied by macro-prudential polices, which help to reach inflation target and smooth the possible variations in exchange rates and stock prices during economic crisis conditions in Brazil, Indonesia, Mexico and Turkey.     

Jump variance risk: Evidence from option valuation and stock returns

We study jump variance risk by jointly examining both stock and option markets. We develop a GARCH option pricing model with jump variance dynamics and a nonmonotonic pricing kernel featuring jump variance risk premium. The model yields a closed-form option pricing formula and improves in fitting index options from 1996 to 2015. The model-implied jump variance risk premium has predictive power for future market returns. In the cross-section, heterogeneity in exposures to jump variance risk leads to a 6% difference in risk-adjusted returns annually.     

How information processing and mobile channel choice influence product returns: An empirical analysis

The mobile internet is starting to overtake the desktop device‐based internet as a purchase channel. Its impact on consumer behavior is therefore increasingly important to understand. This study seeks to understand and measure, if usage of mobile devices for online purchases leads to a lower decision quality and, in effect, to more product returns. In doing so, the impact of information environments on the end‐to‐end consumer purchase decision‐making process is better understood and it is investigated, if the information environment of mobile devices leads consumers to take more error‐prone purchase decisions. An exclusive data set spanning more than 140 million transactions of a European online retailer is used to empirically analyze changes in product return behavior after mobile channel adoption. The results show that mobile channel usage is positively related to product returns, overall and for both, purchases made with mobile devices and purchases made with desktop devices, although prior literature predicts that returns from desktop purchases should not increase. These findings suggest that through new channels, consumers’ information environment is altered sufficiently to affect their decision accuracy. Moreover, the results indicate that previous research may be overestimating the positive effect of mobile channel adoption on sales by disregarding changes in product return behavior.     

The role of networking alliances in information acquisition and its implications for new product performance

The premise of Austrian economics on entrepreneurial discovery suggests that mutual knowledge about market participants defines who will acquire potential information about opportunities to bring future products into existence. Building upon this argument, this research investigates the role of networking alliances in information acquisition and its lagged effect on the new product performance of the firm. By using a longitudinal analysis, the study shows that a firm improves its new product performance as it increases the number of repeated partners and its centrality position relative to others in the technology collaboration network.     

Machine learning and the cross-section of emerging market stock returns

This paper compares various machine learning models to predict the cross-section of emerging market stock returns. We document that allowing for non-linearities and interactions leads to economically and statistically superior out-of-sample returns compared to traditional linear models. Although we find that both linear and machine learning models show higher predictability for stocks associated with higher limits to arbitrage, we also show that this effect is less pronounced for non-linear models. Furthermore, significant net returns can be achieved when accounting for transaction costs, short-selling constraints, and limiting our investment universe to big stocks only.     

Oil jump risk

The risk premium associated with large upside jumps in oil market is a significant driver of the cross-section of stock returns from 1986 to 2014. In contrast to previous research, variance risk is priced only when we do not control for jumps. Upward jumps are priced in tight supply-demand conditions but not in more abundant supply periods. There is some evidence that downward jumps are priced in abundant supply conditions but not in tight conditions. Innovations in risk neutral jumps have predictive power for important economic indicators, including notably consumption growth. This helps explain the pricing of jump risks.     

New product preannouncements,advertising investments,and stock returns

This study examines the synergistic effects of advertising spending and new product preannouncements (NPPAs) on stock market responses. The empirical results indicate that returns of preannouncing firms over both the short- and long-term could be improved by an increase in advertising expenditure. Additionally, the results also show that the positive impacts of earnings and revenues can be enhanced, while the negative influence of trading costs can be reduced, for preannouncing firms with higher advertising expenditures. The holding returns of institutional investors can also increase with greater spending on advertising. Therefore, marketing communication strategies that aim to reduce information asymmetry within NPPAs, coupled with greater advertising expenditures, would yield more favorable investor responses.     

Abnormal trading volume and autoregressive behavior in weekly stock returns in the Saudi stock market

This paper examines the relationship between the abnormal change in trading volume of both individual stocks and portfolios and short-term price autoregressive behavior in the Saudi stock market (SSM). Our objective is to investigate the informational role that trading volume plays in predicting the direction of short-term returns. We evaluate whether the abnormal change in lagged, contemporaneous, and lead turnovers affects serial correlation in returns. Specifically, we examine if and when the change in volume produces momentum (positive correlation) or reversal (negative autocorrelation) in consecutive weekly stock returns.We find a reversal in weekly stock returns when conditioned on the change in lagged volume in the SSM. Our results are consistent for the whole sample, the two sub-sample periods, and the large- and small-firm portfolios. The results are consistent with Campbell, Grossman, and Wang [Campbell, J. Y., S. J. Grossman, and J. Wang, 1993, Trading volume and serial correlation in stock returns, Quarterly Journal of Economics, 108, 905–939], who present a model in which risk-averse market makers accommodate the selling pressure of liquidity or non-informational traders. We also find that reversal is more pronounced with the loser portfolio as specified by filter-based methodology. The overall result of this paper is also consistent with the empirical findings of Conrad, Hameed, and Niden [Conrad, J., A. Hameed, and C. Niden, 1994, Volume and autocovariances in short-horizon individual security returns, Journal of Finance 49, 1305–1329.] and Gebka [Gebka, B., 2005, Dynamic volume-return relationship: evidence from an emerging market, Applied Financial Economics, 15, 1019–1029] in which they report price reversal for stock with high trading volume.     

“Retail is detail! Give consumers a gift rather than a bundle”: Promotion framing and consumer product returns

Retailers often use the promotion strategy of offering supplementary products (e.g., free gift, bundle) to attract consumers and increase sales. Despite the growing literature on the promotions that are differently framed but offer economically identical values, little research has examined the link between promotion framing and consumer product returns. The current article sheds light on this relationship, hypothesizing that a free gift promotion would be superior to a bundle promotion in reducing consumer product returns. The findings suggest that a gift‐framed promotion leads to a lower product return intention than an economically equivalent bundle promotion, because consumers tend to perceive more loss from giving up the gift‐framed (vs. bundle‐framed) deal. Further, this study examines a moderating role of brand familiarity (familiar vs. unfamiliar) and shows that the merits of free gift framing on product return intention via perceived loss are amplified (attenuated) when the promoted brand is familiar (unfamiliar). Overall, the investigations of this study imply that it is better to frame a promotion as a “free gift” than a “bundle” to increase perceived loss in returning the purchase and thus to decrease consumer product returns. This strategic intervention works especially when the gift is offered by familiar brands.     

Evidence on the dynamic relationship between international trade and the stock market

This study uses vector autoregressive analysis to examine the dynamic interactions of monthly real stock returns, return volatility, exchange rates, export growth and import growth for Hong Kong, Korea, Singapore, and Taiwan for the period 1975–91. We find that exports and imports have significant interactions. The results also indicate that stock returns in Hong Kong and Singapore Granger-cause trade flows. Return volatility is found to react strongly to trade news in all four countries, a result supporting the efficient-market hypothesis.