Factors Associated with Differences in the Magnitude of Abnormal Returns Around NYSE Versus Nasdaq Firms' Earnings Announcements

This study provides an explanation for the 'exchange effect' puzzle documented in prior accounting research. Grant (1980) finds that the magnitude of earnings announcement week abnormal returns is higher, on average, for firms traded over-the-counter than for NYSE firms. Atiase (1987) shows that this incremental 'exchange effect' persists even after controlling for firm size. We investigate potential explanations for this incremental exchange effect. We first show that even after controlling for differences in firm size, Nasdaq firms have less rich information environments and enjoy greater growth opportunities than NYSE firms. We then investigate whether differential predisclosure information environments and/or growth opportunities can explain the incremental exchange effect. The results indicate that although the absolute magnitude of the earnings announcement-related abnormal returns is inversely related to proxies for the amount of predisclosure information, the incremental exchange effect cannot be explained by differences in the predisclosure information environment. In contrast, after controlling for differences in growth opportunities across NYSE versus Nasdaq firms, and investors' heightened sensitivity to Nasdaq firms' growth opportunities in particular, there is no significant incremental exchange effect (whether or not we control for predisclosure information). These results suggest that the incremental exchange effect puzzle documented in prior research is more likely to reflect growth-related phenomena than differences in the predisclosure information environment.     

Misspecification of capital asset pricing: Empirical anomalies based on earnings' yields and market values

This study documents empirical anomalies which suggest that either the simple one-period capital asset pricing model (CAPM) is misspecified or that capital markets are inefficient. In particular, portfolios based on firm size or earnings/price (E/P) ratios experience average returns systematically different from those predicted by the CAPM. Furthermore, the ‘abnormal’ returns persist for at least two years. This persistence reduces the likelihood that these results are being generated by a market inefficiency. Rather, the evidence seems to indicate that the equilibrium pricing model is misspecified. However, the data also reveals that an E/P effect does not emerge after returns are controlled for the firm size effect; the firm size effect largely subsumes the E/P effect. Thus, while the E/P anomaly and value anomaly exist when each variable is considered separately, the two anomalies seem to be related to the same set of missing factors, and these factors appear to be more closely associated with firm size than E/P ratios.     

Noisy information and the size effect in stock returns

Noisy information (i.e., informative signals) can affect the likelihood of observing a size effect in realized stock returns. In a one period model with two firms, the observed firm sizes at date 0 can deviate from the true firm sizes that are revealed at date 1. Noisy information gets embedded in stock prices and can make the true big firm appear to be small and vice versa. Using NYSE size deciles from 1926 to 2011, the ratio of the 90th percentile size breakpoint to the 10th percentile size breakpoint is about 66 on average. If the true big firm in our model is 66 times bigger than the true small firm, there is about a 7.8 % chance that the observed size of the true big firm will be smaller than that of the true small firm. Since the true sizes are revealed at date 1, there is about a 7.8 % chance that the observed small firm migrates to the big category. Conditional on no migration, the observed big firm has the higher equilibrium expected return. However, conditional on migration, the observed small firm has the higher expected return, which is consistent with the empirical results in Fama and French (Financ Anal J 63:48–58, 2007).     

The relationship between return and market value of common stocks

This study examines the empirical relationship between the return and the total market value of NYSE common stocks. It is found that smaller firms have had higher risk adjusted returns, on average, than larger firms. This ‘size effect’ has been in existence for at least forty years and is evidence that the capital asset pricing model is misspecified. The size effect is not linear in the market value; the main effect occurs for very small firms while there is little difference in return between average sized and large firms. It is not known whether size per se is responsible for the effect or whether size is just a proxy for one or more true unknown factors correlated with size.     

Industry Concentration,Firm Efficiency and Average Stock Returns: Evidence from Australia

This study examines the relationship between industry concentration and level of firm efficiency and their effect on cross-sectional stock returns in Australian market. Our analysis shows that industry concentration and firm efficiency have independent effects on stock returns. By forming 25 double-sorted portfolios based on industry concentration and firm efficiency, INEFFICIENT firms in concentrated industry earn highest stock returns, while EFFICIENT firms in concentrated industry earn lowest stock returns. Also we find that industry concentration appears to be associated with market share while efficiency has a greater effect on firm earnings. In our cross-sectional regressions, industry concentration shows a positive relationship with average stock returns while firm efficiency shows a negative association with average stock returns. The concentration and efficiency effects are persistent throughout the sample period and is robust after controlling for size and book-to-market.     

Are small firms less vulnerable to overpriced stock offers?

We show an inverted-U relation between targetiveness (probability of being targeted) and firm size. However, this pattern describes stock offers and is more pronounced during hot markets characterized by higher stock valuations. For cash offers we find a negative and monotonic relation. These contrasting patterns suggest that small firms (in the bottom NYSE size quartile) are less vulnerable to overpriced stock offers. In addition, we find that the stock acquirers of small targets are less overvalued than those of large targets, and that the announcement returns are less negative for stock acquirers of small targets than for those of large targets.     

Volatility increases Subsequent to NYSE and AMEX Stock Splits

The post-split increase in daily returns volatility is less for AMEX stocks than for NYSE stocks. The exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered. Furthermore, when measured on a weekly basis, there is no increase in AMEX stocks' returns volatility. These results suggest that measurement errors created by bid-ask spreads and the 1/8 effect, and also one or more of the elements that make the NYSE different from the AMEX, explain why the estimated volatility of daily stock returns increases after the ex split date.     

Size-related anomalies and stock return seasonality: Further empirical evidence

This study examines, month-by-month, the empirical relation between abnormal returns and market value of NYSE and AMEX common stocks. Evidence is provided that daily abnormal return distributions in January have large means relative to the remaining eleven months, and that the relation between abnormal returns and size is always negative and more pronounced in January than in any other month — even in years when, on average, large firms earn larger risk-adjusted returns than small firms. In particular, nearly fifty percent of the average magnitude of the ‘size effect’ over the period 1963–1979 is due to January abnormal returns. Further, more than fifty percent of the January premium is attributable to large abnormal returns during the first week of trading in the year, particularly on the first trading day.     

New evidence on oil price and firm returns

In this paper, we examine the relationship between oil price and firm returns for 560 US firms listed on the NYSE. First, we find that oil price affects returns of firms differently depending on their sectoral location. Second, we find strong evidence of lagged effect of oil price on firm returns. Third, we test whether oil price affects firm returns based on different regimes and find that in five out of the 14 sectors this is indeed the case. Finally, we unravel that oil price affects firm returns differently based on firm size, implying strong evidence of size effects.     

The Relation Between Common Stock Returns Trading Activity and Market Value

This study examines the relation between common stock returns, trading activity and market value. Our results indicate that although firm size and trading activity are highly correlated, differences in trading activity are not the underlying reason for the firm size anomaly, the finding of systematic differences in risk adjusted returns across stocks of firms of different size.     

The Return of the Size Anomaly: Evidence from the German Stock Market

This paper examines the size effect in the German stock market and intends to address several unanswered issues on this widely known anomaly. Unlike recent evidence of a reversal of the size anomaly this study documents a conditional relation between size and returns. I also detect strong momentum across size portfolios. The results indicate that the marginal effect of firm size on stock returns is conditional on the firm's past performance. I use an instrumental variable estimation to address Berk's critique of a simultaneity bias in prior studies on the small firm effect and to investigate the economic rationale behind firm size as an explanatory variable for the variation in stock returns. The analysis in this paper indicates that firm size captures firm characteristic components in stock returns and that this regularity cannot be explained by differences in systematic risk.     

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.     

Target Firm Returns: Does the Form of Payment Affect Abnormal Returns?

Research indicates that at the time of a takeover announcement, target firm shareholders receiving cash earn larger abnormal returns than those receiving stock. Our work confirms that cash targets receive larger direct payments from bidders and that the size of target firm abnormal returns is related to the relative size of this direct payment. Once we control for the size of the payment, however, we find the target firm abnormal returns to be unrelated to the payment method. Thus the relationship between payment method and target firm abnormal returns is indirect. This finding is important because it casts doubt on the signaling (asymmetric information) hypothesis. That is, cash offers do not seem to be valued by the market as a means of reducing this uncertainty. Something else, such as the tax implication differences between cash and stock offers, drives cash target firms to demand larger payments from bidding firms.     

The moderating role of board gender diversity on the relationship between firm opacity and stock returns

In this study, we examine the impact of board gender diversity on the association between firm opacity and stock price crash. We utilize the negative shock of the 2007–2008 financial crisis to capital markets to examine whether firms with gender-diverse boards witnessed lower stock price crashes due to their lower opacity ex ante. Using a sample of S&P 1500 firms spanning the period 2005–2008, we employ a difference-in-differences research design and find that firms with high opacity ex ante witness more negative returns ex post. We also find that gender-diverse firms ex ante witness less negative returns ex post. Finally, our analysis reveals the moderating role that board gender diversity plays in the association between firm opacity and stock returns around the financial crisis. We subject our results to a range of robustness checks, including instrumental variable regressions, matched-sample analyses, and a set of falsification and placebo tests. Overall, we provide evidence that board gender diversity is associated with increased transparency in financial reporting, which pays off in times of crisis.     

公司规模与股票收益率关系的实证研究

本文通过对1994-2004年中国所有上市公司的流通股规模、总市值规模与股票收益率的关系运用截面回归的方法进行实证研究，发现无论上市公司的流通股规模还是总市值规模都与股票的收益率呈负相关关系，而且在剔除风险因素以后，公司规模仍然与异常收益率呈负相关关系，且具有统计上的显著性。中国股市存在小公司效应。这说明中国股票市场不是半强有效的。     

DUTCH AUCTION VERSUS FIXED-PRICE SELF-TENDER OFFERS: DO FIRMS OVERPAY IN FIXED-PRICE OFFERS?

We investigate differences in purchase premiums and returns of common stock the day following the offer expiration of firms conducting Dutch auction self-tender offers versus those conducting fixed-price self-tender offers to see whether firms overpay for shares in fixed-price offers. After controlling for the proportion of shares sought and firm size, no statistically significant differences in premiums or returns are found between the two types of offers.     

Is There a Size Effect in the Pricing of Stocks in the Chinese Stock Markets?: The Case of Bull Versus Bear Markets

Size effect studies generally suggest that a return premium exists for small firms. While the size effect has mostly disappeared in recent years in mature markets (e.g., US and UK), it remains mostly strong in developing markets. The purpose of this paper is to examine the relationship between firm size and excess stock returns in the Chinese stock markets, and to examine this effect in both a bull and bear market. No studies have previously examined these relationships in the Chinese markets. The results of the study indicate that a size effect exists in the Chinese stock markets over the 6-year period from 1998 to 2003. We find small firms have significantly greater excess returns than large firms. Moreover, small firms are found to have a stronger reaction to the direction of the market than large firms. Small firms have significantly greater positive excess returns than large firms during the bull market. However, small firms have significantly greater negative returns (using total market value), or no significant difference in returns (using float market value) during the bear market period.     

UNLISTED TRADING PRIVILEGES,LIQUIDITY, AND STOCK RETURNS

In this study we examine the effect of dual trading through unlisted trading privileges (UTPs) on liquidity and stock returns. Stocks with UTPs trade in a different market structure than stocks listed and traded only on the AMEX and NYSE. Differences in market structure may affect stock returns through liquidity services provided by the competing markets. The sample comprises 852 AMEX and NYSE firms that began unlisted trading on the Philadelphia, Pacific, Midwest, or Cincinnati exchanges between 1984 and 1988. The results show significantly positive abnormal returns around the SEC's announcement of a regional exchange's filing for UTPs. The results also suggest that increased competition improves trading liquidity. Only stocks with low liquidity before UTPs announcements experience significantly improved liquidity and positive stock returns.     

Returns to scale and asset prices

The q‐theory of investment is proposed to explain firm growth effects, where previous papers identify a negative effect of firm growth, including asset growth, real investment and net share issuance, on future stock returns. This paper uses returns to scale from the production function to test the dynamic q‐theory, which predicts that the firm growth effect is theoretically weaker for firms with decreasing returns to scale (DRS) than for non‐DRS firms. Our empirical results generally support the prediction of dynamic q‐theory. However, we find that the dynamic q‐theory explains little of the value, momentum and ROE effects from the standpoint of returns to scale.     

Liquidity and expected returns—Evidence from 1926–2008

This paper re-examines the liquidity effect on stock expected returns in the NYSE over the period 1926–2008, the pre-1963 period, for which there is a lack of research, and the post-1963 period. The results from the entire sample of 1926–2008 show that expected returns increase with the stock level illiquidity. However, illiquidity level has explanatory power in the cross-sectional variation of stock expected returns only over the post-1963 period, and is, both economically and statistically, insignificant for the whole sample and the pre-1963 period. These findings are robust after taking into account various characteristics such as size and risk controls. On the other hand, evidence from the entire sample and the pre-1963 sample suggests that the systematic liquidity risk plays a significant role in the cross-sectional variation of stock expected returns. The different result for the pre- and post-1963 is explained by the portfolio shifts occurred during the economic downturns.