Empirical Analyses of Three Explanations for the Positive Autocorrelation of Short-Horizon Stock Index Returns

This paper provides empirical analyses of three explanations for the observed positive autocorrelation of short-horizon stock index returns, using NYSE/AMEX and NASDAQ data. Results indicate that index autocorrelation cannot be substantially explained by either autocorrelated, time-varying expected returns, or nonsynchronous trading. The third explanation for index autocorrelation, the nonsynchronous information transfer hypothesis, states that stocks incorporate market-wide information on a nonsynchronous basis due to information and transaction costs. Evidence from analyses of mean returns on various portfolios following large returns on the S 500 futures contract, as well as regressions of portfolio returns on current and lagged futures returns, support this explanation. Small (large) firms collectively require approximately 7 (1-2) weeks to fully incorporate new market information on average, and this delayed impoundment accounts for the bulk of the observed autocorrelation.     

Efficient Signalling with Dividends,Investment, and Stock Repurchases

The efficient mix of dissipative dividends, investments in real and financial assets, and repurchases of stock is computed for a continuum of firms with inside information about the return on risky real assets. In the efficient signalling equilibrium, the representative firm optimally distributes dividends, invests in risky real assets to maximize net present value, holds no financial securities, and sells new stock in the market. This firm finances its value-maximizing investment first from internal funds and second from stock sold to new investors.     

Competition in the Audit Market: Policy Implications

The audit market's unique combination of features—its role in capital market transparency, mandated demand, and concentrated supply—means it receives considerable attention from policy makers. We explore the effects of two market scenarios that have been the focus of policy discussions: mandatory audit firm rotation and further supply concentration due to the exit of a “Big 4” audit firm. To do so, we first estimate publicly traded firms' demand for auditing services, allowing the services provided by each of the Big 4 to be differentiated products. We then use those estimates to calculate how each scenario would affect client firms' consumer surplus. We estimate that, for U.S. publicly trade firms, mandatory audit firm rotation would induce consumer surplus losses of approximately $2.7 billion if rotation were required after 10 years and $4.7–5.0 billion if after only four years. We find similarly that exit by one of the Big 4 would reduce client firms' surplus by $1.4–1.8 billion. These estimates reflect only the value of firms' lost options to hire the exiting audit firm; they do not include likely fee increases resulting from less competition among audit firms. The latter could result in audit fee increases between $0.75–1.3 billion per year for mandatory rotation and $0.47–0.58 billion per year for the disappearance of a Big 4 audit firm. Such losses are substantial; by comparison, total audit fees for public firms were $11 billion in 2010.     

How Powerful Is Unannounced,Sterilized Foreign Exchange Intervention?

Though most central banks actively intervene on the foreign exchange market, the literature offers mixed evidence on their effectiveness: particularly for unannounced interventions. We use new, declassified data from the archives of the Bank of England and the institutional features of the Bretton Woods Era to estimate the effects of intervention on the exchange rate. We find that a purchase of pounds equivalent to 1% of the money supply causes a statistically significant, 4–5 basis point appreciation in the pound.     

Do Jobseekers Value Diversity Information? Evidence from a Field Experiment and Human Capital Disclosures

We examine how information about the diversity of a potential employer's workforce affects individuals’ job-seeking behavior. We embed a field experiment in job recommendation emails from a leading career advice agency in the United States. The experimental treatment involves highlighting a diversity metric to jobseekers. Our results indicate that disclosing diversity scores in job postings leads jobseekers to click on firms with higher diversity scores, with such effects varying across jobseeker demographics. A follow-up survey provides evidence on potential explanations for why jobseekers value diversity information. We then examine how jobseekers’ preferences for diversity relate to disclosure choices under the U.S. SEC Human Capital Disclosure requirement. We find that firms in industries characterized by higher jobseeker responsiveness to diversity information tend to voluntarily disclose diversity metrics in their 10-Ks under these new disclosure requirements.