Does the Stock Market Overreact to Corporate Earnings Information?

This paper tests whether the stock market overreacts to extreme earnings, by examining firms' stock returns over the 36 months subsequent to extreme earnings years. While the poorest earners do outperform the best earners, the poorest earners are also significantly smaller than the best earners. When poor earners are matched with good earners of equal size, there is little evidence of differential performance. This suggests that size, and not investor overreaction to earnings, is responsible for the “overreaction” phenomenon, the tendency for prior period losers to outperform prior period winners in the subsequent period.     

Original Issue High Yield Bonds: Aging Analyses of Defaults,Exchanges, and Calls

This paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979–1983 and from 3 to 9 percent for issue years 1984–1986. Exchanges are also a significant factor although they often are followed by default. Moreover, a significant percentage of high yield debt, 26–47 percent for 1977–1982, has been called. By December 31, 1988, approximately one third of the bonds issued in 1977–1982 has defaulted or been exchanged, and an additional one third had been called. On average, only 28 percent of these issues are still outstanding. There is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982.     

Disagreement and the Cost of Capital

We assess how forms of disagreement among investors affect a firm's cost of capital. Firms experience a lower cost of capital if investors perceive that other investors are ignoring relevant disclosures (perceived errors of omission), but a higher cost of capital if investors perceive that others are responding to irrelevant disclosures (perceived errors of commission). The impact of these two sources of disagreement on the cost of capital is determined by the distribution of opinion and the nature of disclosure. For example, even though aggregated disclosures reveal less to investors, aggregated disclosures may decrease the cost of capital by eliminating disagreement associated with perceived errors of commission. These and additional results arise because the cost of capital is driven not only by investors’ uncertainty about the firm's future earnings performance, but also by investors’ uncertainty about the evolution of beliefs, which partly determines the path of prices.     

Trading Costs and Exchange Delisting: The Case of Firms that Voluntarily Move from the American Stock Exchange to the Nasdaq

We examine 47 stocks that voluntarily left the American Stock Exchange from 1992 through 1995 and listed on the Nasdaq. We find that both effective and quoted spreads increase by about 100 percent after listing on the Nasdaq. These spread changes are consistent across stocks. In contrast, excess returns are positive when firms announce a switch from The American Stock Exchange to the Nasdaq. We are unable to explain this apparent contradiction.     

How Much Investment Choice is Enough for Members?

In recent years Australians have been given increased responsibility in making investment strategy decisions for their superannuation contributions. The investment choices superannuation funds typically offer include ready-made options with a strategic asset allocation or a "do-it-yourself option where the members choose their own asset allocation. This paper examines a sample of choices by members of a large industry fund which allows members any combination of six ready-made pools and eight asset classes. About one-quarter of these decisions involve choices which suggest a possibly naïve view of diversification unless members are conscious of resulting asset allocations.     

Measuring the national wealth in seventeenth-century England

This article discusses William Petty's 1665 estimate of the wealth of England and Wales—the first set of national accounts—and compares it with Gregory King's (1696), which is shown to be heavily influenced by it. There are conclusions about the methodology of the first political arithmeticians, the kinds of national resources which could be measured for the first time in the seventeenth century, and the lacunae which made it likely that Petty and King underestimated per caput and aggregate incomes. An appendix prints a contemporary analysis of hearth tax returns for every county.