Disentangling the Dividend Information in Splits: A Decomposition Using Conditional Event-Study Methods

While folklore in finance holds that split valuation effectsare due to dividend increases associated with splits, littleis known about magnitudes of dividend and nondividend componentsof split announcement effects. We find that splits and dividendsare indeed informational substitutes, a notion we characterizemore precisely, but a significant portion of split valuationeffects, 46% according to our estimates, cannot be attributedto dividend information in splits. Our techniques extend theliterature on conditional event-study methods and we illustratetheir practical value in testing hypotheses and analyzing datanot amenable to analysis by standard procedures.     

A Personal Agenda for the Next Decade

The paper sets a broad agenda touching several areas of policy. It starts from the least likely policy at this point of time, the use of the tax system for redistribution. It discusses prudent macroeconomic coordination without the strings of the Maastricht Treaty in business troughs. Regulation of financial markets, agricultural policies, and health issues are coming up on a desirable agenda of the United States, but are probably important for all countries, as are social security policy and climate change.     

Economic Growth and Productivity Gains from Capital Inflow: A Rejoinder

Journal of Quantitative Economics -     

Uncertainty Associated with Future Environmental Costs and the Market's Differential Response to Earnings Information

This study examines whether the uncertainty arising from a firm's exposure to future environmental costs (environmental uncertainty) affects the market's price sensitivity to reported earnings. Specifically, when environmental uncertainty is significantly high, are investors more responsive to reported earnings released by 'high-polluting' firms than reported earnings announced by 'low-polluting' firms within the same industry? The initial impact of Title IV (the acid rain provisions) of the 1990 Clean Air Act Amendments (1990 CAAA) on the US electric utility industry provides the research setting required to isolate the effects of environmental uncertainty while addressing this question. Consistent with theoretical predictions, we find that the earnings response coefficients (ERCs) of high-polluting electric utilities are significantly greater than those of their low-polluting counterparts during a predicted period of elevated environmental uncertainty. In adjoining sample years associated with lower environmental uncertainty, we observe no statistical difference in the magnitude of the ERCs between these two groups. In addition, the study's findings suggest that the magnitude of the ERC is increasing in the firm's exposure to future environmental costs, after controlling for other factors that potentially affect ERCs.     

Option-Implied Risk Aversion Estimates

Using a utility function to adjust the risk‐neutral PDF embedded in cross sections of options, we obtain measures of the risk aversion implied in option prices. Using FTSE 100 and S&P 500 options, and both power and exponential‐utility functions, we estimate the representative agent's relative risk aversion (RRA) at different horizons. The estimated coefficients of RRA are all reasonable. The RRA estimates are remarkably consistent across utility functions and across markets for given horizons. The degree of RRA declines broadly with the forecast horizon and is lower during periods of high market volatility.     

Separating microstructure noise from volatility

There are two variance components embedded in the returns constructed using high frequency asset prices: the time-varying variance of the unobservable efficient returns that would prevail in a frictionless economy and the variance of the equally unobservable microstructure noise. Using sample moments of high frequency return data recorded at different frequencies, we provide a simple and robust technique to identify both variance components.     

Are the Best Small Companies the Best Investments?

Previous research finds that large companies previously judged to be excellent growth companies have subsequently been poor investments. We examine small companies selected by Business Week on the basis of multiple criteria used in annual articles featuring highly rated growth companies. We study the investment performance over the three years before eleven annual Business Week publications and the three years after publication. We find positive excess returns in the pre‐publication period, but negative excess returns in the post‐publication period. This reversal in investment performance appears to be due to a mean‐reversion tendency in operating performance, in which the earnings and the past rates of return on capital of such companies subsequently decrease significantly.