Sparse Signals in the Cross‐Section of Returns

This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling one‐minute‐ahead return forecasts using the entire cross‐section of lagged returns as candidate predictors. The LASSO increases both out‐of‐sample fit and forecast‐implied Sharpe ratios. This out‐of‐sample success comes from identifying predictors that are unexpected, short‐lived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.     

Tax-Induced Intra-Year Patterns in Bonds Yields

The ratio of the yields on short-term tax-exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax-exempt bonds may benefit from tax-related timing strategies for investing in these bonds. Issuers may benefit from tax-related timing strategies for scheduling interest payments.     

Estimating the Divisional Cost of Capital: An Analysis of the Pure-Play Technique

This paper suggests that the pure-play technique can be used in conjunction with the capital asset pricing model to determine the cost of equity capital for the divisions of a multidivision firm. Since the beta for a division is unobservable in the marketplace, a proxy beta derived from a publicly traded firm whose operations are as similar as possible to the division in question is used as the measure of the division's systematic risk. To provide empirical support for using the pure-play technique, a sample of multidivision firms and pure-play associated with each division is examined. It is shown that an appropriately weighted average of the betas of the pure-play firms closely approximates the beta of the multidivision firm.     

Sports Sentiment and Stock Returns

This paper investigates the stock market reaction to sudden changes in investor mood. Motivated by psychological evidence of a strong link between soccer outcomes and mood, we use international soccer results as our primary mood variable. We find a significant market decline after soccer losses. For example, a loss in the World Cup elimination stage leads to a next‐day abnormal stock return of ?49 basis points. This loss effect is stronger in small stocks and in more important games, and is robust to methodological changes. We also document a loss effect after international cricket, rugby, and basketball games.     

Analysis of the 1980 Sydney Survey of Work Patterns of Married Women: Further Results*

Using cross-section data from the 1980 Sydney survey of the work patterns of married women, this paper contributes to the very scarce Australian stock of disaggregate econometric studies of the labour market activities of married women. Labour force participation, hours of work and wage functions (reservation wage as well as market wage) are estimated in a second-generation static labour supply framework. Unique features of the study include the availability of direct data on previous market experience, a formulation of the impact of children on the participation decision which permits testing for the presence of economies of scale in child-minding activities, estimation of the reservation wage function, and a data base which permits a clear distinction between earnings and other forms of income.