Quantity Surcharges on Groceries

A quantity surcharge exists when the unit cost of a given brand is higher for a large package than for a small one. This paper examines some product and household characteristics that influence observed quantity surcharging practices. Results indicate that the propensity to buy a large package of a product is positively influenced by the extent of a household's usage of that product, procurement cost, and carrying capacity and is negatively influenced by the propensity to price search. A retailer's decision to levy a quantity surcharge is, in turn, influenced by demand for the product, the propensity to buy large packages, and to some extent the product's carrying cost.     

Relative Pricing of Eurodollar Futures and Forward Contracts

Past research explains observed spreads between futures and forward Eurodollar yields as being due to the futures contract's mark-to-market feature. We derive closed form solutions for this yield spread and show that, theoretically, it should be small. Also, differences in liquidity, taxation, and default risk cannot account for the large spreads observed. We also present evidence that the spreads, which are nonnegligible primarily in the first half of the sample period, are likely to be attributable to the mispricing of futures contracts relative to the forward rates and that the mispricing was gradually eliminated over time.     

Seasonality in Stock Price Mean Reversion: Evidence from the U.S. and the U.K.

The evidence of slowly mean-reverting components in stock prices has been controversial. The hypothesis of stock price mean-reversion is tested using a regression model that yields the highest asymptotic power among a class of regression tests. Although the evidence that the equally weighted index of stocks exhibits mean-reversion is significant in the period 1926–1988, this phenomenon is entirely concentrated in January. In the post-war period both the equally weighted and the value-weighted indices exhibit seasonal mean-reversion in January. A similar phenomenon is also observed for the equally weighted index of stocks traded on the London Stock Exchange.     

Treasury Auction Bids and the Salomon Squeeze

Recent press accounts claim that collusion is common practice in Treasury auctions and that as a result the auction profits are excessive. But, this paper finds that the auction prices are on average marginally higher than the secondary market bid prices. The auction profits, however, are systematically related to the total fraction of winning bids tendered by banks and dealers. The postauction prices of the two-year notes in which Salomon Brothers had a 94 percent holding are also examined. The secondary market prices of these notes were significantly higher than the estimated competitive prices in the four-week postissue period.     

Evidence of Predictable Behavior of Security Returns

This paper presents new empirical evidence of predictability of individual stock returns. The negative first-order serial correlation in monthly stock returns is highly significant. Furthermore, significant positive serial correlation is found at longer lags, and the twelve-month serial correlation is particularly strong. Using the observed systematic behavior of stock returns, one-step-ahead return forecasts are made and ten portfolios are formed from the forecasts. The difference between the abnormal returns on the extreme decile portfolios over the period 1934–1987 is 2.49 percent per month.     

Momentum Strategies

We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book–to–market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.     

Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3-to 12-month holding periods. We find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented.