how do u s stock returns respond differently to oil price shocks pre crisis within the financial crisis and post crisis abstract we use a long time series of daily data for 682 firms over a period from january 1990 to december 2012 each firm includes 5 772 daily observations our sample involves a total of 3 936 504 observations to investigate how u s stock returns respond differently to oil price shocks prior to during and after a financial crisis we provide evidence that u s stock returns in turn respond positively to the changes in oil prices during and after such a crisis we use firm level data to find that positive and negative oil price shocks have asymmetric effects on stock returns during the crisis and after the crisis then we examine whether the effect of an oil price shock on stock returns varies across oil intensive industries within the crisis and post crisis our results indicate that stock returns in response to oil price shocks across industries are heterogeneous and the stock returns of some energy intensive manufacturing industries respond more positively to oil price shocks compared with less energy intensive manufacturing industries we use total assets total revenue and the number of employees as proxy variables to measure each firm s size and then examine whether oil price shocks affect stock returns differently across firm sizes we find that big firms are the most strongly and negatively influenced by an oil price shock prior to the crisis on the other hand our results indicate that an oil price shock in the post financial crisis period is positively amplified in the case of medium sized firms

does oil move equity prices a global view many studies indicate that oil price shocks have an adverse effect on real output and hence an adverse effect on corporate profits where oil is used as a key input the present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns to this end we analyse 35 datastream global industry indices for the period from april 1983 to september 2005 our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining and oil and gas industries generally these results are consistent with economic theory and evidence provided by previous empirical studies little evidence of any asymmetry is detected in the oil price sensitivities in light of our findings we recommend that international portfolio investors consider hedging oil price risk

return autocorrelation and institutional investors abstract we propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns our results demonstrate that nyse particles and individual security daily return autocorrelationsare an increasing function of the level of institutional ownership moreover the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment the relation between autocorrelation and institutional holdings does not however apparent to be driven by market frictions or rational time varying required rates of return we conclude that institutional investors correlated trading patterns contribute to axial correlation in daily returns

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade

the information content of institutional trades on the london stock exchange we construct a unique data set that includes all reported institutional block trades on the london stock exchange and analyze the market reaction to buy and sell trades we find that the type of investors behind the trade and the combination of the trade s size and the trader s resulting level of ownership are the major determinants of the information effects and the asymmetry between price impacts of buy and sell trades in particular large trades undertaken by fund managers the most active investors in our sample have strong information content while for the remaining trades we report limited support for the information and the price impact asymmetry hypotheses these results hold even after accounting for trade complexity and volatility effects in the regressions

seasonality in dynamic regression models this paper examines the implications of treating seasonality as an unobserved component which changes slowly over time this approach simplifies the specification of dynamic relationships by separating non seasonal from seasonal factors we illustrate this approach using the consumption model of davidson et al 1978 and estimate a stable error correction model between consumption income and prices over the period 1958 92 more generally we argue that autoregressive models are unlikely to successfully model slowly changing seasonality and may confound seasonal effects with the dynamic responses of prime interest our approach can be used in a wide range of cases and we show that there is little loss in efficiency even if seasonality is deterministic

momentum investment strategies portfolio performance and herding a study of mutual fund behavior this study analyzes the extent to which mutual funds purchase stocks based on their past returns as well as their tendency to exhibit herding behavior i e buying and selling the same stocks at the same time the authors find that 77 percent of the mutual funds were momentum investors buying stocks that were past winners however most did not systematically sell past losers on average funds that invested on momentum realized significantly better performance than other funds the authors also find relatively weak evidence that funds tended to buy and sell the same stocks at the same time copyright 1995 by american economic association

up close and personal investor sophistication and the disposition effect this paper analyzes the trading records of a major discount brokerage house to investigate the disposition effect the tendency to sell stocks that have appreciated in price winners sooner than stocks that trade below the purchase price losers in contrast to previous research that has demonstrated the disposition effect by aggregating across investors our main objective is to identify differences in the disposition bias across individuals and explain this in terms of underlying investor characteristics building on the findings in experimental economics and social psychology we hypothesize that differences in investor literacy about financial markets and trading frequency are responsible in part for the variation in individual disposition effect using demographic and socioeconomic variables as proxies for investor literacy we find empirical evidence that wealthier individuals and individuals employed in professional occupations exhibit a lower disposition effect consistent with experimental economics trading frequency also tends to reduce the disposition effect we provide guidelines for investment advisors regulators and investment communities to utilize our findings and help investors make better decisions

the uk consumption boom of the late 1980s aggregate implications of microeconomic evidence two competing explanations of the uk consumer boom in the late 1980s are the financial liberalisation imperfect housing market hypothesis of muellbauer and murphy and the expectations hypothesis of king we use 15 years of family expenditure surveys and cohort analysis to investigate to what extent these two hypotheses agree with observed changes in consumption patterns we find that the housing markets explanation accounts for much of the increase by older cohorts but cannot be reconciled with the marked rise in expenditure levels of younger households a simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data

asset prices and trading volume in a beauty contest speculators buy an asset hoping to sell it later to investors with higher private valuations if agents are uncertain about the distribution of private valuations and about the beliefs of others about this distribution a beauty contest with an infinite hierarchy of beliefs arises under harsanyi s assumption of a common prior the infinite beliefs hierarchy is readily solved using bayes law this paper shows that common knowledge of the beliefs formation rule mapping the private valuation of each agent into his first order belief also simplifies the beliefs hierarchy while allowing for disagreement among agents we analyse the resulting speculation in a stylized asset market several statistics computed only from readily observable quote return and volume data are evaluated in terms of their power to discriminate between genuine disagreement and the harsanyian case only statistics that relate volume and volatility or volume and changes in best offers have the necessary discriminatory power

oil shock and economic growth in japan a nonlinear approach abstract this paper investigates the relationship between oil price shock and economic growth on the basis of the nonlinear approach developed by hamilton hamilton j 2001 a parametric approach to flexible nonlinear inference econometrica 537 573 we use the approach also in hamilton hamilton j 2003 what is an oil shock journal of econometrics 363 398 of capturing this relationship in japan in a nonlinear model the idea is that negative oil price shocks price increase tend to have larger impact on growth than positive shocks do our empirical evidence confirmed the existence of nonlinearity between these two variables and a flexible nonlinear model is estimated additionally several other form of nonlinearity are estimated and tested

reinterpreting the dhsy 1978 consumption function with hindsight the justification for davidson hendry srba and yeo s dhsy s selection of their favoured equation is shown to be based upon contradicting assumptions about inflation the empirically supported model is argued not to have a theoretically justified error correction interpretation the exclusion of the intercept biases the error correction term such that it becomes significant and negative but undermines the theoretical plausibility of the long run target more generally the statistical need to include an intercept in any regression to avoid parameter bias is demonstrated the rise in inflation in the 1970s is not considered to be a credible explanation of the fall in the average propensity to consume apc from the 1950s and is shown to have questionable empirical support when a below unit income elasticity is allowed for the recent articles which have found support for dhsy s favoured formulation augmented by time varying parameters using the most contemporary uk data should be viewed with caution new interpretations for the dhsy model s persistent success are called for if it is not to be considered that dubious regressions have been resurrected

do individual short sellers make money evidence from korea abstract we use a proprietary trade and account level dataset of short sales to investigate the profitability of individual investors short selling in the korean stock market from august 1 2007 to may 31 2010 using actual data on short covering transactions we find that the average profit is 26 810 korean won roughly usd 24 4 per trade per hour and about 44 of shorted trades are covered within a day we also find that the profitability of short selling decreases as the hours to cover increases account level analyses show that investors who sell short more firms make higher profits than those who sell short fewer firms and that the profitability of short selling is persistent we attribute the profitability to short sellers ability to exploit short run price reversals and information processing skills

investment analysis and the adjustment of stock prices to common information in this article we are concerned with the effect of the number of investment analysts following a firm on the speed of adjustment of the firm s stock price to new information that has common effects across firms it is found that returns on portfolios of firms that are followed by many analysts tend to lead those of firms that are followed by fewer analysts even when the firms are of approximately the same size many analyst firms also tend to respond more rapidly to market returns than do few analyst firms adjusting for firm size this relation however is nonlinear and the marginal effect of the number of analysts on the speed of price adjustment increases with the number of analysts article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an investigation of the long run properties of aggregate non durable consumers expenditure in the united this paper estimates the effects of the modeling of nondurable consumption in the light of the five years of new data since the publication of the paper by j e h davidson et al 1978 and the development of the new cointegration technique of r f engle and c w j granger 1987 existing models are found to be inadequate on two grounds they fail parameter stability tests and they do not contain a suitable equilibrium specification the paper uses the cointegration approach to search for an encompassing model that is both stable and cointegrates the main finding is that the analysis must be extended to allow for differential income effects caused by changing higher rate income tax bands copyright 1989 by royal economic society

daily momentum and contrarian behavior of index fund investors we use a two year panel of individual accounts in an s p 500 index mutual fund to examine the trading and investment behavior of more than 91 000 investors who have chosen a low cost passively managed vehicle for savings we identify classes of momentum investors and contrarian investors we use these classes to build up behavioral factors based on contrarian and momentum flows and we show that they are relevant for pricing they perform well against a benchmark of loadings on latent factors extracted from returns

forecasting aggregate consumers expenditure in the u k using the dhsy model the performance of the dhsy model in predicting the growth of aggregate consumers expenditure in the uk over the period 1985 1988 is examined the model is applied to four different combinations of consumption variable and data type results show in all cases the predictive performance of the dhsy model to be poor however applied to seasonally adjusted data an improvement can be achieved by allowing for systematic variation in coefficients in particular a variable coefficient dhsy model displays no tendency to underpredict the growth of total consumers expenditure and accurately captures the volatility of non durable expenditure

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

the dynamics of short term mutual fund flows and returns a time series and cross sectional investigation abstract this study analyzes the dynamics of daily mutual fund flows a vector auto regression var of flows and returns shows that the behavior of fund investors is more consistent with contrarian rather than momentum characteristics past fund flows have a positive impact on future fund returns with the long term information effect dominating the transient price pressure effect seasonality in daily flows such as day of week and day of month patterns are present and daily flows are generally mean reverting probit regressions indicate that fund investment objective marketing policy and level of active management explain cross sectional variation in the behavioral patterns displayed in daily flows our results are robust to the different methods of calculating daily flows based on whether or not the day end tna figures include the current day s flow throughout the analysis we contrast the dynamics of daily flows with established results for monthly fund flows and find important differences between the two

do demand curves for stocks slope down since september 1976 stocks newly included into the standard and poor s 500 index have earned a significant positive abnormal return at the announcement of the inclusion this return does not disappear for at least ten days after the inclusion the returns are positively related to measures of buying by index funds consistent with the hypothesis that demand curves for stocks slope down the returns are not related to s p s bond ratings which is inconsistent with a plausible version of the hypothesis that inclusion is a certification of the quality of the stock

individual vs aggregate preferences the case of a small fish in a big pond we study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy to emphasize the vast differences that can occur between individual and market preferences brought about through aggregation we assume an economy consisting entirely of risk seekers we show that such individuals can lead to an aggregate economy that is risk averse the converse is also true an aggregate economy that exhibits risk aversion does not imply an economy of individual risk averters an economy demanding a risk premium can be formed from individuals who do not demand such compensation understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature which focuses on individual preferences and the asset pricing literature which focuses on aggregate prices we discuss empirical implications of these results this paper was accepted by wei xiong finance

stock and bond market liquidity a long run empirical analysis this paper establishes liquidity linkage between stock and treasury bond markets there is a lead lag relationship between illiquidity of the two markets and bidirectional granger causality the effect of stock illiquidity on bond illiquidity is consistent with flight toquality or flight to liquidity episodes monetary policy impacts illiquidity the evidence indicates that bond illiquidity acts as a channel through which monetary policy shocks are transferred into the stock market these effects are observed across illiquidity of bonds of different maturities and are especially pronounced for illiquidity of short term maturities the paper provides evidence of illiquidity integration between stock and bond markets

oil prices and economic activity an asymmetric cointegration approach the aim of this paper is to study the long term relationship between oil prices and economic activity proxied by gdp to account for asymmetries existing in the links between the two variables we propose an approach based on asymmetric cointegration our empirical analysis concerns the u s economy but also the g7 europe and euro area economies results indicate that while standard cointegration is rejected there is evidence for asymmetric cointegration between oil prices and gdp

trading volume and serial correlation in stock returns this paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns for both stock indexes and individual large stocks the first order daily return autocorrelation tends to decline with volume the paper explains this phenomenon using a model in which risk averse market makers accommodate buying or selling pressure from liquidity or noninformational traders changing expected stock returns reward market makers for playing this role the model implies that a stock price decline on a high volume day is more likely than a stock price decline on a low volume day to be associated with an increase in the expected stock return