a simplified jump process for common stock returns the specification of a statistical distribution which accurately models the behavior of stock returns continues to be a salient issue in financial economics with the introduction of arithmetic and geometric brownian motion models much attention has recently focused on a poisson mixture of distributions as an appropriate specification of stock returns for example see 12 3 8 10 5 and 1 consistent with empirical evidence these models yield leptokurtic security return distributions and furthermore the specification has much economic intuition in particular one may always decompose the total change in stock price into normal and abnormal components the normal change may be due to variation in capitalization rates a temporary imbalance between supply and demand or the receipt of any other information which causes marginal price changes this component is modelled as a lognormal diffusion process the abnormal change is due to the receipt of any information which causes a more than marginal change in the price of the stock and is usually modeled as a poisson process

day of the week effects and asset returns the number of empirical studies using daily stock returns is rapidly increasing researchers generally assume that the distribution of stock returns is identical for all days of the week a convenient statistical assumption but not a necessary condition of market equilibrium nevertheless there are reasons to suspect that the distribution of returns may vary according to the day of the week the most obvious is the impact of weekends on monday s return since monday s return is calculated over three instead of one calender day the mean and variance may well be higher on monday compared with any other daily return perhaps three times as large previous research has examined the daily distribution of stock returns for a monday effect while fama 1965 does not compare daily mean returns he does report that monday s variance is about 20o greater than other daily returns with a traditional distributional assumption regarding the returns on a financial asset specifies that the expected returns are identical for all days of the week contrary to this plausible assumption this paper discovers that the expected returns on common stocks and treasury bills are not constant across days of the week the most notable evidence is for monday s returns where the mean is unusually low or even negative several explanations of the results are investigated but none proves satisfactory aside from documenting significant day of the week effects the implications of the results for tests of market efficiency are examined while market adjusted returns continue to exhibit day of the week effects these effects are no longer concentrated on monday during the last year we have had many conversations with our colleagues throughout the professions we are particularly thankful to the participants at sessions of the western and american finance associations where preliminary versions of this paper were presented special thanks are due to gene fama gailen hite jon ingersoll robert jarrow merton miller clifford smith and rex thompson the expert research assistance of frank rabinovitch and youngsup yun is gratefully acknowledged 1 the list of papers using daily stock returns is too long to name recent examples include charest 1978 dodd 1980 banz 1981 and reinganum 1981

models of stock returns a comparison in this paper a discrete mixture of normal distributions is proposed to explain the observed significant kurtosis fat tails and significant positive skewness in the distribution of daily rates of returns for a sample of common stocks and indexes stationarity tests on the parameter estimates of this discrete mixture of normal distributions model revealed significant differences in the mean estimates that can explain the observed skewness and significant differences in the variance estimates that can explain the observed kurtosis an alternative explanation for the observed fat tails is the symmetric student model the result of a comparison between the models is that the discrete mixture of normal distributions model has substantially more descriptive validity than the student model for many years both financial economists and statisticians have been concerned with the description of stock market returns the form of the distribution of stock returns is a crucial assumption for mean variance portfolio theory theoretical models of capital asset prices and the prices of contingent claims for example understanding the behavior of the variance is essential to option pricing models empirical tests of asset pricing models and the efficient markets hypothesis draw statistical inferences that are also conditional on distributional assumptions the most convenient assumption for financial theory and empirical methods is that the distribution of security rates of return be multivariate normal with parameters that are stationary over time since the normal distribution is stable under addition any arbitrary portfolio of stocks will also be normally distributed with the additional assumption of risk aversion mean variance theory follows furthermore the assumptions of normality and parameter stationarity are required for most of the econometric techniques typically used in empirical research tests of the normality hypothesis on the daily returns of the dow jones industrial stocks by fama 121 revealed more kurtosis fatter tails than that predicted from a sample of independent and identically distributed normal variates fama concluded from this evidence that the distribution of price changes conforms better to the stable paretian distribution with characteristic exponent

portfolio rebalancing and the turn of the year effect this paper finds that for the 1935 1986 period the market s risk return relation does not have a january seasonal the findings differ from those of other studies due to the use of value weighted rather than equally weighted portfolios inferences are sensitive to the weighting procedure because of the small firm return patterns in january in particular even in those januaries for which the market return is negative small firm returns are positive and they are more positive the higher is beta this is consistent with the portfolio rebalancing explanation of the turn of the year effect since at least 1926 the average return on small firms in january has been unusually high a phenomenon known as the turn of the year effect in this paper we present new evidence regarding the risk return characteristics of small firms in january we find that for small firms there is a positively sloped riskreturn relation in both up and down markets this pattern is difficult to reconcile with the belief that the high return on small firms in january is equilibrium compensation for risk bearing we show how these patterns in small firms returns have led others to conclude that the market s risk return relation has a january seasonal in particular rozeff and kinney 21 and tinic and west 22 23 among others using equally weighted portfolios formed on the basis of historical betas have found a steeper slope for the capm s risk return relation in january than in other months we demonstrate that this pattern exists only for small firms consequently statistical inferences about the risk return relation are heavily dependent upon whether equally weighted or value weighted portfolio returns are used in the estimation we show that for 1935 86 when monthly cross sectional regressions are estimated using value weighted portfolio returns there is no more of a statistically significant difference in the estimated return to risk bearing in january than in the other eleven months of the year the notion that there is a january seasonal in the capm s risk return relation for the us has rapidly become accepted knowledge for example corhay hawawini and michel 6 accept this conclusion and investigate whether other

holiday trading in futures markets in this paper we find significantly higher preholiday returns in futures contracts compared to nonholiday returns the findings are consistent with the inventory adjustment hypothesis since higher preholiday returns associated with lower trading volume are most pronounced for exchange closed holidays there is evidence of positive postholiday returns associated with higher trading volume for exchangeopen holidays this is consistent with positive holiday sentiments the holiday effect is uniquely independent the magnitude of excess holiday returns is the largest among all seasonal variations in recent years a growing body of literature suggests the presence of abnormal returns for exchange holidays in the equity markets in particular ariel 1990 and lakonishok and smidt 1988 find that stock market returns for the days prior to holidays are significantly higher than returns for other days pettengill 1989 shows that while preholiday and other days returns differ significantly preholiday returns vary by holiday firm size and day of the week on which the holiday falls various theories have been proposed to explain the type of return generating process surrounding holidays since holidays are often considered another form of market closing similar to weekends it seems reasonable that an explanation for one might help explain the other 2 for example if the weekend effect could be explained by settlement procedures then this argument is relevant because holidays can delay settlement for up to two days and could have an effect on returns up to a week prior to the holiday accordingly lakonishok and levi 1982 postulate that friday and perhaps tuesday holidays would generate high thursday and monday returns the holiday effect has also been considered a result of the inventory adjustment process since the loss potential of a short position is more than that of a long position traders may be reluctant to take short positions prior to a nontrading period this would suggest a lesser selling

a new look at the monday effect it is well documented that expected stock returns vary with the day of the week the monday or weekend effect in this article we show that the well known monday effect occurs primarily in the last two weeks fourth and fifth weeks of the month in addition the mean monday return of the first three weeks of the month is not significantly different from zero this result holds for most of the subperiods during the 1962 1993 sampling period and for various stock return indexes the monthly effect reported by ariel 1987 and lakonishok and smidt 1988 cannot fully explain this phenomenon

the relative pay of public and private sector employees 1970 1984 this paper provides a more accurate picture of the changes that have taken place in the r elative pay of public and private sector employees than has hitherto been revealed changes in effective hourly rates of pay which abstra ct from changes in both the age and occupation composition of the wor kforce are used as the basis against which movements in the public p rivate sector pay differential are assessed copyright 1987 by oxford university press

overnight information and stochastic volatility a study of european and us stock exchanges abstract this paper provides a comprehensive evaluation of the predictive ability of information accumulated during nontrading hours for a set of european and us stock indexes we introduce a stochastic volatility model which conditions on lagged overnight information distinguishes between the nontrading periods of weeknights weekends holidays and long weekends and allows for an asymmetric leverage effect on the impact of overnight news we implement bayesian methods for estimation and ranking of the empirical models and find two key results i there is substantial predictive ability in financial information accumulated during nontrading hours and ii the performance of stochastic volatility models improves considerably by separating the asymmetric impact of positive and negative news made available over weeknights weekends holidays and long weekends

the distribution of foreign exchange price changes trading day effects and risk measurement this study investigates the nature of price changes in a variety of major and minor foreign exchange markets the results suggest that the log of price changes over one trading day intervals seems to follow a non normal stable distribution function different measures of location and to lesser extent scale are present for different days of the week dollar denominated price changes are high on mondays and wednesdays and low on thursdays and fridays for all currencies the wednesday thursday result is consistent with the settlement procedures used in foreign exchange transactions in the dollar the friday monday result is consistent with an increase in demand for the dollar prior to the weekend this study offers some previously unavailable results on the nature of price changes in a certain set of speculative markets in particular this is a study of the distributional characteristics of daily and weekly price changes for a number of major and minor foreign exchange markets the results document the existence of non normal stable distributions for price changes in foreign exchange markets these price change distributions differ by day of the week in ways that are only partly attributable to the institutional structure of the market the results of the study are interpreted within the context of understanding how foreign exchange markets operate and within the context of prior studies of stock market data concerned with summarizing the probability distribution of price changes for different intervals including days of the week since bachelier s 1 original treatise that contained the proposition that speculative market prices follow a process that could be described by a normal distribution there have been numerous alternative attempts to describe the stochastic processes which characterize speculative market prices these studies have not resulted in any generalized description of the probability distribution of price changes in such markets indeed the evidence suggests substantial differences in the process among various types of financial instruments the failure to achieve consensus can be traced to the lack of robustness in the statistical procedures employed to estimate processes and to differences in the underlying institutional or economic arrangements which are unique to that market the possibility of differences in the information set used to assess value or differences in technology for transmitting information makes it important to secure additional

the day of the week effect the international evidence abstract we re examine the day of the week effect for eleven indexes from nine countries during the 1969 1992 period the standard methodology as well as the moving average methodology are used and we find returns to be lower at the beginning of the week but not necessarily on monday for the full period as in chang et al international evidence on the robustness of the day of the week effect journal of financial and quantitative analysis 28 1993 497 514 the anomaly disappears for the most recent period in the usa however the effect is still strong for european countries hong kong and toronto

skewness in financial returns abstract in this paper the symmetry of daily returns is addressed in eight international stock markets and three spot exchange rates tests of symmetry with the sample skewness seem of little value due to the non normality of the returns under alternative non normal distributions the symmetry of the returns cannot be rejected for most markets distribution free procedures do not detect strong asymmetries in most of the series either however some differences between returns below the mean and returns over the mean are observed in several markets

on diversification given asymmetry in returns complete diversification is the rational investment strategy for a risk averse individual in a homogeneous securities market who considers only the first two moments of return observed behavior of market participants however demonstrates that the majority of individual investors hold imperfectly diversified portfolios the purpose of the present study is to examine one potential cause for this behavior which does not rely on imperfection in the capital market specifically we show that given the existence of and investor preference for positive skewness a rational investor may hold an optimal limited number of homogeneous risk assets the relationship between the number of risk assets in a portfolio and the total risk of the portfolio has been examined extensively both theoretically and empirically 7 8 16 the general conclusion from these analyses which are set in a mean variance framework is that adding randomly selected and equally weighted risk assets to a portfolio will reduce total risk without affecting return the implication for risk averse investors in a perfect market is that complete diversification is optimal observed behavior of market participants however demonstrates that the majority of individual investors hold imperfectly diversified portfolios in the wharton survey of 1975 in 4 the median number of stocks held was found to be fewer than 4 with 34 percent of the investors holding no more than 2 stocks the two primary studies providing evidence of the undiversified portfolios of individual investors are blume and friend 3 and blume friend and crockett 5 the former analysis was based on a sample of individual income tax returns from 1971 and indicated that considering only dividend paying stocks 34 15 percent of investors sampled held only one stock 50 51 percent held no more than 2 stocks and only 10 72 percent held 10 or more stocks the latter study which included nondividend paying stocks was based on the federal reserve board s 1962 survey of the financial characteristics of consumers the median number of holdings per household was 2 while the average was 3 41 in both 3 and 5 numerous other measures of diversification were employed with the results confirming the conclusion that individual investors are on average highly undiversified the principal theoretical reasons advanced by the authors of these studies relate to the relaxation of assumptions of the standard capital asset

a note on weekday intraday and overnight patterns in the interbank foreign exchange and listed currency options markets abstract transactions data are used to investigate returns patterns for close to close close to open and intraday long positions in spot currency interbank and currency put options listed for the years 1983 through 1988 both trading day and calendar day hypotheses are investigated under the former spot market returns are found to be significantly higher from friday close to monday close and from friday close to monday open under the calendar day hypothesis however no significant close to close pattern emerges and the friday close to monday open effect is reversed finally spot put market returns are found to be significantly lower higher for tuesday and friday afternoons

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

anomalies or illusions evidence from stock markets in eighteen countries abstract this paper examines five seasonal patterns in stock markets of eighteen countries the weekend turn of the month end of december monthly and friday the thirteenth effects we find a daily seasonal in nearly all the countries but a weekend effect in only nine countries interestingly the daily seasonal largely disappears in the 1980s the last trading day of the month has large returns and low variance in most countries many countries have large december pre holiday and inter holiday returns the january returns are large in most countries and a significant monthly seasonal exists in ten countries

pre holiday effects international evidence on the decline and reversal of a stock market anomaly abstract the pre holiday effect is one of the best known of the calendar effect anomalies this paper extends prior work by examining whether the effect has declined for the u s u k and hong kong markets for all three markets the effect is shown to have declined but only significantly in the u s the result is not surprising given the relative sophistication of the market what is surprising however is the reversal of the pre holiday effect during the period 1991 1997 with the mean return on pre holiday days becoming negative and the subsequent elimination of this effect during 1997 2003

anomalies weekend holiday turn of the month and intraday effects abstract this feature will report successful searches for disconfirming evidence economic anomalies as suggested by thomas kuhn an economic anomaly is a result inconsistent with the economics pa

investigating the behavior and characteristics of the madrid stock exchange abstract this study examines the efficiency and characteristics of the nine major indexes of the madrid stock exchange from 1941 through 1992 the findings do not support weak form efficiency among the general bank construction investment metal working and chemical indexes results of the utility food and communications index tests are not consistent

intertemporal profitability and the stability of technical analysis evidences from the hong kong stock exchange this study investigates the impact of market integration on the profitability of two simple and popular technical trading rules the simple moving average sma and the trading range break trb in hong kong using data from 1972 to 2006 we find that the sma 1 50 consistently outperforms the market before the integration of stock exchanges in 1986 under the 1 50 rule a variable length moving average performs better than the fixed length moving average rule by 2 5 to 5 annual before transaction costs because it includes the information of the first 9 days into investors decision the results are robust to the out of sample tests for the validity of the profitability of the trading rules the returns of the trading range break rules are insignificant over the 35 year span our results support the conjecture that stock market integration may lead to better information efficiency the findings of significant pre 1986 profits and insignificant post 1986 profits contradict previous findings that r

preferred habitat for liquidity in international short term interest rates abstract risk shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why us money market rates are higher before the year end than afterwards the two hypotheses differ in the timing of the rate decline at the year end and the evidence on the timing of the decline supports the preferred habitat hypothesis in us money markets this paper extends this line of research to the behavior of international short term interest rates at year ends and quarter ends using london interbank offer rates libor for 11 different currencies the results suggest that the behavior of libor for five currencies the us dollar euro japanese yen swiss franc and german mark is consistent with year end or quarter end preferred habitats for liquidity other currencies do not demonstrate consistently distinct patterns in turn of the year and turn of the quarter yields none of the results provides any support for risk shifting window dressing

conditional extremes in asymmetric financial markets abstractthe global financial crisis of 2007 2009 revealed the great extent to which systemic risk can jeopardize the stability of the entire financial system an effective methodology to quantify s

holiday effects and stock returns further evidence this paper provides further evidence of the holiday effect in stock returns and additional insight into the effect this paper reports abnormally high returns on the trading day before holidays in all three of the major stock markets in the u s the nyse amex and nasdaq the holiday effect is also present in the u k and japanese stock markets even though each country has different holidays and institutional arrangements this study finds that the holiday effects in the u k and japanese stock markets are independent of the holiday effect in the u s stock market unlike the other seasonal patterns in stock returns such as january and weekend effects this investigation of size decile portfolios shows that the size effect is not present in mean returns on preholidays

a further investigation of the weekend effect in stock returns this study uses a longer time period and additional stocks to further investigate the weekend effect we find consistently negative monday returns 1 for the s p composite as early as 1928 2 for exchange traded stocks of firms of all sizes and 3 for actively traded over the counter otc stocks the otc results are based on bid prices and therefore appear to reject specialist related explanations for the 30 individual stocks of the dow jones industrial index the average correlation between friday and monday returns is positive and the highest of all pairs of successive days the latter finding is inconsistent with fairly general measurement error explanations some of the most puzzling empirical findings reported in recent years indicate that the distribution of common stock returns varies by day of the week most notably the average return for monday close friday to close monday is significantly negative cross 3 and french 6 find negative monday returns using the standard and poor s composite index and gibbons and hess 7 find negative monday returns for the 30 individual stocks of the dow jones industrial index 1 this negative monday return or weekend effect has yet to be explained this study undertakes a further investigation of the weekend effect in stock returns we examine additional time periods extending the total period covered to 55 years we examine additional stocks such as those of small low capitalization firms and those traded over the counter in all cases the data exhibit a weekend effect that is at least as strong as that reported in previous studies the study also readdresses potential explanations for the effect such as measurement error but concludes that none of these explanations is satisfactory the first section presents a history of the weekend effect from 1928 through 1982 based on the standard and poor s composite index we essentially double the length of the period beginning in 1953 examined by french 6 the results indicate consistently negative monday returns throughout the 55 year period during much of the 25 year period from 1928 through 1952 the new york stock exchange was open on saturdays so monday s return is then computed from saturday s close to monday s close 2 these returns for one day weekends are consistently negative and not significantly different from the two day weekend

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

religious holidays investor distraction and earnings announcement effects abstract we examine price reactions to u s firms earnings announcements during easter week in order to analyze whether and how the religious holiday calendar impacts investors information processing we find that there is an asymmetric pattern of immediate and delayed responses to earnings surprises experienced during easter entailing similar immediate reactions to both good and bad news and a stronger delayed response to bad news moreover local religious characteristics affect investor s response to firm news the results are consistent with a religion induced distraction effect on investors information processing ability we also show that this effect can form the basis for a profitable trading strategy the findings highlight the importance of religion for firms information environment and for the local component of stock prices

intraweek and intraday seasonalities in stock market risk premia cash and futures abstract the unique nature of the settlement procedures on the london stock exchange are utilised to directly investigate intraweek and intraday seasonalities in ex post risk premia rather than total returns and compare them with the corresponding intraweek and intraday seasonalities in the index futures market seasonalities in the occurrence of extreme price changes are also examined the results reported are based on about 4 years of hourly cash and futures data the analysis is conducted using both parametric and non parametric methods the observed empirical regularities have implications for explanations of seasonality based on market microstructure timing of news and psychological behavioural patterns it is also found that the stock market has not efficiently accounted for the interest costs inherent in its own settlement procedures

can tax loss selling explain the january effect a note the january effect remains an unexplained phenomenon in financial economics that the month of january has consistently shown higher mean stock returns than other months has been documented by several researchers beginning with rozeff and kinney 19 additional research by keim 14 showed that approximately half the annual size effect is attributable to abnormal returns in january 1 roll 18 confirmed keim s results as has subsequent research such as lakonishok and smidt 15 2 the most often advanced explanation for the january effect is tax motivated transactions 3 first proposed in 1942 by wachtel 21 the tax loss selling hypothesis is frequently advocated in the popular press as a major influence on stock price behavior essentially this hypothesis states that investors seek to reduce their taxes by realizing losses at year end thereby depressing stock prices stocks return to equilibrium levels after year end providing abnormally high returns in january despite the popularity of the tax loss selling hypothesis it is difficult to justify upon serious reflection justification requires acceptance of the proposition that speculators are prevented from purchasing tax loss candidates before year end with the intention to sell them after year end no theoretical justification has been presented for the hypothesis instead using both theoretical and empirical approaches constantinides 5 argues that such action cannot explain the january effect if the market is efficient 4 his results imply that empirical studies supporting the tax loss selling hypothesis provide evidence of market inefficiency as for the empirical evidence branch 3 dyl 8 roll 18 reinganum 17 and givoly and ovadia 10 have provided support for the tax loss selling hypothesis 5 recently schultz 20 tested the tax explanation by examining the

new evidence on the impact of tax loss selling on the turn of the year effect abstract the turn of the year effect is an empirical regularity which refers to the observation that equity returns on days around the turn of the calendar year are significantly high a common explanation for the effect is the tax loss selling hypothesis three studies have tested this hypothesis by examining equity returns before and after the introduction of the war revenue act of 1917 however these studies have reached inconsistent conclusions following these inconsistent findings this paper examines whether the previous findings are robust to the extension of the pre tax period or whether the previous findings are robust to the use of daily data in contrast to the evidence from existing research which has used daily data a significant turn of the year effect is found prior to 1917 furthermore this effect is shown to be independent of other empirical regularities such as the turn of the month effect and the holiday effect and seasonality in dividend payments cannot explain the finding thus we conclude that the tax loss selling hypothesis cannot offer a complete explanation of the turn of the year effect

management of common property resources limits to voluntary collective action this paper finds that the voluntary collective action may be an alternative to market and government in the management of common property resources in developing countries the people s capabilities to harness the preserved commons and the fairness in the appropriation of benefits from them are the limits on the voluntary collective action it shows that collective action is possible if an outside agency plays the role of a catalyst in mitigating these limits it also shows that there can be mutually beneficial sharing arrangements between government and village communities for the management of local forest resources the standard result that common and state property resources turn into open access resources as population grows also holds good for the natural resources jointly managed by government and people

candlestick technical trading strategies can they create value for investors abstract we conduct the first robust study of the oldest known form of technical analysis candlestick charting candlestick technical analysis is a short term timing technique that generates signals based on the relationship between open high low and close prices using an extension of the bootstrap methodology which allows for the generation of random open high low and close prices we find that candlestick trading strategies do not have value for dow jones industrial average djia stocks this is further evidence that this market is informationally efficient

on equilibrium asset price processes in this article we derive necessary and sufficient conditions that must be satisfied by equilibrium asset price processes in apure exchange economy we examine a world in which asset prices follow a diffusion process asset markets are dynamically complete all investors maximize their state independent expected utility of consumption at some future date and investors have nonrandom exogenous income we show that it is necessary and suffcient that the coefficients of an equilibrium diffusion price process satisfy a partial differential equation and a boundary condition we also examine how the dynamics of asset prices are related to the shape of the representative investor s utility function through the boundary condition for example in a constant volatility economy the expected instantaneous return of the market portfolio is mean reverting if and only if the relative risk aversion of the representative investor is decreasing in terminal wealth

the wandering weekday effect in major stock markets this paper reports a wandering weekday effect the pattern of day seasonality in stock market returns is not fixed as assumed in the monday or weekend effects but changes over time analysing daily closing prices in eleven major stock markets during 1993 2007 our results show that the wandering weekday is not conditional on average returns in the previous week the twist in the monday effect nor does it diminish through the period of analysis the results have important implications for market efficiency and help to reconcile mixed findings in previous studies including the reported disappearance of the weekday effect in recent years

forecast improvements using a volatility index this paper explores the possibility of improved out of sample forecasting for stock returns and foreign exchange rates using observed nonlinearities in the two series forecasting is done using nonparametric techniques where important information is obtained from the current level of volatility in the series for both series forecast improvements are observed but for stock returns the improvements are only marginal these results indicate the usefulness and stability of some types of nonlinear modelling for financial markets

high stock returns before holidays existence and evidence on possible causes on the trading day prior to holidays stocks advance with disproportionate frequency and show high mean returns averaging nine to fourteen times the mean return for the remaining days of the year over one third of the total return accruing to the market portfolio over the 1963 1982 period was earned on the eight trading days which each year fall before holiday market closings examination of hourly pre holiday stock returns reveals high returns throughout the day pre holiday stock returns in the post test 1983 1986 period are also examined this paper explores a seeming empirical regularity in the pattern of daily stock index returns surrounding holidays the trading day prior to holidays on average exhibits high positive returns over one third of the return earned by the market over the twenty year test period accrued on the eight trading days which annually fall before holidays intimations of the pre holiday strength have appeared in the academic literature in an examination of the frequency of dow jones industrial average advances on days surrounding weekends during the 1901 to 1932 period fields 1934 finds a disproportionate frequency of advances on trading days preceding long holiday weekends roll 1983a finds high returns accruing to small firms on the trading day prior to new year s day lakonishok and smidt 1984 note that prices also rise in all deciles of market capitalization on the last trading day before christmas and conclude that the high christmas returns of large companies might be considered another mystery a number of stock market advisors have also noted the pre holiday strength merrill 1966 finds a disproportionate frequency of dow jones industrial average advances on days preceding holidays during the 1897 to 1965 period and fosback 1976 has noted high preholiday returns in sp further hourly returns and closing bid ask data are examined to determine when high returns accrue on preholidays tests are also conducted showing that pre holiday strength is not

systemic risk measurement multivariate garch estimation of covar abstract we modify adrian and brunnermeier s 2011 covar the var of the financial system conditional on an institution being in financial distress we change the definition of financial distress from an institution being exactly at its var to being at most at its var this change allows us to consider more severe distress events to backtest covar and to improve its consistency monotonicity with respect to the dependence parameter we define the systemic risk contribution of an institution as the change from its covar in its benchmark state defined as a one standard deviation event to its covar under financial distress we estimate the systemic risk contributions of four financial industry groups consisting of a large number of institutions for the sample period june 2000 to february 2008 and the 12 months prior to the beginning of the crisis we also investigate the link between institutions contributions to systemic risk and their characteristics

idiosyncrasies in australian petrol price behaviour evidence of seasonalities it has been argued that there are certain idiosyncrasies in australian petrol price behaviour to the extent that these idiosyncrasies result in large magnitude differences in petrol prices they may be exploited by consumers to significantly reduce their household expenditure on the product similarly such seasonalities may influence retailers in their purchase and storage decision the objective of this paper is to test for seasonalities in the australian retail petrol market the approach adopted is similar to that for determining calendar anomalies as documented in the financial and commodity markets literature we find that a monthly seasonal effect is pronounced with petrol prices lower in the months of february may and highest in july and august a day of the week effect is also apparent and is manifest in all petrol prices for capital cities adelaide brisbane melbourne and sydney across various years however the half month effect as is common in stock returns is not observed moreover contrary to popular belief that petrol prices are higher surrounding holidays no evidence of the holiday effect is found in brisbane and melbourne petrol prices also have some relationship to the mood of consumers as proxied using weather conditions this is not observed in adelaide and sydney

dividends taxes and common stock prices the ex dividend day behavior of common stock prices before the income tax this study examines the ex dividend day behavior of common stock prices before the enactment of the federal income tax on ex dividend days during the pre tax period stock prices fell on average by the full amount of the dividend the data are consistent with the hypothesis that i investors in the pre tax period value dividends and capital gains as perfect substitutes and ii the differential taxation of dividends and capital gains has since caused investors to discount the value of taxable cash dividends in relation to capital gains

information in stock prices the case of the 2016 u s presidential election on the day before the 2016 u s presidential election the odds of hillary clinton winning the presidency according to political prediction markets were above 90 surprisingly donald trump won

role of speculative short sales in price formation the case of the weekend effect we argue that short sellers aiect prices in a signi cant and systematic manner in particular we contend that speculative short sales contribute to the weekend eiect the inability to trade over the weekend is likely to cause these short sellers to close their speculative positions on fridays and reestablish new short positions on mondays causing stock prices to rise on fridays and fall on mondays we nd evidence in support of this hypothesis based on a comparison of high short interest stocks and low short interest stocks stocks with and without actively traded options ipos zero short interest stocks and highly volatile stocks in this paper we empirically examine whether speculative short sales aiect prices in a systematic manner the focus is on the weekend eiect that has remained an unexplained anomaly beginning with french 1980 and gibbons and hess 1981 there is much evidence in support of higher returns on fridays and lower returns on mondays keim and stambaugh 1984 nd that friday returns are lower when there is saturday trading ariel 1990 nds that a signi cantly larger number of stocks rises preholiday than postholiday empirical evidence related to more recent periods points to an insigni cant weekend eiect for large rms but continuance of the weekend eiect for an equally weighted index as documented herein 1 many potential explanations of the weekend eiect have been proposed and investigated measurement errors gibbons and hess 1981 and keim and stambaugh 1984 delay between trading and settlement in stocks dyl and martin 1985 and lakonishok and levi 1982 specialist related biases in prices keim and stambaugh timing of corporate releases after friday s close damodaran 1989 reduced institutional trading and greater individual trading on mondays

turn of month evaluations of liquid profits and stock returns a common explanation for the monthly and january effects this paper presents and tests a hypothesis that the standardization of payments in the united states at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month the hypothesis also asserts that returns generally will be greater following the month of december and will vary inversely with the stringency of monetary policy empirical results using stock index returns for 19691986 support the hypothesis this analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the january effect in a recent paper ariel 1987 documents an important empirical regularity in stock returns and terms it the monthly effect using value weighted and equally weighted daily stock index returns for the period 1963 1981 ariel shows that virtually all of the cumulative return on these indexes is realized on ten consecutive trading days of the calendar month beginning with the last trading day of the month and extending through the first nine trading days of the following month ariel considers various explanations for this phenomenon but none sufficed to explain the observed empirical regularity p 174 more recently lakonishok and smidt 1988 examine returns on the dow jones industrial average index for the period 1897 1986 and find that significant mean daily returns are realized consistently on only four consecutive trading days of the calendar month beginning with the last trading day of the month these trading days will henceforth be referred to as the turn of month trading days ariel s and lakonishok and smidt s tests indicate that the monthly effect is not merely another manifestation of the previously documented january effect rozeff and kinney 1976 first documented that average stock index returns in january are higher than in any other month keim 1983 and others find that the surge in january returns is largely confined to stocks of small firms and to the first few trading days in january branch 1977 and others have suggested that the surge in january returns is due to year end tax loss selling and subsequent repurchases in january studies by roll 1983 reinganum 1983 ritter 1988 and others provide evidence consistent with the tax loss selling

the day of the week effects on the volatility the role of the asymmetry in this paper we propose to evaluate whether asymmetry influences the day of the week effects on volatility we also investigate empirically the impact of the day of the week effect in major international stock markets using garch family models from a forecast framework indeed the existence of calendar effects might be interesting only if their incorporation in a model results in better volatility forecasts

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

return autocorrelations around nontrading days we document a pattern in the serial dependence of security returns around nontrading days the correlation of returns the second day after a weekend or holiday with returns the first day after is unusually low and in many return series is negative implying a reversal of price movements we also document unusually large positive return autocorrelations the last day before and the first day after weekends and holidays the pattern has existed in equity returns for over 100 years and also exists in several futures markets implying that the pattern is robust to alternative market microstructures article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the management of common property resources collective action as an alternative to privatisation or state regulation can locally based collective action be a viable way to manage common property resources many writers on collective action and common property are sweepingly pessimistic about the ability of the people who face problems of common property to organize sustainable patterns of use for themselves this paper shows with reference to prisoners dilemma garett hardin s tragedy of the commons and mancur olson s logic of collective action that the analytical basis for this pessimism is weak in many situations of village based common property resource use there can thus be no general presumption that the collective action route to common property resource management will fail any more than there can be a general presumption that it will work the paper suggests a number of general factors to do with the characteristics of the resources the user group and group state relations on which chances of success depend

turn of month and pre holiday effects on stock returns some international evidence abstract this study examines turn of month and pre holiday effects on international markets turn of month effects are significant in canada the uk australia switzerland and west germany pre holiday effects are significant in canada japan hong kong and australia the absence of these effects in certain markets suggests that they originate from country specific institutional practices all countries exhibiting pre holiday effects do so before local holidays only hong kong does so before us holidays this reinforces the conclusion that such anomalies are not generated solely by american institutions

are seasonal anomalies real a ninety year perspective in recent years there has been a proliferation of empirical studies documenting unexpected or anomalous regularities in security rates of return in addition to the widely studied relation between firm size and rate of return 1 these include seasonal regularities related to the time of the day harris 1986 the day of the week see ball and bowers 1986 cross 1973 french 1980 gibbons and hess 1981 jaffe and westerfield 1985 keim and stambaugh 1984 and lakonishok and levi 1982 the time of the month ariel 1987 and the turn of the year see haugen and lakonishok 1988 jones pearce and wilson 1987 lakonishok

volume for winners and losers taxation and other motives for stock trading capital gains taxes create incentives to trade our major finding is that turnover is higher for winners stocks the prices of which have increased than for losers which is not consistent with the tax prediction however the turnover in december and january is evidence of tax motivated trading there is a relatively high turnover for losers in december and for winners in january we conclude that taxes influence turnover but other motives for trading are more important we were unable to find evidence that changing the length of the holding period required to qualify for long term capital gains treatment affected turnover investors responding to the tax incentives in the capital gains laws should produce predictable patterns in the volume of trading in a stock but not necessarily in its price this study uses past price patterns as a proxy to measure the incentives to sell or avoid selling a stock and observes trading volumes to estimate the extent to which investors respond to these incentives past price patterns may influence trading volumes for other non tax related reasons as well these are also considered we find that past prices influence current incentives to trade through both tax and non tax motives winners tend to have higher abnormal volumes than losers this would be expected if non tax related motives were predominant however the influence of tax related motives on trading volume is shown by seasonal variations in the relationship between past price changes and turnover as predicted by tax induced trading theories the volume of losers is higher than normal in december and the volume of winners is higher than normal in january we found no evidence that trading volume was affected by changes in the length of the holding period required to qualify for long term capital gains investors reactions to capital gains taxes are important for several reasons first a comprehensive understanding of investor behavior would include both price and volume understanding the relationship between taxes and volume is a fruitful and convenient method of contributing to this subject the resource allocation consequences of capital gains taxes are controversial in part because

the week end effect in common stock returns the international evidence this paper examines the daily stock market returns for four foreign countries we find a so called week end effect in each country in addition the lowest mean returns for the japanese and australian stock markets occur on tuesday the remainder of the paper answers four questions are seasonal patterns in foreign stock markets independent of those previously reported in the u s do japan and australia exhibit a seasonal one day out of phase due to different time zones do settlement procedures across countries bias week end effects does the seasonal pattern in foreign exchange offset the week end effect in stocks for americans investing overseas some of the most anomalous empirical findings in finance are associated with the sample distributions of daily common stock returns cross 1 french 2 gibbons and hess 3 and keim and stambaugh 4 have documented that the average return on friday is abnormally high and the average return on monday is abnormally low to our knowledge this so called day of the week effect or week end effect has yet to be explained because this anomaly has been reported primarily for u s stock returns it is appropriate to investigate whether similar results occur for other countries positive findings would strongly support the proposition that the weekly seasonal effect is a general world wide phenomenon rather than the result of a special type of institutional arrangement in the u s to shed more light on this proposition our paper examines stock market returns in the u k japan canada and australia since we find a week end effect in each country we can examine a set of interesting questions for example are these seasonals independent of the previously reported seasonal in the u s due to different time zones do far eastern countries exhibit a seasonal one day out of phase do different settlement procedures across countries influence weekend effects does the seasonal in foreign exchange fluctuations see mcfarland pettit and sung 7 and levi 6 offset the week end effect in stock market returns for americans investing overseas

mood betas and seasonalities in stock returns abstract existing research has found cross sectional seasonality of stock returns the periodic outperformance of certain stocks during the same calendar months or weekdays we hypothesize that assets different sensitivities to investor mood explain these effects and imply other seasonalities consistent with our hypotheses relative performance across individual stocks or portfolios during past high or low mood months and weekdays tends to recur in periods with congruent mood and reverse in periods with noncongruent mood furthermore assets with higher sensitivities to aggregate mood higher mood betas subsequently earn higher returns during ascending mood periods and earn lower returns during descending mood periods

whose sabbath matters or when does the weekend effect occur abstract the weekend effect and other seasonal anomalies in financial markets are now familiar in many countries in searching for explanations for the weekend effect in particular it would be helpful to know when exactly it occurs whatever the it may be that produces the effect since most countries do not have weekend trading in financial assets the timing of it has not been narrowed down israel has trading in all financial assets except currency trading on sunday by examining day of the week effects for israel it appears that the weekend effect occurs on sunday late in the day and not an friday evening ar saturday other seasonal anomalies in israel seem to be similar to those elsewhere the generalizability of the findings to other countries is discussed

seasonality in daily bond returns this paper tests for seasonal patterns in corporate bond returns using the dow jones com posite bond average each seasonal pattern documented for equities is investigated for the period 1963 1986 corporate bond returns exhibit january turn of the year and weekof the month effects but no significant day of the week or turn of the month effects in contrast for the s p 500 stock index the turn of the month and day of the week ef fects are highly significant but the week of the month effect is less significant and the january and turn of the year effects are insignificant the behavior of an equity index constructed using companies in the bond index is similar to that of the s p except the turn of the year effect is significant

the january size effect anomaly or risk mismeasurement 1986 the january size effect anomaly or risk mismeasurement financial analysts journal vol 42 no 6 pp 63 70

are moving average trading rules profitable evidence from the european stock markets this article examines the profitability of several simple technical trading rules for 16 european stock markets over the 1990 to 2006 period our results indicate that increasing moving average rules indeed have predictive power being able to discern recurring price patterns for profitable trading even after accounting for the effects of data snooping bias to assess the profitability of different technical trading rules and strategies we adopt the white s 2000 reality check rc test that quantifies the data snooping bias and adjusts for its effects our empirical results also support the hypothesis that technical trading rules can outperform the buy and hold strategy after accounting for transaction costs

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

asset market linkages in crisis periods we characterize asset return linkages during periods of stress by an extremal dependence measure contrary to correlation analysis this nonparametric measure is not predisposed toward the normal distribution and can allow for nonlinear relationships our estimates for the g 5 countries suggest that simultaneous crashes between stock markets are much more likely than between bond markets however for the assessment of financial system stability the widely disregarded cross asset perspective is particularly important for example our data show that stock bond contagion is approximately as frequent as flight to quality from stocks into bonds extreme cross border linkages are surprisingly similar to national linkages illustrating a potential downside to international financial integration

volume and turn of the year behavior abstract this paper studies the trading characteristics of listed companies by size and year end behavior there were no transactions on nearly 25 of the days for the smallest decile even at the turn of year which is an active trading period for small companies as a result of low levels of trading and the regulations governing exchange specialists transaction prices and quotations of small listed companies may require several days to fully reflect equilibrium price changes the data confirm the existence of a year end seasonal pattern in rates of return for small companies and suggest that there may be a seasonal pattern for large companies as well

good news is not always a positive market signal investors activity around orphan drug designation abstract this article has been withdrawn at the request of the author the publisher apologizes for any inconvenience this may cause the full elsevier policy on article withdrawal can be found at https www elsevier com about our business policies article withdrawal

weekend effects on stock returns a comment in a recent note in this journal lakonishok and levi 3 hereafter ll offer a partial explanation for the intraweek pattern of daily stock market returns observed by french 1 gibbons and hess 2 and others their hypothesis that the weekend effect abnormally high returns to common stocks on fridays and negative returns to common stocks on mondays can be explairned by settlement procedures and check clearing delays is an intriguing conjecture however the empirical evidence presented below supports the hypothesis that settlement clearing procedures are not a major determinant of this weekly pattern of stock market returns

portfolio selection and skewness evidence from international stock markets abstract this paper finds that the returns of the world s 14 major stock markets are not normally distributed and that the correlation matrix of these stock markets was stable during the january 1988 december 1993 time period polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the construction of the optimal portfolio the evidence also indicate that investors trade expected return of the portfolio for skewness

personal income taxes and the january effect small firm stock returns before the war revenue act of 1917 a note this paper tests the tax explanation of the january effect by examining small firm stock returns before the war revenue act of 1917 no evidence of a turn of the year effect is found this paper also extends previous authors work on the subject to 191829 a january effect is found during that period the large abnormal returns earned by small firm stocks during the first few days of january is attracting considerable attention from financial economists specifically keim 10 shows that over the entire 1963 79 period the average difference between risk adjusted returns of small and large firms is about 0 7 per day during january even more striking is the finding of keim 9 that over the entire 1931 78 period the relation between daily abnormal returns and size is always negative and more pronounced in january than in any other month similarly ibbotson and sinquefield 8 note that the average return on the quintile of nyse stocks with the lowest market values exceeds the return on the standard and poor s corporate index for 50 of the 56 januarys from 1926 81 there is no accepted theory linking the excess returns of small firms in january with the change of the tax year nevertheless the plausibility of a relation between taxes and stock return seasonality has led roll 17 brown et al 6 berges mcconnell and schlarbaum 2 and reinganum 16 among others to investigate personal income taxes as an explanation for the january effect this paper uses a different methodology and reaches stronger conclusions than any of the above papers specifically i examine the returns of small firms for the period from 1900 to 1929 prior to the revenue act of 1917 marginal income tax rates for investors were very low or zero the major finding of this paper is that there is no evidence that small firms earned abnormal returns in january prior to the 1917 tax act i also show that a january effect does appear during the years 1918 29 therefore i cannot reject a tax explanation for the january effect

journalists and the stock market we use exogenous scheduling of wall street journal columnists to identify a causal relation between financial reporting and stock market performance to measure the media s unconditional effect we add columnist fixed effects to a daily regression of excess dow jones industrial average returns relative to standard control variables these fixed effects increase the r super 2 by about 35 indicating each columnist s average persistent bullishness or bearishness to measure the media s conditional effect we interact columnist fixed effects with lagged returns this increases explanatory power by yet another one third and identifies amplification or attenuation of prevailing sentiment as a tool used by financial journalists the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

weekend effects on stock returns a note some researchers have apparently been surprised to discover that the distribution of stock returns depends on the day of the week kenneth french 3 for example in testing whether daily stock returns are generated by a trading time or calendar time hypothesis provided convincing evidence of a negative market return on mondays as french carefully notes this finding runs counter to both hypotheses since a trading time view would have expected stock returns equal on different days and a calendar time view would have higher expected returns on monday to compensate for the longer holding period in this paper we offer a partial explanation for the apparently puzzling discovery of different daily returns we argue that the expected stock returns as measured for example from closing to closing prices should depend on the day of the week in general we argue that the expected returns on mondays should be lower than would be implied simply by a trading time or calendar time model and the returns on fridays should be higher in addition we anticipate that holidays will have complex effects on stock returns on other days of the week our argument is based on the delay between trading and settlements in stocks and in clearing checks the explanation that we offer for different measured daily returns does not contradict the efficient market hypothesis as correctly adjusted expected returns should not differ according to the day of the week