investor preference for large firms new evidence on economies of size in the last several decades industrial organization literature has been replete with studies demonstrating a systematic relationship between accounting rates of return and firm size in the direction of greater and more stable accounting profits for larger firms these studies have been subject to criticism for an alarming number of statistical and conceptual problems the most important of which alleges a serious bias in accounting profit measures as proxies for economic profit 2 the criticisms have resulted in a stalemate in the interpretation of empirical evidence on firm size and performance nevertheless there is continued interest in the area ostensibly resulting from policy concerns with large firm advantages in both product and capital markets this paper provides new evidence concerning the industrial organization literature controversy of the connection between firm size and performance stock market data are used to examine the relationship between capital market returns risk and firm size the findings suggest that even if there were no advantages of large size in the product market equal rates of operating profit large firms would still have a substantial capital raising advantage over small firms this advantage is unrelated to the widely recognized floatation cost economies even after controlling for nondiversifiable risk using the capital asset pricing model capm investors still demonstrate a statistically significant and economically important preference for the securities of larger firms investors apparently place a premium on large firms which is not attributable to large firms observed lower risk as captured by the widely used measure of nondiversifiable risk beta risk this finding a fresh contribution to the

unemployment and effort at work we measure the sensitivity of work effort to local labour market conditions using self reported non work at the workplace in the american time use survey atus 2003 12 non work at work is quantitatively significant and varies positively with local unemployment but in opposite directions at the extensive and intensive margins the fraction of workers reporting positive values declines with unemployment while time spent in non work conditional on any such time rises with unemployment the results speak to issues of labour hoarding efficiency wages and the cyclicality of labour productivity we also demonstrate a relationship between the incidence of non work and unemployment benefits in state data linked to the atus there are also pronounced occupational differences in the incidence and intensity of non work

empirical evidence on dividends as a signal of firm value the role of dividends in firm valuation continues to be a theoretical puzzle as well as an empirical obsession with economists the pioneering work by modigliani and miller mm 32 29 is the archetype of the theoretical dilemma whereas the authors proved convincingly the irrelevance of dividend policy to firm value within a perfect capital market they tempered their irrelevance proposition with what is usually referred to as the information content of dividends icd hypothesis in a more scientific sense this hypothesis should be labeled as a conjecture since it is essentially an ad hoc observation that dividends may convey information to the capital market concerning a firm s future earnings potential even though the icd hypothesis was not derived from a well specified economic model it has nevertheless been subjected to a plethora of empirical studies in general these studies have focused upon the precise influence of dividend changes upon a firm s common stock price overall the results can be described as being supportive of the notion that stock price movements are positively correlated with cash dividend changes this correlation of course is consistent with the icd hypothesis

the mispricing of u s treasury bonds a case study this article documents an apparent pricing anomaly involving 94 percent 30 year treasury bonds during the months of may and june 1986 during this period the price of the 94s rose sharply relative to the prices of other long term treasury bonds and created a potential arbitrage opportunity in addition owners of the 94 bonds were able to borrow at a zero interest rate bypledging their bonds detailed examination reveals that this relative pricing anomaly cannot be attributed to changes in the level or term structure of interest rates or to differences between the bonds with respect to liquidity taxation or duration

fundamental analysis and subsequent stock returns abstract this paper re examines the ou and penman 1989 conclusion that fundamental analysis identifies equity values not currently reflected in stock prices and thus systematically predicts abnormal returns their fundamental summary measure pr the estimated probability of an earnings increase also proxies for firm size and capm risk after controlling cross sectional differences in capm beta and firm size no significant incremental predictive ability is attributable to pr the pr measure is interpreted as a proxy for expected return differences rather than as new evidence of a systematic market underreaction to the future earnings signal inherent in current financial statements

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

estimation risk and stability of optimal portfolio composition abstract the mean variance portfolio models indicate that for optimal investment decisions the true ex ante values of the model parameters should be used instead in practice ex post parameter estimates are used if in the estimation process the probability distribution of estimators is not known there is a problem of estimation risk this paper investigates the impact of estimation risk on the composition of optimal portfolios as the multivariance distribution of the vector of optimal portfolio weights allocated to risky assets is analytically intractable a use of the monte carlo simulation experimental is made this study suggests that the composition of optimal portfolio is relatively more stable when the estimates of model parameters are obtained from longer series of historical observations or the expected portfolio return is low

variance and lower partial moment betas as bases for costing equity capital among regulated utilities an important question in the setting of public utility rates is what constitutes a fair rate of return or cost of equity capital for a regulated utility recent debates over this issue have centred on the capm s ability to produce realistic equity cost figures for use in the rate setting process several researchers recommend modified or expanded versions of the market model as a means of improving its predictive capabilities one such approach is the lower partial moment model the purpose of the present paper is to assess the robustness of the lower partial moment model relative to the conventional capm as a basis for estimating the cost of a utility company s equity capital the hypothesis that empirical estimates of the lpm beta tend to overestimate the true systematic risk of utility companies was corroborated by our test results

the weak form efficiency of the finnish and scandinavian stock exchanges a comparative note on thin trading this note adds to previous scandinavian evidence produced by the jennergren korsvold 1974 1975 jennergren 1975 jennergren toftnielsen 1977 korhonen 1977 and s0rensen 1982 studies of stock market return randomness in daily data sets from the oslo and stockholm stock exchanges jennergren korsvold 1975 found evidence of nonrandomness in a majority of the 45 stocks studied a similar result was later reported for the copenhagen exchange by jennergren toft nielsen 1977 subsequent studies by jennergren 1975 and s0rensen 1980 further indicated that the serial correlation inherent in stockholm and copenhagen data was strong enough to allow supernormal yields on simple filter strategies 2 the data for our study consist of daily trading or when closings did not occur bid prices adjusted for dividends and issues for all stocks quoted on the helsinki stock exchange hese between february 2 1970 and december 31 1981 along with data on daily trading volumes for the years 1977 81 3 the price file is based on the kop index file 4 throughout this note comparisons with previous results for other scandinavian exchanges are made allowing for variations in sample periods we attempt a study of whether a smaller annual turnover of an exchange effects the degree of nonrandomness exhibited by its stock returns of the

firms fiscal years size and industry abstract most u s corporations choose their fiscal years to coincide with the calendar year we document that the larger the firm the more likely it is to begin its fiscal year in january this finding holds across industries

market implication of predisc10sure information size and exchange effects differential market reactions to earnings announcements can inter alia be ascribed to the extent to which such announcements entail surprise i e unexpected information the greater the predisclosure information the less the surprise element in earnings announcements since there is no direct measure of predisclosure information the literature has utilized two different proxies i firm size the size effect atiase 1980 1985 and ii exchange listing the exchange effect grant 1980 atiase 1980 argues that private predisclosure information production and dissemination are an increasing function of firm size capitalization if so the amount of unexpected information conveyed to the market by actual earnings reports should be inversely related to firm size other things equal empirical evidence in atiase 1985 supports this hypothesis grant 1980 found that for otc firms the average price revaluation associated with annual earnings announcements is significantly higher in the report week relative to both nonannouncement

on the diversification observability and measurement of estimation risk this paper reexamines how risk return relationships are affected by investor uncertainty about the exact parameters of the joint rate of return distribution we attempt to clarify results relating to three central issues first we address the issue of diversification focusing on an apt factor model framework second we discuss the observability of estimation risk and describe research experimental designs that should encompass the existence of estimation risk and reveal it in the data finally we suggest exploiting contemporaneous return observations on high and low information securities to aid in the measurement of return parameters for low information securities

nonstationary expected returns abstract recent evidence reveals significant negative serial correlation in aggregate market wide stock returns we extend this result to relative market adjusted returns demonstrating negative serial correlation in five year returns we then test two competing explanations 1 market mispricing and 2 changing expected returns in an efficient market the tests are conducted using the capital asset pricing model to estimate relative returns the evidence suggests that negative serial correlation in relative returns is due almost entirely to variation in relative risks and therefore expected relative returns through time we document substantial relative risk shifts particularly for extreme performing stocks

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

on the individual and incremental information content of accrual earnings cash flows and cash dividends in the finnish stock market abstract this paper investigates the informational characteristics of accrual earnings cash flow based earnings and cash dividend releases in the finnish stock market first the separate effects of the information sources are studied and second the incremental information of these announcements is investigated the results indicate that the market has typically reacted in the same direction as the signs of the unexpected net income cash flow or cash dividend figures suggest however significant time series variation due to the structural changes in the finnish stock market is detected in the results expecially with regard to the cash dividend information it seems that the semi strong efficiency of the finnish stock market has not been fulfilled alternatively this result may be due to the serious problems in risk estimation or due to the impressively high average returns in the finnish stock market during the research period the incremental information content of cash dividends and accounting figures is also evaluated the results suggest that these items of corporate financial information contain at least to some degree different information with respect to each other in addition a significant time series variation of the obtained results is again reported

a simple account of the behavior of long term interest rates recent empirical research on the term structure of interest rates has shown that the long term interest rate is well described by a distributed lag on short term interest rates but does not conform to the expectations theory of the term structure it has been suggested that the long rate overreacts to the short rate this paper presents aunified taxonomy of risk premia or deviations from the expectations theory this enables the hypothesis of overreaction to be formally stated it is shown that if anything the long rate has underreacted to the short rate however the independent movement of the long rate is primarily responsible for the failure of the expectations theory

risk return and equilibrium a revisit this paper reports the results of tests of the major implications of the two parameter capital asset pricing model the findings indicate that the relationship between stock returns and systematic risk contains important nonlinearities during 1935 82 these nonlinearities cannot be ascribed to previously documented anomalies related to firm size or january seasonality moreover the test results appear to be sensitive to the choice of the proxy for the market portfolio

the turn of the year in canada a number of investigators have reported that january stock returns in the u s exceed returns for other months of the year this paper documents a similar finding for canadian stocks over the period 1951 1980 however canada did not introduce a capital gains tax until 1973 and the paper reports that january returns in canada exceed returns for other months of the year before and after this date thus these data do not support the tax loss selling pressure hypothesis as the entire explanation for the turnof the year effect in stock returns nor by implication do they support the tax lossselling pressure hypothesis as the complete explanation for the small firm effect in u s stocks returns recently keim 9 has reported that returns on nyse and ase firms with small market values exceed by significant margins returns on firms with large market values this result was previously reported by banz 1 and reinganum 11 but keim s analysis shows that most of the excess return for small firms is concentrated in january indeed it is concentrated in the first two weeks in january roll 13 also documents this phenomenon and investigates a number of possible explanations for it 2 after rejecting several possible nonexploitable explanations roll is left with year end tax loss selling pressure of the sort discussed by branch 2 dyl 5 and givoly and ovadia 6 as the most likely explanation of this result according to the tax loss selling pressure hypothesis toward the end of the year stockholders sell stocks that have declined in price during the year investors do this to take advantage of the opportunity to write off capital losses against ordinary income in computing their federal income taxes the year end sell off exerts downward pressure on stock prices as soon as the tax and calendar year ends the selling pressure is relieved and stock prices quickly rebound to their equilibrium levels roll 13 presents some evidence consistent with this hypothesis specifically he finds a negative correlation between stock returns in january and returns over the previous 12 months that is stocks that decrease in value during the year tend to be big gainers in january roll also finds that

friction in the trading process and the estimation of systematic risk abstract this paper considers how estimates of the market model beta parameter can be biased by friction in the trading process information decision and transaction costs that a leads to a distinction between observed and true returns b causes observed returns to be generated asynchronously for a set of interdependent securities and c thereby introduces serial cross correlation into security returns several propositions are derived from which consistent estimators of beta are obtained and the effect of differencing interval length on beta estimates is specified the formulation is contrasted with the related analyses of scholes williams 1977 and dimson 1979

unemployment long term employment relations and productivity growth using an effort regulation type of efficiency wage model it is demonstrated that a firm may respond to slackening labor markets by acting to increase the intensity with which workers work the magnitude of this work intensity effect depends on the structure of employment relations where long term employment relations are prevalent the effect of labor market slack on work intensity may be diminished these propositions are tested empirically by estimating the effects unemployment and long term employment have on productivity growth in two digit manufacturing industries copyright 1987 by mit press

sickness absenteeism during a period of job to job transition we examine a novel pattern of workplace sickness absenteeism for job to job movers covering the periods before and after their job transitions the movers display two opposite changes of absenteeism an upward and a downward spike before and after job change the estimates indicate a behavioural effect related to differences in financial incentives for job movers

crossovers dividends and the size effect the size effect may have been the result of high stock volatility and low dividend payments suppose an equity market is partitioned into a large stock index and a small stock index and suppose that over a given period of time each of the indexes retains its share of the total market capitalization price volatility will cause some stocks to cross over from one index to the other which will result in higher returns for the small stock index and lower returns for the large stock index dividend payments by large companies could offset the effect of the crossovers but they have historically been insufficient to do so hence the size effect

relation between market model prediction errors and omitted variables a methodological note a number of accounting studies have examined market model prediction errors to evaluate the share price effects of various events such as voluntary or mandatory accounting changes a common approach is to examine the prediction errors around the event date of a portfolio of potentially affected firms this approach has been extended recently through the use of cross sectional regressions e g leftwich 1981 holthausen 1981 collins rozeff and dhaliwal 1981 sepe 1982 and chow 1983 in which prediction errors or raw returns are regressed on firm specific variables such as size the purpose of this paper is to examine the implications of some recent findings in finance for the various finance based empirical accounting studies in general two types of omitted variables from the standard capital assets pricing model have been identified first several studies have reported that certain firm specific variables such as size banz 1981 and reinganum 1981 earnings yield basu 1975 1983 and dividend payout ratio litzenberger and ramaswamy 1979 may be omitted variables from the standard capm in addition other studies have found some special time series characteristics of stock returns such

taxes and stock return seasonality evidence from the london stock exchange prior to the introduction of capital gains taxes seasonality is not detected in the returns of firms that traded on the london stock exchange however after the imposition of a capital gains tax the british stock return data exhibit apparent monthly effects in both jan uary and april additional analysis reveals that while the april effect is consistent with the tax loss selling hypothesis the january effect cannot be attributed solely to the introduction of capital gains taxation furthermore the authors efforts indicate that much caution should be exercised when interpreting studies that compare results from non u s data sources with those from u s data copyright 1987 by the university of chicago

estimating betas on daily data for a small stock market abstract this paper examines the properties of different market risk beta measures computed on daily data for a thin security market i e the helsinki stock exchange in finland in accordance with the results by dimson and marsh 1983 the paper shows that differences in trading frequency between different stocks produce a serious bias towards what appears to be stability in estimated betas furthermore the paper shows that when betas are computed the exclusive use of stock prices based on actual trades will not solve the problem of a thin trading bias in measured stability of these beta estimates in fact other methods proposed to cope with the thin trading problem seem to be at least as efficient as use of trade to trade returns finally betas corrected for differences in trading frequency are still shown to be statistically related for firm size

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

exchange rate pass through and international pricing strategy a conceptual framework and research propositions the extent to which exchange rate fluctuations affect international prices is called exchange rate pass through this paper develops a conceptual model in explaining how exchange rate fluctuations are channeled into international pricing strategy and offers research propositions our model posits that the extent of exchange rate pass through in international pricing is affected by the firm s pricing orientation performance orientation distribution policy and brand equity as well as by exchange rate uncertainty and competitive symmetry

handling missing prices in a thinly traded stock market implications for the specification of event study methods this paper employs a simulation approach to provide new evidence on how thin trading affects the specification of the event study methods in a thinly traded environment we examine the properties of the returns computed with alternative procedures for handling missing prices as well as their impact on the specification of the event study methods we use the simulation approach to asses the specification of different methods the results indicate that the way missing prices are approximated clearly affects the estimated abnormal returns and the consequent test statistics the increase of variance in the event period needs to be taken into account when estimating standard deviations

predicting risk some new generalizations existing adjustment techniques for forecasting systematic risk of individual firms have been based on relatively uniformative prior knowledge about the cross sectional distribution of risk estimates this study introduces prior information in the form of size and industry based cross sectional distributions of risk estimates such information is incorporated into forecasts using familiar and generalized adjustment techniques the latter being based on recently developed multiple shrinkage methods improved forecast performance results

return intervals systematic risk estimates and firm size abstract prior empirical evidence indicates that the size effect in stock returns is sensitive to the return interval used in estimating systematic risk recently handa kothari and wasley 1989 showed that the size effect is decreased when return interval is lengthened on u s data in this paper we demonstrate that on a thin european security market i e in the finnish stock market the case is just the opposite

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

the stability of uk risk measures and the problem of thin trading this paper examines the problems of estimating risk measures and their stability in thin markets it shows analytically that conventional approaches used in previous studies can lead to serious overestimates of the stability of risk measures when shares are subject to thin trading it then demonstrates using uk data that this is in fact a serious practical problem and that the resultant biases are of precisely the form predicted finally the paper presents reliable evidence on the stability of uk risk measures by using an estimation method designed to avoid thin trading bias using this approach risk measures are found to be as stable in the uk as they are in the usa this paper examines the stability of risk measures in the uk the focus is on providing reliable evidence in a market where many of the shares suffer from thin trading this is important because thin trading can seriously distort stability measures leading to incorrect conclusions indeed this is a problem which has almost certainly afflicted many previous studies of stability the paper makes four main contributions first it shows analytically that thin trading can lead to serious overstatements about stability second it uses uk data to illustrate that this is in fact a serious practical problem and that the biases are of precisely the form predicted this is important for anyone who wishes to interpret previous claims on beta stability in thin markets third the paper presents reliable evidence on the stability of uk betas by using an estimation method designed to avoid thin trading bias besides avoiding bias our

the aftermarket performance of small firm initial public offerings abstract the dream of many entrepreneurs is to some day take his or her growing small firm public and to thereby become the ceo of a publicly traded corporation currently entrepreneurs are continuing to utilize initial public offerings ipos as a viable source of venture financing ipos also represent a viable mechanism for harvesting venture capital and entrepreneurial investments the touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds return to the public equity market negotiate mergers without depleting cash the potential for enhanced personal wealth and so forth investors in small firm public equity issues are often motivated by the potential for discovering another apple computer or perhaps an ibm at the ground floor this study empirically examines the aftermarket returns of small publicly held firms that have issued initial public offerings aftermarket returns refers to stock returns immediately after a stock begins trading the study specifically examines two questions first is there a positive risk return relationship for small firm aftermarket returns where higher firm risk will generate higher aftermarket return second will aftermarket returns show on industry effect where certain industries will automatically generate higher returns answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and will also affect the decisions of investors interested in financing small public corporations the research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives utilizing corporate stock if the true aftermarket performance of their stock is taken into consideration likewise investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms a positive risk return relationship where age was a proxy measure of risk did not exist this was true even though the initially quoted returns of these same younger firms may have been substantial on the other hand the aftermarket performance of older firms is typically favorable finally the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to carry their aftermarket stock performance while certain industries indicated significant positive initial returns aftermarket returns based on industry classification were generally not statistically significant investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues since the variance of their aftermarket market returns tends to be large

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

mandated accounting changes and debt covenants the case of oil and gas accounting abstract the relationships among mandated accounting changes bond covenants and security prices has been the focus of several studies these studies have provided mixed evidence on the existence of a bond covenant effect on security prices this paper suggests that inconclusive prior results are a consequence of inappropriately measuring the default risk of debt using an option pricing framework it is shown that the debt to equity alone is not an adequate measure of default risk in particular both the debt to equity ratio and the total risk of the firm are necessary to adequately model the bond covenant effects of an accounting change these theoretical propositions are supported by the empirical analysis of the security market reaction to changes in oil and gas accounting

the adverse effect of unemployment insurance on workers on the job effort and labor market outcomes i investigate the effect of unemployment insurance on worker on the job effort and its macroeconomic impacts the results show that a moderate increase in unemployment benefits decreases the average wage and employment duration and aggregate output and increases average layoff rate

inquiry on the transmission of u s aggregate shocks to mexico a svar approach abstract we analyze the business cycle co movement between mexico and the us we identify two shocks affecting us aggregate supply three affecting its demand and two types of monetary policy surprises with different financial implications us shocks explain about 75 of expected output fluctuations in mexico at a three year horizon with us demand shocks driving half of these variations alone in turn mexican output responses to a monetary policy surprise in the us depend on the reaction of investors sentiment to said surprise finally for the sample period studied financial market interconnections are as important as goods demand linkages for the international transmission of us shocks

risk and return abstract this paper examines the seasonality in the basic relationship between expected return and risk during 1935 82 the results reveal that the positive relationship between return and risk is unique to january the risk premiums during the remaining eleven months are not significantly different from zero

on the impact of infrequent trading on the apt systematic risk components evidence from a thin security market abstract the purpose of this note is to analyze the effects of infrequent trading on the apt systematic risk components using finnish data infrequent trading is reported to influence especially the first systematic risk component produced by factor analysis on stock returns

does unmeasured ability explain inter industry wage differentials this paper provides empirical assessments of the two leading explanations of measured inter industry wage differentials 1 true wage differentials exist across industries and 2 the measured differentials simply reflect unmeasured differences in workers productive abilities first we summarize the existing evidence on the unmeasured ability explanation second we construct a simple model which shows that if matching is important then endogenous job change decisions can create important self selection biases even in first differenced estimates of industry wage differentials third we analyze a sample that approximates the experiment of exogenous job loss we find that i the wage change experienced by a typical industry switcher closely resembles the difference in the relevant industry differentials estimated in a cross section and ii pre displacement industry affiliation plays an important role in post displacement wage determination

hidden protectionism evidence from non tariff barriers to trade in the united states abstract can the enforcement of product standards be protectionism in disguise this paper estimates the costs of non compliance with u s product standards using a new database on u s import refusals from 2002 to 2014 we find that import refusals decrease exports to the united states this trade reducing effect is driven by developing countries and by refusals without any product sample analysis in particular during the subprime crisis and its aftermath we also provide evidence that given product standards were enforced more strictly during the crisis while the quality of imported products did not deteriorate these results are consistent with the existence of counter cyclical hidden protectionism due to non tariff barriers to trade in the united states

the relation between common stock returns trading activity and market value this study examines the relation between common stock returns trading activity and market value our results indicate that although firm size and trading activity are highly correlated differences in trading activity are not the underlying reason for the firm size anomaly the finding of systematic differences in risk adjusted returns across stocks of firms of different size recent empirical research has revealed systematic differences in risk adjusted returns for common stocks of firms of different sizes as measured by the market value of outstanding common stock see banz 1 and reinganum 5 roll 7 in a recent paper has suggested that the firm size anomaly may result from errors in risk measurement in particular roll suggested that because small firms trade less frequently than large firms risk measures obtained from daily or weekly returns data may seriously underestimate the risk associated with holding a portfolio of small firms in response to roll s conjecture reinganum 6 examined the risk adjusted returns of portfolios formed on the basis of firm size using both the scholes williams 8 and the dimson 2 aggregated coefficient method of estimating portfolio betas and found that regardless of the beta estimation technique employed differences in estimated betas were insufficient to account for differences observed in the returns of size ranked portfolios if reinganum s 6 finding is correct that the firm size effect is not attributable to a misassessment of risk and if smaller firms trade less frequently than do larger firms then firm size may merely proxy for trading activity 1 thus the observed firm size effect may be explained in terms of a liquidity premium associated with inactively traded shares the purpose of this paper is to determine whether or not the firm size anomaly is explicable in terms of differences in the trading activity of common stocks a liquidity premium would provide a logically appealing explanation for the firm size effect tinic 11 demsetz 3 and others have argued that transactions costs vary inversely with trading activity as measured by average number of

cost of capital to the hospital sector this paper provides estimates of the cost of equity and debt capital to for profit and non profit hospitals in the u s for the years 1972 83 the cost of equity is estimated using alternatively the capital asset pricing model and arbitrage pricing theory we find that the cost of equity capital using either model substantially exceeded anticipated inflation the cost of debt capital was much lower accounting for the corporate tax shield on debt and capital paybacks by cost based insurers lowered the net cost of capital to hospitals

an empirical study of selected factors influencing the decision to list on foreign stock exchanges the growing internationalization of capital markets suggests that an increasing number of firms perceive the benefits of listing their stocks on foreign exchanges as outweighing the related costs many other firms however still limit listing their securities to their domestic exchanges this study investigates the motives for listing abroad the empirical analyses based on data on 481 multinationals indicate significant association between the likelihood of listing abroad and 1 the relative size of a firm in its domestic capital market 2 the ratio of foreign to total sales

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

making do with less working harder during recessions why did productivity rise during recent recessions one possibility is that average worker quality increased a second is that each incumbent worker produced more the second effect is termed making do with less using data from 2006 to 2010 on individual worker productivity from a large firm these effects can be measured and separated for this firm most of the gain in productivity during the recession was a result of increased effort additionally the increase in effort is correlated with the increase in the local unemployment rate presumably reflecting the costs of losing a job

event study methodologies and the size effect abstract this study of 862 press recommendations demonstrates that the size effect can distort longer term performance measures and hence event studies relative to similar sized companies post publication performance is neutral however market adjustments the capm and market model with equally or capitalization weighted indexes all produce biased results event studies are most exposed to such bias when the measurement interval is long event securities differ systematically in size or weighting from the index constituents the size effect is large and or volatile and when capm type methodologies are used these distortions are avoided by explicitly controlling for size

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

transaction costs and asset prices a dynamic equilibrium model in this article we study the effects of transaction costs on asset prices we assume an overlapping generations economy with a riskless liquid bond and many risky stocks carrying proportional transaction costs we obtain stock prices and turnover in closed form surprisingly a stock s price may increase in transaction costs and a more frequently traded stock may be less adversely affected by an increase in transaction costs calculations based on the marginal investor overestimate the effects of transaction costs for realistic parameter values transaction costs have very small effects on stock prices but large effects on turnover

survey evidence on diffusion of interest and information among investors abstract questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications it was found that direct interpersonal communications are very important in investor decisions questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word of mouth communications or other salient stimuli randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth the survey evidence is interpreted as supporting such models

overreaction underreaction and the low p e effect although earnings surprises have been studied extensively they have not been examined in the context of contrarian strategies positive and negative earnings surprises affect best high p e and worst low p e stocks in an asymmetric manner that favors worst stocks long term reversion to the mean in which worst stocks display above market returns while best stocks show below market results regardless of the sign of the surprise continues for at least 19 quarters following the news these results are consistent with mispricing overreaction to events prior to the surprise and a corrective price movement after the surprise is consistent with extant research on underreaction the mispricing correction hypothesis explains the superior returns of contrarian strategies noted here and elsewhere in the literature

the seasonal stability of the factor structure of stock returns this paper investigates the month by month stability of a daily returns and correlation coefficients of stock returns b correlation and covariance matrices c number of return generating factors and d the apt pricing relationship the results show that there is a january effect and a small firm effect in stock returns correlation matrices are more stable than covariance matrices but both types of matrices are not stable across months and across the sample groups the number of return generating factors is rather stable most of the time and for most of the sample groups but there is some significant instability that is related to the average correlation coefficients among stocks the apt pricing relationship does not seem to be supported by the two stage process using the maximum likelihood factor analysis the seasonality of common stock returns has received considerable attention in financial economics research studies by officer 23 rozeff and kinney 29 gultekin and gultekin 11 and others have investigated the stock returns of the u s and other countries on a monthly basis they generally have found that on average january returns are significantly higher than the returns for other months banz 1 and reinganum 25 26 have found abnormally high returns in small market value firms and keim 17 has related this to the first few trading days of january schwert 30 points out the current difficulty of explaining these empirical regularities and the need for further investigations several studies have examined seasonality in risk premiums rozeff and kinney 29 found that seasonality appeared in the risk premiums obtained from a twoparameter capm and that january displayed a relatively large risk premium compared with the other months keim 16 also found seasonality in the risk premiums more recently tinic and west 32 examined the risk premiums of the two parameter capm and observed the previously reported seasonality and high january premium they also found that january is the only month in which there is a consistently positive statistically significant relationship between expected return and risk very recently using the two stage procedure with the

options short sales and market completeness this paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales the significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling we also find significant effects on option prices related to the short interest in the underlying stock we then present evidence that options also increase information efficiency earlier work that is replicated and extended here has suggested that short sale constraints cause stock prices to underweight negative information options appear to reduce that effect

the impact of the return interval on common factors in stock returns evidence from a thin security market abstract the purpose of this paper is to analyze the effect of the return interval on common factors estimated in finnish stock returns firstly common factors are identified by factor analysis using daily weekly and monthly return intervals the similarity of these factors is then studied applying transformation analysis it is discovered that the factors produced by alternative return intervals significantly differ from each other an exception is the first factor representing the market index of securities

strategic foreign exchange management this paper argues that it is possible to advise firms on how to hedge against foreign exchange risks only if one has detailed knowledge of the competitive environment they work in to illustrate this we compare firms hedging requirements in a number of different standard industrial organizations models in particular the cournot model a model with conjectural variations price taking firms and monopolistic competition consider the situation of a firm producing in germany and selling an important part of its total output in the us obviously its profitability may be seriously compromised by an unexpected appreciation of the dm relatively to the the company can react to this uncertainty in two ways either it can assume that the conditions of the modigliani miller theorem are approximately fulfilled and that it best serves the interests of its shareholders by behaving in a risk neutral fashion alternatively the firm may for a variety of reasons behave as a risk averter itself and try to obtain some coverage against exchange rate risk when looking at the amount of insurance taken up by companies on conventional insurance markets one gets the impression that the latter alternative risk averse firms is for many practical cases a realistic assumption the activities of many companies are more easily understood if one admits that they exhibit a certain degree of risk aversion if one accepts this one may go on to ask just how companies should go about insuring themselves against unexpected exchange rate fluctuations more specifically one has to study how much exchange risk the firms should insure against and which exchange rates are of relevance in the example above of a german company selling in the us the answer might at first sight seem obvious the company should obtain coverage against dm fluctuations for an amount approximately equal to its anticipated revenues on brief reflection it immediately appears that this is surely an excessively simplistic answer first the amount of coverage required must be affected by the question of how the price of the product varies when the dm exchange rate shifts second it may be the case that the german company s main competitors are located in say france in this case fluctuations of the

conducting event studies with thinly traded stocks abstract procedures for measuring abnormal performance around events when securities do not trade daily are examined a rank test patterned after the statistic proposed by corrado corrado c j 1989 a nonparametne test for abnormal security price performance in event studies journal of financial economics 23 385 395 is derived the empirical frequency distributions of the rank test statistic and a conventional test statistic are assessed under different rules for handling missing stock returns the results suggest that the traditional procedures are reasonably well specified for thickly and moderately traded stocks but misspecified for thinly traded stocks the rank test however performs well for all trading frequencies and trade to trade returns are the best way to handle missing returns

breaking the silos distributed knowledge and strategic responses to volatile exchange rates a model of effective decision making in a situation of distributed knowledge is developed drawing on three perspectives the sociocognitive perspective which focuses on framing issues the economic perspective which focuses on the role played by incentives in the integration of knowledge and decision making authority and the process perspective which stresses the role of integrating mechanisms and of processes that either hinder or foster risk awareness and flexibility the model is tested on a sample of managers from different functional areas of fortune 500 firms using strategic responses to exchange rate volatility as the context the results show that all three perspectives framing incentives and process are significant in explaining the effectiveness of strategic responses to volatile exchange rates the findings suggest that simultaneously addressing managerial mindsets incentives and process may be crucial to generating effective strategic responses across functions