market efficiency and insider trading new evidence that corporate insiders earn profits from stock trading does not surprise most financial economists but that outsiders can earn abnormal returns by using pub licly available insider trading data constitutes a serious exception to stock market efficiency the authors show that this anomaly conti nues to exist despite the publication of studies attesting to its exi stence they suggest that the anomalous profits to outsiders are a ma nifestation of the size and earnings price ratio effects controlling for these factors reduces outsider profits by half the additional a ssumption of a 2 percent transactions cost makes outsider profits zer o or negative insider profits after an assumed 2 percent transactio ns cost are a moderate 3 percent per annum for annual holding period s copyright 1988 by the university of chicago

production planning in data envelopment analysis abstract the present paper extends prior researches on data envelopment dea based production planning in a centralized decision making environment in such an environment the production planning problem involves the participation of all individual units each contributing in part to the total production the production planning problem involves determining the number of products to be produced by all individual units in the next season when demand changes can be forecasted the current study is concerned with optimal production planning in a centralized decision making environment the approach proposed in this paper takes the size of operational units into consideration and the production level for each unit becomes proportional to the ability of the units the applicability of the proposed approach in real applications is illustrated empirically using two real cases

insider trading as a signal of private information there is substantial evidence that insider trading is present around corporate announcements and that this insider trading is motivated by private information using real estate investment trusts that choose to reappraise themselves as our sample we establish that the appraisals contain information but find no market response to the public announcement of this information in these appraisals we consider two possible explanations for this inconsistency the first that the appraisal information is not highlighted in earnings reports and hence remains unobserved and the second that insiders trade on the appraisal information in the time that elapses between the appraisal and its public announcement we find strong support for the second hypothesis with insiders buying selling after they receive favorable unfavorable appraisal news especially for negative appraisals we also find that positive negative appraisals and net insider buying selling elicit significant positive negative abnormal returns during the appraisal period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

industry window dressing we explore a new mechanism by which investors take correlated shortcuts and present evidence that managers using sales management take advantage of these shortcuts specifically we exploit a regulatory provision wherein a firm s primary industry is determined by the highest sales segment exploiting this regulation we provide evidence that investors classify operationally nearly identical firms as starkly different depending on their placement around this sales cutoff moreover managers appear to exploit this by manipulating sales to be just over the cutoff in favorable industries further evidence suggests that managers engage in activities to realize large tangible benefits from this opportunistic action

resource allocation based on efficiency analysis the purpose of this paper is to develop an approach to a resource allocation problem that typically appears in organizations with a centralized decision making environment for example supermarket chains banks and universities the central unit is assumed to be interested in maximizing the total amount of outputs produced by the individual units by allocating available resources to them we will develop an interactive formal approach based on data envelopment analysis dea and multiple objective linear programming molp to find the most preferred allocation plan the units are assumed to be able to modify their production in the current production possibility set within certain assumptions various assumptions are considered concerning returns to scale and the ability of each unit to modify its production plan numerical examples are used to illustrate the approach

financial contracting under extreme uncertainty an analysis of brazilian corporate debentures abstract economic volatility high transaction costs and fragile institutions hinder financial contracting in emerging markets these conditions characterize the economy of brazil yet a nascent corporate bond market thrives i analyze 50 brazilian indenture agreements and find that sample debentures are characterized by i features that mitigate inflation risk for investors ii contingent maturity mechanisms that provide periodic opportunities for exit or renegotiation iii a paucity of covenants that restrict the debtor s investment financing and dividend decisions and iv self enforcement mechanisms that avoid reliance on inefficient institutions analysis of these features enhances our understanding of contracting in emerging economies

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

do stock investors value corporate sustainability evidence from an event study this paper analyzes the impacts of index inclusions and exclusions on corporate sustainable firms by studying a sample of us stocks that are added to or deleted from the dow jones sustainability world index over the period 2002 2008 the impacts are measured in terms of stock return risk and liquidity we cannot find any strong evidence that announcement per se has any significant impact on stock return and risk however on the day of change index inclusion exclusion stocks experience a significant but temporary increase decrease in stock return liquidity deteriorates after the announcement day and bounces back significantly near the day of change systematic risk shows little change after announce ments but idiosyncratic risk is higher after announcements the overall results support harris and eitan s the journal of finance41 4 815 829 1986 price pressure hypothesis which posits that event announcement does not carry information and any shift in demand and hence the corresponding price change and liquidity change is temporary

daily monetary impulses and security prices this paper uses swiss data to study the real long run effects of monetary policy daily unexpected changes in the monetary base are found to be negatively correlated with security price changes this result is unaffected when implicitly following geske and roll 1983 we try to measure the autonomous component of monetary policy by taking into account a reaction function of monetary policy to changes in real variables

inflation forecast errors and time variation in term premia the expectations theory of the term strueture is well known to give wrong signals as to the future course of long term interest rates one explanation involves rational time varying term premia however the anomaly may also be due to inflation forecast errors we study survey forecasts of inflation it seems that the respondents forecasts are insufficiently adaptive interest rates reflect expectations similar to the inflation forecasts as a result past survey forecast errors reliably predict premia on u s government bonds

macroeconomics news and the stock market evidence from europe abstract the effects of unexpected variations in many macroeconomic variables on aggregate stock price indices are evaluated for great britain west germany and switzerland quarterly data over the recent flexible exchange rate period are used the results indicate that the effects of macroeconomic news are either very small or obscured by a low signal to noise ratio

common stocks as hedges against shifts in the consumption or investment opportunity set the purpose of this paper is to explore the potential of using common stocks as hedges against unanticipated shifts over time in investors consumption or investment opportunity sets the generalized or multiperiod capital asset pricing model capm developed in different forms by merton 1973 long 1974 richard 1977 and breeden 1979 forms the basis for this exploration in this model shifts in investors consumption or investment opportunity sets are caused by changes in the stochastic elements of the state of the world that affect investor taste for wealth the state of the world is defined in terms of the level of state variables so that unanticipated changes in the levels of the state variables imply or are associated with changes in the state of the world the analysis of this paper does not constitute a test of the generalized capm because hedging potential is a necessary but not sufficient condition for the generalized capm to improve upon the traditional two factor model the existence of hedging potential is of interest in itself howthis paper contains an investigation of the potential for using nyse stocks as hedges against changes in the consumptioninvestment opportunity set we perform this investigation under two characterizations of a multiperiod or generalized capital asset pricing model we find sufficient crosssectional dispersion in common stock return covariances with unanticipated changes in real gnp the price level and aggregate consumption that hedge portfolios offer meaningful hedging potential in the portfolioformation period the positive hedging potential persists out of the portfolio formation period but is strongly significant only for consumption

the tax effects of inflation depreciation debt and miller s equilibrium tax rates indexing historical cost accounting to inflation has received considerable attention in the accounting literature from a tax perspective it is often argued that with historical cost accounting inflation increases effective corporate tax rates ceteris paribus see davidson and weil 1978 williams 1979 bernard 1981 and gonedes 1981 1 a major reason is the failure of historical cost accounting to index the depreciation tax shield to inflation but explicit indexation may not be necessary to achieve all the effects of indexation the same effects can be attained at least with respect to expected rates of inflation if nominal interest rates incorporate unbiased forecasts of rates of inflation gonedes 1981 p 247 2 davidson and weil 1976 note that price level adjusting the tax system would increase the depreciation tax shield but it would diminish the tax saving attribute of debt financing in a period of rising prices 1976 p 99

mimickers of corporate insiders who make large volume trades most prior research shows that corporate insiders can systematically earn abnormal returns by buying or selling their own securities also several studies have investigated whether outsiders can earn abnormal returns by mimicking the trades of insiders after the latter report their trades the findings of these studies suggest that they cannot in contrast this study s results indicate that outsiders can earn significant abnormal returns by mimicking such trades this conclusion is consistent with a growing body of empirical literature that suggests that the market is not efficient in the semistrong form i e is not efficient with respect to all publicly available information

tests of the nominal contracting hypothesis using stocks and bonds of the same firms abstract we test the nominal contracting hypothesis by examining the price responses of stocks and long term bonds issued by the same firms to inflation surprises we fail to find evidence that unexpected inflation transfers wealth to real from nominal contract holders i e to stockholders from bondholders an alternative interpretation of previous tests that seemingly support the nominal contracting hypothesis is proposed based on firms asset rather than liability structures our test results and alternative interpretation suggest caution in ascribing to nominal contracts major intrafirm wealth redistributions due to unexpected inflation

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

a direct test of roll s conjecture on the firm size effect empirical research indicates that small firms earn higher average rates of return than large firms even after accounting for beta risk roll conjectured that the small firm effect might be attributed to improper estimation of security betas the evidence shows that while the direction of the bias in beta estimation is consistent with roll s conjecture the magnitude of the bias appears to be too small to explain the firm size effect

insider trades and demand by institutional and individual investors there is a strong inverse relation between insider trading and institutional demand the same quarter and over the previous year our analysis suggests a combination of factors contribute to this relation first institutional investors are more likely to provide the liquidity necessary for insiders to trade second insiders are more likely to buy low valuation and low lag return stocks while institutions are attracted to the opposite security characteristics last the results are consistent with the hypothesis that insiders are more likely to view their securities as overvalued undervalued following a period when institutions were net buyers sellers the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

skewness preference and the measurement of abnormal returns in performing an empirical analysis of stock market returns there are certain conditions under which the quadratic characteristic line qcl will be the appropriate return generating process compared to the linear characteristic line lcl these conditions are whether the parameter associated with the squared market term the deviation from the mean is significantly different from zero and whether the return on the market portfolio is asymmetrically distributed or skewness is present examining abnormal returns surrounding stock splits we find that these conditions hold for our data set having ascertained that the conditions for qcl hold we find that the cumulative average returns cars obtained using qcl dominate the cars obtained using lcl in the event time and the car space for the dividend increase sub sample furthermore the standardized abnormal returns for the qcl model are significantly different than those obtained using the lcl model we find that neither the lcl nor the qcl paradigm re

new network data envelopment analysis approaches an application in measuring sustainable operation of combined cycle power plants abstract nowadays organizations deal with numerous economic environmental and social problems to have sustainable operations they have begun to incorporate environmental and social concerns into conventional economic objectives a combined cycle power plant ccpp is a good instance of an open system with multistage processes and interconnected activities efficiency evaluation of ccpps is a complex task since there exist a variety of inputs outputs which enter into any stages of network additionally there might be intermediate products which are consumed by the same power plants we call such factors loop intermediate measures to measure efficiency of ccpps network data envelopment analysis ndea is used this paper proposes new ndea models to evaluate efficiency of ccpps the proposed models calculate the efficiency of power plants and their sub sectors under both crs constant returns to scale and vrs variable returns to scale assumptions this paper provides a comprehensive analysis for returns to scale we apply the new ndea models to measure relative efficiency of ccpps

unanticipated interest rates bank stock returns and the nominal contracting hypothesis abstract the relationship between unexpected interest rate movements and bank stock returns is analyzed in the context of the nominal contracting hypothesis unanticipated changes in interest rates should influence individual bank profits and stock returns depending on the maturity characteristics of their assets relative to their liabilities this hypothesis is investigated by constructing portfolios on the basis of the nominal contracting positions of banks the main conclusion of this paper is that the wealth redistribution implications of the nominal contracting hypothesis is found to be unimportant in the determination of bank stock returns

information expected utility and portfolio choice we study the consumption investment problem of an agent with a constant relative risk aversion preference function who possesses noisy information about the future prospects of a stock we also solve for the value of information to the agent in closed form we find that information can significantly alter consumption and asset allocation decisions for reasonable parameter ranges information increases consumption in the vicinity of 25 information can shift the portfolio weight on a stock from 0 to around 70 thus de pending on the stock beta the weight on the market portfolio can be considerably reduced with information causing the appearance of underdiversification the model indicates that stock holdings of informed agents are positively related to wealth unrelated to systematic risk and negatively related to idiosyncratic uncertainty we also show that the dollar value of information to the agent depends linearly on his wealth and decreases with both the propensity to intermediate consumption and risk aversion

are changes in inflation expectations capitalized into stock prices a micro firm test for the nominal contracting hypothesis unlike earlier studies the author finds empirical support using microfirm data for the nominal contracting hypothesis that is changes in expected inflation create a wealth redistribution between creditors bondholders and debtors shareholders the author is able to improve model specification by 1 recognizing explicitly that a firm s asset and capital structure variables are balance sheet constrained and 2 controlling for individual firm risk differences and capital gains taxation copyright 1989 by mit press

those who know most insider trading in eighteenth century amsterdam this paper studies how private information is incorporated into prices using a unique setting from the eighteenth century that is closer to stylized models of price discovery than modern day markets specifically the paper looks at english securities traded in both london and amsterdam private information reached amsterdam through sailing boats that sailed only twice a week and in adverse weather could not sail at all results are consistent with a kyle model in which informed agents trade strategically most importantly the speed of information revelation in amsterdam depended on the expected time until the private signal would become public

executive option exercises and financial misreporting abstract several recent papers document that the magnitude of potential gains from stock based compensation is positively related to the likelihood of misreporting in a sample of firms that announce restatements of their financial statements from 1997 to 2002 we examine whether managers realize these potential gains occurring from their accounting choices after controlling for diversification needs and stock price impact we find no significant evidence of higher option exercises by executives in the misreported years however for firms that are more likely to have made deliberate aggressive accounting choices we find significant evidence of higher option exercises for these firms option exercises are higher by 20 60 in comparison to industry and size matched nonrestating firms options exercises by executives are also increasing in the magnitude of the restatement as captured by the effect of the restatement on net income these higher option exercises tend to be more pervasive and are not just confined to the ceo and cfo of the firm

thrift stock returns and portfolio interest rate sensitivity abstract in practice the interest rate sensitivity of depository institution di net worth is measured in terms of maturity mismatches arising from nominal contracts in their financial portfolios academic studies also frequently invoke nominal contracting to explain a positive covariation observed between di stock returns and bond returns for a sample of thrifts reporting detailed financial data 1984 1992 this study estimates monthly changes in their financial portfolio values due to changes in interest rates these portfolio value changes are found to be unimportant in explaining the thrifts stock returns and are unable to account for a positive covariation between the stock returns and bond market returns potential weaknesses in the tests seem inadequate to explain the results explanations other than nominal contracting may warrant more consideration in relating dis net worth to interest rate changes

what insiders know about future earnings and how they use it evidence from insider trades abstract this paper provides evidence that insiders possess and trade upon knowledge of specific and economically significant forthcoming accounting disclosures as long as 2 years prior to the disclosure stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings insider stock sales are greater for growth firms before a longer period of declining earnings and when the earnings decline at the break is greater consistent with avoiding an established legal jeopardy there is little abnormal selling in the two quarters immediately prior to the break

does section 16b deter insider trading by target managers abstract this paper examines empirically whether the short swing rule section 16b of the securities exchange act deters managers from trading before mergers since a merger forces the sale of the target s outstanding equity insider purchases within six months before the merger cannot escape this rule we examine the 1941 1961 period when no other insider trading laws were enforced consistent with 16b s deterrent effect managers purchases drop significantly before the announcement before completion the decrease occurs only in the 1941 1955 period surprisingly pre announcement sales do not decline even though 16b cannot punish deferral of planned sales

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

is a convertible bond call really bad news we test and reject the hypothesis that managers call in the money convertibles when they view a decline in the value of the firm as likely inconsistent with this view we find that insiders generally buy equity before conversion forcing calls also analysts tend to raise their earnings forecasts following a call thus our evidence supports the alternative hypothesis that the price decline immediately following conversion forcing calls is a purely transitory decline caused by the anticipated increase in the supply of equity indeed our evidence confirms that the initial price decline is reversed in the weeks following the announcement

a new approach to testing asset pricing models the bilinear paradigm we propose a new approach to estimating and testing asset pricing models in the context of a bilinear paradigm introduced by kruskal 18 this approach is both simple and at the same time quite general as an illustration we apply it to the special case of the arbitrage pricing model where the number of factors is pre specified the data appear to be generally in conflict with a five or seven factor representation of the model used by roll and ross 30 when we consider the number of replications of our test and the large number of observations on which it is performed the frequency with which we reject the three factor apm does not lead us to conclude that this model is unrepresentative of security returns further the rejection of the five and seven factor versions is to be expected if the three factor version is correct the paradigm gives insight into the appropriate specification of the model and suggests that there may be a small number of economy wide factors that affect security returns tests of asset pricing models on the basis of observed stock market data have represented a staple of the financial economics literature of the past twenty years the early work is reviewed in the famous paper by jensen 12 and papers by fama and macbeth 6 rosenberg and marathe 31 and roll and ross 30 there has been a great deal of confusion regarding what testable propositions are implied by these models see discussion in roll 29 in this paper we show that at a minimum all asset pricing models yet proposed imply a simple easily testable hypothesis which we refer to as the bilinear hypothesis while specific models may imply further testable propositions if the bilinear hypothesis is rejected the model is inconsistent with the data and should be rejected our test exploits the fact that the economic content of any equilibrium asset pricing model can be expressed in the form of a potentially refutable constraint on the set of parameters of the process generating security returns this constraint specifies that given a set of security specific characteristics there exists a linear relationship common across securities relating expected returns to these

non linearities and nominal contracting effects the case of the depreciation tax shield abstract this paper shows that the effect of nominal contracting on stock returns may be more important than previously believed when information on the maturity structure of depreciation tax shields is incorporated into tests of the nominal contracting hypothesis nominal contracting effects that are not otherwise detectable become so additionally the proportion of stock return variation explained by nominal contracting effects and the aggregate effect on stock returns of depreciation tax shield revaluations are found to be greater than previously believed

cancellable insider trading plans an analysis of sec rule 10b5 1 rule 10b5 1 enables insiders to preplan future trades before becoming informed within a strategic rational expectations equilibrium framework i characterize an insider s unique optimal trading plan which balances portfolio diversification against exploitation of the rule s selective termination option because the rule reduces adverse selection and provides insurance against bad outcomes the rule generally improves welfare for both the insider who later becomes informed and uninformed outsiders provided there exists a sufficient degree of information asymmetry eliminating the rule s selective termination option results in an even greater welfare improvement under a large subset of parametric conditions received march 9 2018 editorial decision january 11 2019 by editor wei jiang

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

rumor has it sensationalism in financial media the media has an incentive to publish sensational news we study how this incentive affects the accuracy of media coverage in the context of merger rumors using a novel dataset we find that accuracy is predicted by a journalist s experience specialized education and industry expertise conversely less accurate stories use ambiguous language and feature well known firms with broad readership appeal investors do not fully account for the predictive power of these characteristics leading to an initial target price overreaction and a subsequent reversal consistent with limited attention overall we provide novel evidence on the determinants of media accuracy and its effect on asset prices

inflation output and money this paper uses money demand theory and a rational expectations version of the quantity theory of money to study inflation in the united states during the post korean war period the major results are as follows 1 the theory and tests explain the phenomenon of stagflation that is the negative relation between inflation and real activity observed during the post 1953 period the analysis calls into question the many variants of the phillips curve which presume that inflation real activity relations are positive 2 consistent with the models of patinkin 1961 and fama 1980 monthly quarterly and annual data indicate that the base currency plus reserves held against deposits is the relevant monetary variable in the inflation process and that demand deposits are irrelevant the direct policy implication is that the base is the key monetary variable in the control of inflation 3 the most convincing evidence for the simple quantity theory view of inflation proposed here comes from the comparison of the conditional exmoney demand theory and the quantity theory of money are used to study the inflation process as predicted by the model monthly quarterly and annual data indicate that inflation is positively related to money growth rates and negatively related to growth rates of real activity the theoretical and empirical origins of stagflation are explained and changes in monetary arrangements to simplify the control of inflation are prescribed

insider trading stock return volatility and the option market s pricing of the information content of insider trading abstract we find strong evidence that net insider selling is positively associated with future stock return volatility consistent with insider selling increasing outside investors uncertainty the positive effect of net insider selling is significantly stronger when the volatility is measured around the earnings announcement apparently option prices do not fully reflect the information content of insider trading for future volatility more specifically we find no evidence that option traders adjust the implied volatility for the insider trading effect in a timely manner consequently net insider selling is significantly associated with future option straddle returns and delta neutral returns

overreaction and insider trading evidence from growth and value portfolios insider transactions are not random across growth and value stocks we find that insider buying climbs as stocks change from growth to value categories insider buying also is greater after low stock returns and lower after high stock returns these findings are consistent with a version of overreaction which says that prices of value stocks tend to lie below fundamental values and prices of growth stocks tend to lie above fundamental values do market prices reflect investor overreaction 1 the purpose of this paper is to provide evidence on this question however new evidence is unlikely to change many minds if the findings depend on the newly controversial capital asset pricing model capm or multifactor models or if they involve datasnooping 2 we bypass these problems by not using capm or a benchmark model and by examining a new set of data we measure insider buying and selling in stocks that are ranked by measures such as the ratio of cash flow per share to price per share cf p 3 current practice refers to stocks with low cf p as growth stocks and to stocks with high cf p as value stocks we examine the direction of insider trades along the growth value spectrum to see if they are consistent with attempts to profit from market overreaction by overreaction we mean price movements that predictably reverse this experiment does not require an asset pricing model because we do not examine the returns accruing to insider trades 4

allocating fixed costs and resources via data envelopment analysis abstract in this paper we show that data envelopment analysis dea can be viewed as maximising the average efficiency of the decision making units dmus in an organisation building upon this we present dea based models for a allocating fixed costs to dmus and b allocating input resources to dmus simultaneous to allocating input resources output targets are also decided for each dmu numeric results are presented for a number of example problems taken from the literature

insider trading and the short swing profit rule abstract the short swing profit rule is a federal statute that requires insiders to forfeit any trading profit earned from a combined purchase and sale that occurs within a six month period using a multi period strategic rational expectations equilibrium framework i demonstrate that the rule tends to reduce both the amount of insider trading and the amount of profit earned by an informed insider from information based trades because the rule imposes a constraint on the insider s dynamic trading strategy nevertheless the rule increases the insider s welfare at the expense of uninformed investors outsiders because the rule inhibits risk sharing which leads to an ex ante wealth transfer from outsiders to the insider

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

unanticipated inflation and the value of the firm abstract evidence presented here indicates that the relationship between stock returns and unexpected inflation differs systematically across firms the differences are shown to be consistent with cross sectional variation in firms nominal contracts monetary claims and depreciation tax shields the differences are also partially explained by proxies for underlying firm characteristics that could create interaction between unexpected inflation and operating profitability finally much if not most of the differences appear to arise because unexpected inflation is correlated with changes in expected aggregate real activity the effects of which tend to vary across firms according to their systematic risk

insider trading earnings changes and stock prices this study empirically examines the relation between reportable insider trading and the information captured by annual unexpected earnings for a large sample of firms spanning a ten year period 1978 87 each observation is assigned to one of four groups based on the direction of net insider trading buy sell and the sign of unexpected earnings for each of these groups 15 month cumulative abnormal returns are regressed on annual unexpected earnings the slope coefficient is the largest for the group where insiders are net purchasers and the sign of unexpected earnings is positive this is consistent with an inference that insider buying interactively confirms the favorable information captured by positive unexpected earnings and this interaction reduces the noise in unexpected earnings the result with regard to the unfavorable information captured by the group with insider selling and negative unexpected earnings is similar but less pronounced the analysis also suggests that insider trading conveys information not fully captured by the year s earnings

discussion of earnings announcement promotions a yahoo finance field experiment abstract lawrence et al run a field experiment on yahoo finance which randomly promotes some earnings stories they find that firms in promoted stories have higher contemporaneous returns i begin by reviewing the media and finance literature and discuss the difficulty in solving the identification problem lawrence et al wish to solve i then discuss how their results fit with existing theories of attention and suggest some changes that could help pin down which theory best explains the results finally i discuss possible directions for future research i would like to thank john core editor and participants at the 2017 journal of accounting and economics conference for their comments and suggestions all errors here are my own

decoding inside information exploiting the fact that insiders trade for a variety of reasons we show that there is predictable identifiable routine insider trading that is not informative about firms futures a portfolio strategy that focuses solely on the remaining opportunistic traders yields value weighted abnormal returns of 82 basis points per month while abnormal returns associated with routine traders are essentially zero the most informed opportunistic traders are local nonexecutive insiders from geographically concentrated poorly governed firms opportunistic traders are significantly more likely to have sec enforcement action taken against them and reduce trading following waves of sec insider trading enforcement

insider trading and the value of the firm previous studies of insider trading have examined the profitability to executives of their stock trading with a view to evaluating the informational efficiency of securities markets the authors examine empirically whether insider trading raises or lowers firm value to correctly identify the effects on firm value at the margin they correct for the simultaneity of earnings insider holdings and the amount of insider trading the authors explicitly deal with simultaneity by using a two part testing procedure their results suggest that insider trading lowers the value of the firm at the margin but that greater executive stock ownership raises the value copyright 1991 by blackwell publishing ltd

market reaction to business week inside wall street column a self fulfilling prophecy abstract this study focuses on stocks mentioned in a business week bw column in which over half the stories quote an analyst as a source the results of the study show that stocks with a favorable report in bw earn positive abnormal returns at the time of the distribution of the weekly however this is true only for stocks followed by less than twenty analysts within this group the market response increases as the number of analysts decreases stocks followed by more than twenty analysts do not respond at the time of their mention in bw we further document that trading volume increases at the time of the publication of the story the six month size adjusted post bw performance of the less closely followed stocks with favorable stories is negative and offsets the abnormal return at the time of the bw story we conclude that the evidence is consistent with the self fulfilling prophecy hypothesis i e traders react to bw stories and influence the prices of stocks only to lose in the long run six months the results also show that information obtained from non analyst sources has a greater impact on stock prices than the information from analyst sources indicating that some of analysts information is already reflected in prices through their clients trading the return reversion over six months is observed for bw stories with both analyst as well as non analyst sources

ceo compensation in financially distressed firms an empirical analysis this paper studies senior management compensation policy in 77 publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987 almost one third of all ceos are replaced and those who keep their jobs often experience large salary and bonus reductions newly appointed ceos with ties to previous management are typically paid 35 less than the ceos they replace in contrast outside replacement ceos are typically paid 36 more than their predecessors and are often compensated with stock options on average ceo wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts however managers compensation is sometimes explicitly tied to the value of creditors claims

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

anomalies in security returns and the specification of the market model we examine the hypothesis originally advanced by roll 12 that observed anomalies in excess returns can be explained by misspecification of the market model used to estimate systematic risk we find substantial misspecifications in the model systematically related to size and period of listing of the securities in question there is some evidence that these misspecifications are associated with systemic biases in measured betas used to construct excess returns

a comparison of inflation forecasts interest rate models provide slightly better monthly forecasts and substantially better eight and fourteen month forecasts of inflation than a univariate time series model the livingston surveys underestimate eight and fourteen month inflation rates especially during the high inflation period of 1978 81 in contrast eight and fourteen month inflation forecasts extrapolated from one month interest rates show little bias and track ex post eight and fourteen month inflation rates better than the survey forecasts

the gains to bidding firms from merger abstract this study examines the effect of mergers on the wealth of bidding firms shareholders bidding firms gain significantly during the twenty one days leading to the announcement of each of their first four merger bids these results fail to support the capitalization hypothesis that bidders gains are captured at the beginning of merger programs bidders abnormal returns are positively related to the relative size of the merger partners and the gains during the announcement period are larger for mergers which are successful though the gains are larger prior to 1969 merger bids after 1969 also significantly increase the wealth of bidding firms shareholders the results suggest that the inconclusive findings of the earlier studies may be due to methodological deficiencies the findings of this study are consistent with value maximizing behavior by the management of bidding firms

industry returns and the fisher effect we investigate the cross sectional relation between industry sorted stock returns and expected inflation and we find that this relation is linked to cyclical movements in industry output stock returns of noncyclical industries tend to covary positively with expected inflation while the reverse holds for cyclical industries from a theoretical perspective we describe a model that captures both i the cross sectional variation in these relations across industries and ii the negative and positive relation between stock returns and inflation at short and long horizons respectively the model is developed in an economic environment in which the spirit of the fisher model is preserved the fisher model states that expected nominal rates of return on assets should move one for one with expected inflation this belief is generally attributed to irving fisher s 1930 work on interest rates in particular to his view that the real and monetary sectors are causally independent in an apparent contradiction to the fisher hypothesis however it is a common empirical finding that stock returns are negatively related to both expected and realized inflation 1 this negative correlation is especially surprising for stocks which as claims against real assets should compensate for movements in inflation we provide two main contributions to the existing literature on the relation between stock returns and inflation the first contribution of the article is to provide a theoretical description of the cross sectional relation between stock returns and expected inflation we describe an asset pricing model that predicts cross sectional variation in the coefficients of expected inflation across various industry portfolios an interesting feature of the model is that it synthesizes some of the more palatable features of existing explanations of the negative relation between inflation and returns of special interest is the development of the model in a money neutral world so that the basic premise underlying fisher s work is maintained since most theoretical models of the

the use of market data and accounting data in hedging against consumer price inflation this paper examines the use of alternative information sets in the construction of inflation hedge portfolios the study is motivated by consideration of the investor s problem in a multiperiod world several authors e g merton 1973 and breeden 1979 have shown that in a multiperiod setting optimal investment behavior will in general involve holding portfolios that can be used to hedge against changes in certain relevant states of nature one potentially relevant state of nature is the rate of inflation in general prices jones 1982 and elton gruber and rentzler 1983 in contrast to prior related research the empirical results indicate that it is possible to construct inflation hedge portfolios successfully if certain accounting information is used however portfolios constructed on the basis of historical security price information do not serve as effective hedges one contribution of this paper is to demonstrate the potential usefulness of accounting information to a price taking investor although financial statements play an important role in the setting of equilibrium

corporate bankruptcy and insider trading the authors document significant sales by the insiders of firms filing bankruptcy petitions prior to the filing date they also find that selling is more intense for top executives and officers and that insiders in general systematically sell stock before prices fall and buy stock after prices have fallen although this trading pattern may simply reflect an implicit compensation arrangement between insiders and stockholders the significant sell off does raise potential questions regarding managements incentives to maximize shareholder wealth throughout the chapter 11 process copyright 1997 by university of chicago press

on the flexibility of demand and production rate in the manufacturing practice cycle time is usually optimized in order to plan the batch size and production time among other parameters in certain situations the production rate is decreased in order to have lower inventory levels or to deal with a shelf life constraint this technical note examines the increase decrease in the demand level along with a discussion concerning flexibility of the production rate a generalized problem is also formulated in the context of the costs that are incurred in order to maintain certain demand level

advance disclosure of insider trading using a strategic rational expectations equilibrium framework we show that forcing a well informed insider to disclose her trades in advance tends to increase welfare for both the insider and less informed outsiders advance disclosure generates price risk for the insider and to mitigate this risk the insider trades less aggressively on her private information consequently outsiders face lower adverse selection costs which improves risk sharing and increases welfare the drop in trading aggressiveness also causes market efficiency to decline furthermore pretrade disclosure encourages excessive risk taking but may either encourage or discourage managerial effort

target firm abnormal returns and trading volume around the initiation of change in control transactions this study examines the average abnormal returns average abnormal trading volume and reported insider trading of corporate control target firms during a period of possibly informed trading this period begins on the unpublicized initiation date as reported in a postannouncement date proxy statement or 14 d1 and ends on the publication date of the first wall street journal story signalling an impending change in corporate control we find that the preannouncement date average abnormal return noted by other researchers begins after the unpublicized initiation date of the transaction we find no evidence of the preannouncement date average abnormal trading volume noted by previous researchers instead we find average abnormal volume beginning with the first public information regarding the transaction

firm characteristics unanticipated inflation and stock returns this paper re examines the effects of nominal contracts on the relationship between unanticipated inflation and an individual stock s rate of return this study differs in three main ways from previous research first announced inflation data are used to examine the effects of unanticipated inflation second a different specification is used to obtain more efficient estimates third additional nominal contracts are considered the empirical results indicate that time varying firm characteristics related to inflation predominately determine the effect of unanticipated inflation on a stock s rate of return a firm s debt equity ratio appears to be particularly important in determining the response

expectations management and stock returns we establish a link between firms managing investors performance expectations earnings announcement premiums and cyclical patterns i e seasonalities in returns firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before and higher returns during their earnings announcements this pattern repeats across firms fiscal quarters suggesting firms manufacture positive surprises by negatively biasing investors expectations ahead of announcing earnings we corroborate these findings using non price based outcomes indicative of expectations management together our findings are consistent with the pressure for firms to meet earnings targets shaping the cross section of firms stock returns

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection