vertical specialisation and its determinants abstract vertical specialisation vs and outsourcing have gained prominence in international trade recently and could represent an entry point for developing countries into world markets as well as a channel for technology transfer however entry into international supply chains often requires just in time delivery and close to zero fault rates making market entry via vs difficult this paper analyses the importance of infrastructure and quality of institutions for vs for total trade and with a focus on the clothing and electronics sectors it is found that good governance and an open trade policy is strongly related to vs in electronics infrastructure particularly ports is strongly related to vs in the clothing sector

s p 500 trading strategies and stock betas this paper shows that s p 500 stock betas are overstated and the non s p 500 stock betas are understated because of liquidity price effects caused by the s p 500 trading strategies the daily and weekly betas of stocks added to the s p 500 index during 1985 1989 increase on average by 0 211 and 0 130 the difference between monthly betas of otherwise similar s p 500 and non s p 500 stocks also equals 0 125 during this period some of these increases can be explained by the reduced nonsynchroneity of s p 500 stock prices but the remaining increases are explained by the price pressure or excess volatility caused by the s p500 trading strategies i estimate that theprice pressures accountfor 8 5 percent of the total variance of daily returns of a value weighted portfolio of nyse amex stocks the negative own autocorrelations in s p 500 index returns and the negative cross autocorrelations between s p 500 stock returns provide further evidence consistent with the price pressure hypothesis

demand curves for stocks do slope down new evidence from an index weights adjustment weights in the toronto stock exchange 300 index are determined by the market values of the included stocks public floats in november 1996 the exchange implemented a previously announced revision of its definition of the public float this revision which increased the floats and the index weights of 31 stocks conveyed no information and had no effect on the legal duties of shareholders affected stocks experienced statistically significant excess returns of 2 3 percent during the event week and no price reversal occurred as trading volume returned to normal levels these findings support downward sloping demand curves for stocks an obvious event with which to examine the slope of demand curves for stocks is one that changes supply in the absence of new information a shift in supply should not affect stock prices if demand curves for stocks are flat scholes 1972 using a sample of secondary equity distributions asks whether stocks are unique works of art or merely abstract claims to residual cash flows with many close substitutes as is assumed in much of finance theory scholes finds that the negative price impact of secondary offerings depends on the seller s identity implying the revelation of unfavorable informationand rules out a pure supply effect mikkelson and partch 1985 also using a sample of registered and unregistered secondary offerings find weak evidence of downward sloping demand curves but are unable to cleanly distinguish this explanation from the alternative explanation based on unfavorable information a different class of events additions to widely followed stock market indexes ostensibly provides a setting where information effects should not be present shleifer 1986 documents a permanent price increase for stocks

dividend changes abnormal returns and intra lndustry firm valuations previous empirical research has established that dividend changes are associated with sig nificant abnormal returns this association is rationalized on the basis that the dividend announcement acts as a signal of future earnings another body of research has documented the existence of intra industry transfers of information where news about one firm is extrapolated to other companies in the same industry earnings information transfers have been found to be positive in nature with good news about one company leading to stock price increases for rival firms linking dividend signaling and information transfer tests were constructed to ascertain whether the dividend change of one firm is associated with the stock price performance of other companies in the same industry the results indicate there is some small positive information transfer the magnitude of information transfer is related to the degree of the dividend surprise the recent dividend history of the other companies and correlations in stock returns between the dividend announcer and the other companies information transfer is found to affect earnings and earnings growth estimates of the other firms and this leads to revisions in their stock prices

the effect of distance and road quality on food collection marketing margins and traders wages evidence from the former zaire abstract food price variation is typical of the food economies of many low income countries the presence or absence of road infrastructure is perceived to be one of the main determinants of this variation this analysis shows that in the case of the former zaire food price dispersion is significant both across products and across regions it is demonstrated that transportation costs explain most of the differences in food prices between producer regions and that road quality is an important factor in the transportation costs however food prices decrease relatively faster than transportation costs increase and traders wages are higher on bad roads

policy and non policy barriers to trade and implicit taxation of exports in uganda uganda has made significant progress in reducing policy induced anti export bias in its trade policy in the 1990s taxes on exports have been abolished and import protection has been reduced considerably such trade barriers are only a component of thee transaction costs associated with trade poor infrastructure notably by increasing transport costs and institutional inefficiencies can significantly increase trade costs the effective protection of imports and implicit tax on exports due to transport costs is calculated and compared to effective protection due to trade policy barriers for uganda the results reveal that transport costs are often very high in many cases representing a greater cost tax to exporters than trade policy

sports sentiment and stock returns this paper investigates the stock market reaction to sudden changes in investor mood motivated by psychological evidence of a strong link between soccer outcomes and mood we use international soccer results as our primary mood variable we find a significant market decline after soccer losses for example a loss in the world cup elimination stage leads to a next day abnormal stock return of 49 basis points this loss effect is stronger in small stocks and in more important games and is robust to methodological changes we also document a loss effect after international cricket rugby and basketball games this paper employs a novel mood variable international soccer results to investigate the effect of investor sentiment on asset prices using a cross section of 39 countries we find that losses in soccer matches have an economically and statistically significant negative effect on the losing country s stock market for example elimination from a major international soccer tournament is associated with a next day return on the national stock market index that is 38 basis points lower than average we also document a loss effect after international cricket rugby and basketball games on average the effect is smaller in magnitude for these other sports than for soccer but is still economically and statistically significant we find no evidence of a corresponding effect after wins for any of the sports that we study controlling for the pre game expected outcome we are able to reject the hypothesis that the loss effect after soccer games is driven by economic factors such as reduced productivity or lost revenues we

do nonlinearity firm specific coefficients and losses represent distinct factors in the relation between stock returns and accounting earnings abstract recent studies have provided theory and evidence that the contemporaneous relation between stock returns and accounting earnings is nonlinear different for profits and losses and different across firms since each factor can result from differences in earnings persistence existing theory is ambiguous as to whether these factors are distinct or overlapping thus we conduct a simultaneous examination our primary tests show that each factor explains a significant portion of the variance of returns after controlling for the other two factors with firm specific estimation providing the largest incremental explanatory power alternative tests produce similar conclusions empirically the three factors are distinct

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

china s competitive performance a threat to east asian manufactured exports there is growing concern in southeast and east asia about the competitive threat posed by china s burgeoning exports exacerbated by its accession to the wto the threat is not confined to labourintensive products but spans the whole technological and skill range at the same time china is rapidly raising its imports from the region and it is not clear whether its burgeoning exports will damage its neighbours we examine the dimensions of china s competitive threat in the 1990s benchmarking competitive performance by technology and market and finds that market share losses are so far mainly in low technology products with japan being the most vulnerable market we analyse market share changes and highlight product groups that are directly or indirectly exposed to a competitive threat we examine intra regional trade and find that china and its neighbours are raising high technology exports in tandem the nature of the international production systems involved lead to complementari ty rather than confrontation china is thus acting as an engine of export growth for its neighbours in terms of direct trade however this will change as china moves up the value chain and takes on the activities that have driven east asian export growth

information costs and liquidity effects from changes in the dow jones industrial average list we examine the stock market effect of changes in the composition of the dow jones industrial average djia unlike s p 500 listing studies we find that the price and the trading volume of newly listed djia firms are unaffected we attribute this result to a lack of index fund rebalancing since index trading is limited for most of our sample period and index funds mimic the s p 500 not the djia firms removed from the index however experience significant price declines we consider information signaling price pressure imperfect substitutes and information cost liquidity explanations for these asymmetric findings the evidence is consistent with the information cost liquidity explanation which holds that investors demand a premium for higher trading costs and for holding securities that have relatively less available information

liquidity shocks size and the relative performance of hedge fund strategies abstract we examine whether the increase in the flow of capital to hedge funds over the period 1994 2005 had a negative impact on performance more specifically we study the relative performance of small versus large funds for each of the hedge fund strategies our results indicate that on an absolute return basis small funds outperform large funds on a risk adjusted return basis however we find that large funds outperform small funds and that large funds are also shown to hold less liquid assets and take on less systematic and idiosyncratic risk than small funds further funds that experience positive liquidity shocks generally outperform those that experience negative liquidity shocks we also find evidence that hedge fund managers that are aggressive in dealing with liquidity shocks perform better than hedge fund managers that are conservative in dealing with liquidity shocks

distance time and specialization lean retailing in general equilibrium transport time increases with distance traveled and time is valuable we show the implications of these facts for global specialization and trade products where timely delivery is important will be produced near the source of final demand where wages will be higher as a result in the model timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories and timely delivery is possible only from nearby locations using a unique dataset that allows us to measure the retail demand for timely delivery we show that the sources of u s apparel imports have shifted in the way predicted by the model with products for which timeliness matters increasingly imported from nearby countries jel f1 transporting goods and people costs time and money and both transport fees and time in transit generally increase with the distance traveled these facts imply an incentive to economize on distance and the equilibrium effects

capital gains tax rates and the cost of capital for small business evidence from the ipo market abstract we examine the issue prices of small initial public offerings around the 1993 tax law change that reduced the capital gains tax on qualified small business stock we compare the actual issue price of new stock with a benchmark price that is not affected by the change in capital gains tax we find that after controlling for ipo underpricing the issue prices of qualifying small business stock after the tax rate change are significantly higher than the issue prices before the change a control sample of nonqualifying firms shows no significant difference in issue prices

the determinants of capital gains tax compliance evidence from the rjr nabisco leveraged buyout abstract inability to observe both actual and reported capital gains has impeded studies of capital gains tax compliance this study overcomes such limitations through access to both confidential tax returns and internal shareholder records tests are conducted at the individual taxpayer level for associations between compliance rates for capital gains taxes generated by rjr nabisco shareholders during its leveraged buyout and income marginal tax rates socioeconomic characteristics and measures of the taxpayer s perception of the noncompliance penalty we find noncompliance decreasing in taxable income including rjr nabisco capital gains first dollar marginal tax rates self employment income rental income and other interest paid

capital gains taxation and stock market activity evidence from ipos prior to the tax reform act of 1986 tra 86 long term capital gains were taxed at a lower rate than short term gains presenting investors with an opportunity to increase their after tax return by delaying the sale of appreciated assets until after they qualified for long term status and selling depreciated assets prior to long term qualification using a sample of initial public offerings i find that stocks that appreciated prior to long term qualification exhibit increased volume and decreased returns just after their qualification date while stocks that depreciated prior to long term qualification exhibit these effects just prior to their qualification date it is generally acknowledged that capital gains taxes influence investor behavior slemrod 1982 dyl 1979 chaplinsky and seyhun 1990 and others agree that individuals rationally respond to specific provisions of the tax code in attempting to reduce the tax liability of investment income recently this view has entered the public policy debate concerning the effective date of a proposed capital gains tax cut for example the wall street journal reported that congress has considered making proposed capital gains tax cuts retroactive to avoid possible market disruptions that might come from investors delaying transactions in anticipation of a future effective date wsj february 19 1997 despite the consensus view that capital gains taxes influence investment behavior specific distortions in behavior are difficult to document empirically one reason for the lack of evidence regarding the distortionary effect of capital gains taxes is that it is extremely difficult for researchers to determine the initial cost and the date of purchase of an asset without that information it is impossible for the investigator to know when an investor is trading a longterm or short term asset and whether he is realizing a gain or a loss one class of assets for which it is possible to obtain this information is initial public offerings of common stock ipos by definition ipos are not available for purchase prior to their offer date on the offer date shares are

farming the tax code the impact of high marginal tax rates on agricultural tax shelters surprisingly little scholarly work has examined the practice of farming the tax code in which accounting losses on agricultural investments are used to shelter other income from taxation economic theory suggests that the amount of investment in agricultural tax shelters is positively related to the marginal tax rate this hypothesis is empirically investigated using a sample of federal individual income tax returns filed for 1983 both the probability of reporting a farm tax loss and the amount of farm losses are increased by a rise in the marginal tax rate especially among upper income taxpayers

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

global value chains a survey of drivers and measures global value chains gvcs emerged as the paradigm for the international organisation of production for most goods and services production is nowadays vertically fragmented across different countries and this reality gave rise to a significant new strand of research in in ternational trade this article starts by discussing the major driving forces of gvcs in recent decades next it surveys the main measures of gvcs accounting for their different scopes and required datasets the artic le highlights the timing of the contributions to the literature signalling their sequential nature and the trend towards more accurate and data demanding indicators

asymmetric changes in stock prices and investor recognition around revisions to the s p 500 index this study finds that first time additions to the sp however companies upgraded from lesser known s p indices reentering the s p 500 or dropped from the index experience temporary price changes these price patterns can be explained by changes in investor recognition

good day sunshine stock returns and the weather psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood this paper examines the relationship between morning sunshine in the city of a country s leading stock exchange and daily market index returns across 26 countries from 1982 to 1997 sunshine is strongly significantly correlated with stock returns after controlling for sunshine rain and snow are unrelated to returns substantial use of weather based strategies was optimal for a trader with very low transactions costs however because these strategies involve frequent trades fairly modest costs eliminate the gains these findings are difficult to reconcile with fully rational price setting

an anatomy of the s p game the effects of changing the rules this study analyzes the effects of changes in s p 500 index composition from january 1986 through june 1994 a period during which standard and poor s began its practice of preannouncing changes five days beforehand the new announcement practice has given rise to the s p game and has altered the way stock prices react we find that prices increase abnormally from the close on the announcement day to the close on the effective day the overall increase is greater than under the old announcement policy although part of the increase reverses after the stock is included in the index the s p game is based upon the perceived price reaction of a stock to news that it will be added to the s p 500 the game involves buying the shares of the stock ahead of s p 500 funds and then selling after index fund demand is satisfied the opportunity to play the s p game arose in october 1989 when standard and poor s p began its practice of preannouncing changes to the s p 500 before that time s p announced the change in composition after the close of trading with the change becoming effective by the following morning s open with no lead time index funds bought the shares of the newly included stock on the day following the announcement the buying pressure caused prices to rise for additions during the period 1976 through 1983 for example shleifer 1986 found an abnormal price increase of 2 79 percent on the day following the announcement using roughly the same sample period harris and gurel 1986 reported a 3 13 percent average increase

the effect on stock price of inclusion in or exclusion from the s p 500 1987 the effect on stock price of inclusion in or exclusion from the s p 500 financial analysts journal vol 43 no 1 pp 58 65

culture and r2 abstract consistent with predictions from the psychology literature we find that stock prices co move more less in culturally tight loose and collectivistic individualistic countries culture influences stock price synchronicity by affecting correlations in investors trading activities and a country s information environment both market wide and firm specific variations are lower in tighter cultures individualism is mostly associated with higher firm specific variations trade and financial openness weakens the effect of domestic culture on stock price comovements these results hold for various robustness checks our study suggests that culture is an important omitted variable in the literature that investigates cross country differences in stock price comovements

new evidence on stock price effects associated with changes in the s p 500 index since october 1989 standard and poor s has when possible announced changes in the composition of the s p 500 index one week in advance because index funds hold s p 500 stocks to minimize tracking error index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock using post october 1989 data the authors document significantly positive negative postannouncement abnormal returns that are only partially reversed following additions deletions these results indicate the existence of temporary price pressing and downward sloping long run demand curves for stocks and represent a violation of market efficiency copyright 1997 by university of chicago press

long term price effect of s p 500 addition and earnings quality when a company is added to the s p 500 index it receives a positive price response several explanations for this effect have been suggested but empirical findings do not provide a conclusive cause the inclusion of a company in the index may strengthen managerial incentives to provide high quality disclosures of financial data this study is an examination of the earnings quality of s p 500 companies before and after their addition to the index it finds that discretionary accruals significantly decrease after companies are added to the index which greatly improves earnings quality this change in earnings quality provides a possible explanation for the price response to the s p 500 addition

intertemporal tax discontinuities we define an intertemporal tax discontinuity itd as a circumstance in which different tax rates are applied to gains realized at one point in time versus some other point in time we study the effects of itds on market behaviors at the time of disclosures of firm performance assuming that all investors who trade firm equities are subject to tax the results of our paper suggest that relative to an economy in which itds are absent itds may dampen trading volume and amplify price changes at the time of disclosure

stock returns following large one day declines evidence on short term reversals and longer term performance we examine stock returns following large one day price declines and find that the bid ask bounce and the degree of market liquidity explain short term price reversals further we do not find evidence consistent with the overreaction hypothesis we observe that securities with large one day price declines perform poorly over an extended time horizon while the concept of market overreaction has been noted for many years its formal description and examination is a relatively recent area of study debondt and thaler 1985 define the overreaction hypothesis as the overresponse to new information this hypothesis suggests that extreme movements in stock prices are followed by movements in the opposite direction to correct the initial overreaction and that the greater the magnitude of initial price change the more extreme the offsetting reaction one manner in which the overreaction hypothesis has been studied is the analysis of stock returns following large one day stock price declines brown harlow and tinic 1988 and atkins and dyl 1990 find significant reversals for stocks that experience one day price declines focusing on extreme price movements bremer and sweeney 1991 examine returns following one day price declines of 10 percent or more for fortune 500 firms that are in the center for research in security prices crsp data files they find significant positive three day abnormal returns over the period 1962 to 1986 and note that this three day recovery is inconsistent with stock prices fully and quickly reflecting relevant information they also suggest that market illiquidity may partially explain their findings the purpose of this study is to explain security return behavior following large one day declines our primary objective is to explore the role of the bid ask bounce market liquidity and overreaction in explaining price reversals in the three day period immediately following large one day declines large one day price declines are likely to be associated with substantial selling pressure enhancing the probability that a closing transaction is at a

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

changes in the standard and poor s 500 list l harris and e gurel 1986 and a shleifer 1986 examined changes in the standard and poor s list both studies presented evidence inconsistent with efficient markets looking at newer data and at bond and option prices the authors find that case against market efficiency is not compelling copyright 1991 by university of chicago press

price based return comovement abstract similarly priced stocks move together stocks that undergo splits experience an increase in comovement with low priced stocks and a decrease in their comovement with high priced stocks price based comovement is not explained by economic fundamentals firm size or changes in liquidity or information diffusion the shift in comovement following splits is greater for large stocks high priced stocks and when investor sentiment is high in the full cross section price based portfolios explain variation in stock level returns after controlling for movements in the market and industry portfolios as well as portfolios based on size book to market transaction costs and return momentum the results suggest that investors categorize stocks based on price

capital gains taxes and equity trading empirical evidence individual investors have an incentive to defer selling appreciated stock until it qualifies for tax favored long term capital gains treatment shackelford and verrecchia 2002 show that these incentives can affect equity trading around public disclosures this article provides some empirical support for their theory with evidence of price increases and equity constrictions around announcements of quarterly earnings and additions to the s p 500 index we find share returns rise and trading volume falls with the incremental taxes saved by deferring the sale of appreciated property the price increases however are temporary reversing in subsequent trading days the results are consistent with buyers believing the compensation to sell before long term qualification through higher prices is less costly than holding an inappropriately weighted portfolio this finding that personal capital gains taxes affect equity trading adds to a growing literature that challenges longstanding assumptions that firm value is independent of shareholders and their taxes

institutional ownership and changes in the s p 500 several recent articles have provided new evidence for the existence of price pressures by examining the price and volume effects associated with changes in the s p 500 the present study extends this work by examining actual changes in institutional holdings following both additions to and deletions from the s p 500 the results show that changes in institutional holdings in response to additions or deletions from the s p 500 are positively correlated in addition to providing further evidence for the existence of price pressure effects the results also provide evidence of the very large institutional elasticities of demand for stock in two recent articles in this journal shleifer 1986 and harris and gurel 1986 present important new evidence of the existence of price pressures by examining the price and volume effects associated with changes in the composition of the standard and poor s s p 500 market index specifically these authors interpret the strong increases in trading volume and economically and statistically significant increases decreases in share prices on the first trading day following additions to or deletions from the s p 500 as the result of increased decreased demand by institutional index funds rather than from information effects concerning the future return distributions of the newly listed delisted firms the results of similar price and volume studies conducted by woolridge and ghosh 1986 and lamoureux and wansley 1987 are also generally consistent with the predictions of the price pressure hypothesis while both schleifer 1986 and harris and gurel 1986 suggest that changes in institutional index fund holdings are responsible for the observed abnormal returns in response to s p 500 changes over the years between 1966 and 1983 their joint failure to examine actual institutional ownership changes following listing or delisting from the index does not allow for direct tests of this possibility this study presents results of such tests

efficient redistribution through commodity markets efficiency in redistribution is measured in terms of deadweight loss generated per dollar of economic surplus transferred between consumers and producers of a commodity by means of market intervention the implications of supply and demand elasticities for efficiency in redistribution are examined with special attention to the comparison of production control and deficiency payment programs the results may be used to aid in the evaluation of commodity programs and as a basis for consideration of the hypothesis that observed policies are efficient given the political power of interest groups

the intra industry effects of going private transactions we demonstrate that bids to take firms private generate significantly positive valuation effects for industry rivals of target firms these valuation effects cannot reflect either synergy or monopoly since no consolidation of operating firms is involved in such transactions participation by buyout specialists in the bid does not significantly affect these gains bids by outsiders and bids by incumbent managers generate similar valuation effects for industry rivals the effect on share prices of industry rivals is inversely related to the capitalized values of rival firms relative to the target firm we also report valuation effects for target firms we examine the implications of going private bids for the valuation of horizontal rivals of target firms we hypothesize that going private transactions reflect in part private information held by the bidder about the target firm we argue that if the financial market perceives that elements of this private information are industry wide rather than firm specific the value of the target firm s horizontal rivals should change in response to the goingprivate bid announcement 1 unlike interfirm mergers and acquisitions going private transactions do not involve a consolidation of separate operating firms consequently changes in the value of rival firms induced by goingprivate bids are due neither to the demonstration of synergies associated with a consolidation of operating firms nor to the effects of induced monopoly or collusion 2 we also report valuation effects on target firms we find that announcements of going private bids generate statistically significant positive intra industry effects industry rivals of targets of goingprivate bids receive a positive 2 day average excess return of 1 32 which is statistically significant the average 2 day excess return to target firms is 17 35 and is statistically significant we test whether participation of

how do exchanges select stocks for option listing we investigate the factors influencing the selection of stocks for option listing exchanges tend to list options on stocks with high trading volume volatility and market capitalization but the relative effect of these factors has changed over time as markets have evolved we observe a shift from volume toward volatility after the moratorium on new listings ended in 1980 using control sample methodology designed to correct for the endogeneity of option listing we find no evidence that volatility declines with option introduction in contrast to previous studies that do not use control samples beginning with a handful of options listed on the chicago board options exchange cboe in april 1973 the exchange traded option market has since matured into a thriving industry in the united states options trade on five exchanges with contracts on stock indices exchange traded funds currencies interest rates and over 3 000 stocks total equities options volume traded on u s exchanges has risen from 5 7 million contracts in 1974 to over 722 million contracts in 2001 options clearing corporation http www optionsclearing com option markets have also thrived in western europe and other economies with well developed capital markets in this paper we study the listing choices made by option exchanges in the united states in an effort to better understand what determines the success of financial innovation and how derivative markets develop understanding this process has important implications for the continuing development of new securities markets domestically and globally in the new century innovation

price and volume effects of changes in msci indices nature and causes abstract using changes in the msci standard country indices for 29 countries between 1998 and 2001 we document that stock returns and volumes exhibit index effects in international markets similar to those detected by the studies of us stocks the stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change though part of the gain is lost after the actual change date the stocks that are deleted from the indices on the other hand witness a steady and marked decline in their prices trading volumes increase significantly and remain at high levels after the change date for the added stocks there are also considerable cross country variations in these effects tests using data on various measures reflecting the different hypotheses fail to turn up any evidence in support of information effects our evidence appears to be more supportive of the downward sloping demand curve hypothesis there is some evidence of price pressure and mild evidence of liquidity effect particularly in japan and uk

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

nonsecular regularities in returns and volume this study addressed u s stock daily returns and volume around days when the market is open that correspond to religious or cultural occasions specifically st patrick s day and the jewish high holy days of rosh hashanah and yom kippur on rosh hashanah and yom kippur volume was found to be down relative to volume on all trading days in the sample the reason may be that the nonfinancial opportunity cost of trading is high for a considerable number of traders on these days returns were significantly higher on the days preceding st patrick s day and rosh hashanah which is consistent with the notion that market returns reflect the festive nature of these occasions evidence was also found of significantly negative returns after yom kippur in the second half of the sample period which accords with the idea that the market reflects the solemn nature of this occasion overall the results are consistent with the view that mood is a viable explanation for some market movements

stock return comovement around the dow jones islamic market world index revisions we examine patterns of comovement in stock returns around the dow jones islamic market world index djimwi quarterly revision events our analysis is based on a sample of 8250 companies from eighteen countries during the period may 1999 june 2012 we find that a stock s comovement with the djimwi increases when it joins and decreases when it leaves the index we also find that the comovement of newly added deleted stocks with the existing djimwi constituents increases declines during periods of high trading activity and during the month of ramadan further tests reveal that changes in the fundamentals have no impact on the comovements of added and deleted stocks overall our results indicate that stock returns respond to the emotional state of investors around information free events

s p 500 index additions and earnings expectations stock price increases associated with addition to the s p 500 index have been interpreted as evidence that demand curves for stocks slope downward a key premise underlying this interpretation is that index inclusion provides no new information about companies future prospects we examine this premise by analyzing analysts earnings per share eps forecasts around index inclusion and by comparing postinclusion realized earnings to preinclusion forecasts relative to benchmark companies companies newly added to the index experience signi cant increases in eps forecasts and signi cant improvements in realized earnings these results indicate that s p index inclusion is not an information free event studies that examine the prices of common stocks when they become included in the standard poor s s p 500 index have appeared regularly in leading nance journals since 1986 fascination with the eiect of s p index inclusion on stock prices appears to stem from the possibility that inclusion in the index is an information free eventfinformation free in the sense that s p makes no claim that inclusion represents an endorsement of the newly included stock s future prospects 1 indeed s p makes an a rmative claim to the contrary company

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

the reversal of large stock price decreases extremely large negative 10 day rates of return are followed on average by largerthan expected positive rates of return over following days this price adjustment lasts approximately 2 days and is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon while perhaps not representing abnormal profit opportunities these reversals present a puzzle as to the length of the price adjustment period such a slow recovery is inconsistent with the notion that market prices quickly reflect relevant information recent research on stock returns has uncovered a substantial number of empirical findings that are broadly inconsistent with popular asset pricing models for example keim and stambaugh 1985 cross 1973 french 1980 gibbons and hess 1981 and rogalski 1984 find evidence of day ofthe week and weekend effects on stock returns while banz 1981 and reinganum 1983 find evidence of a size effect this paper presents evidence of another empirical puzzle consider the behavior of a firm s rate of return on days after it has experienced a large negative one day rate of return less than say 10 observed daily stock returns after such an extreme event are significantly larger than average on following days for a 10 fall the return above average is 1 773 for the day after and rises cumulatively to 2 215 by the second day this multiple day price adjustment is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon the major interest of this phenomenon is the long recovery period of the stock price reversal such a slow recovery is inconsistent with the notion that market prices fully and quickly reflect relevant information

index composition changes and the cost of incumbency abstract this paper provides evidence of information effects and portfolio rebalancing effects that occur when stocks are added to or excluded from the sp however the portfolio rebalancing effects dominate the industry information effects

distributional impacts of the 1986 tax reform act the 1986 tax reform act tra contains the most sweeping changes in tax laws in the last thirty years affecting virtually every sector of the u s economy evaluations of its impacts on agriculture appearing in the farm and nonfarm press have been concerned primarily with commodityand or producer specific issues in this paper we provide a broader perspective on the interand intrasectoral effects of tra first we examine equity versus efficiency effects of tra next we identify major changes wrought by tra and explain briefly how they may alter tax obligations for the farm sector relative to the rest of the economy finally we consider the distributional effects of tra within the agricultural production sector with a focus on differences by size type tenure patterns and debt level

price and volume effects associated with changes in the s p 500 list new evidence for the existence of price pressures attempts to identify price pressures caused by large transactions may be inconclusive if the transactions convey new information to the market this problem is addressed in an examination of prices and volume surrounding changes in the composition of the s p 500 since these changes cause some investors to adjust their holdings of the affected securities and since it is unlikely that the changes convey information about the future prospects of these securities they provide an excellent opportunity to study price pressures the results are consistent with the price pressure hypothesis immediately after an addition is announced prices increase by more than 3 percent this increase is nearly fully reversed after 2 weeks the efficient market hypothesis emh predicts that security prices reflect all publicly available information therefore one corollary of the emh is that you can sell or buy large blocks of stock at close to the market price as long as you can convince other investors that you have no private information 1 this statement assumes that securities are near perfect substitutes for each other if so the excess demand for a single security will be very elastic and the sale or purchase of a large number of shares will have no impact on price in contrast to the emh scholes 8 kraus and stoll 5 hess and frost 4 and others propose two hypotheses which predict that a large stock sale purchase will cause the price to decrease increase even if no new information is associated with the transaction the imperfect substitutes hypothesis ish also known as the distribution effect hypothesis assumes that securities are not close substitutes for each other and hence that long term demand is less than perfectly elastic under this hypothesis equilibrium prices change when demand curves shift to eliminate excess demand price reversals are not expected because the new price reflects a new equilibrium distribution of security holders the price pressure hypothesis pph assumes that investors who accommodate demand shifts must be compensated for the transaction costs and portfolio risks that they bear when they agree to immediately buy or sell securities which they otherwise would not trade these passive suppliers of liquidity are attracted by immediate price drops rises associated with large sales purchases they are compensated for their liquidity service when prices rise drop to their fullinformation levels the pph like the emh assumes that long run demand is

the russell reconstitution effect significant returns were associated with the annual reconstitution of the russell equity indexes from 1996 through 2002 which can be explained by both transitory price pressure and the permanent effects of index membership on the one hand the return effects represent a significant cost to index funds that rebalance on the reconstitution date on the other hand supplying immediacy at this time can be highly profitable this strategy is typically undiversified however and involves high trading costs and price risk as positions are unwound indeed dramatic intraday return volatility characterizes the day of reconstitution these factors explain the persistence of the reconstitution effects documented here

the price response to s p 500 index additions and deletions evidence of asymmetry and a new explanation we study the price effects of changes to the s p 500 index and document an asymmetric price response there is a permanent increase in the price of added firms but no permanent decline for deleted firms these results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions a possible explanation for asymmetric price effects arises from the changes in investor awareness results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of s p 500 index additions and deletions the long held assumption that stocks have perfect substitutes and the perfect elasticity of demand that follows from it is central to modern finance theory if securities have almost perfectly elastic demand then any supply or demand shocks that are devoid of information should have no effect on the prevailing price early empirical research on whether price changes occur in the absence of new information focused on block trades equity issues and stock splits but was unable to exclude information effects around these events since there is no obvious reason to believe ex ante that index changes contain new information they constitute a natural framework for testing whether stocks have almost perfectly elastic or horizontal demand curves a stock s excess return around such changes could be consistent with a downward sloping demand curve with the advent of indexed mutual funds in 1976 and the public announcement of s p index changes in the same year there is much evidence that such announcements are accompanied by an increase in price for firms added to the index if stocks have a short term downward sloping demand curve the price should be momentarily affected by a demand shock due to indexing but that effect

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

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

mood fluctuations projection bias and volatility of equity prices this paper focuses on the potential e2ects of small uctuations in investors subjective preferences speci5cally their discount factors and attitudes towards risk on the volatility of equity prices we brie y summarize some of the arguments and evidence regarding the uctuations in subjective preferences our analysis indicates that such uctuations may have signi5cant implications for understanding the volatility of the prices of 5nancial assets we derive a closed form expression for equilibrium equity prices and use this expression to map the uctuations in investors subjective preferences to the uctuations in equity prices our analysis suggests that small uctuations in the discount factor have potentially large e2ects on the latter for example if the standard deviation of the uctuations in the discount factor is of the order of 1 10th of one percent then this by itself can induce a 3 4 standard deviation in the uctuations in equity prices the uctuations in the attitude towards risk have a smaller but nevertheless non negligible e2ect we present the intuition underlying our conclusions c 2002 published by elsevier science b v

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

the s p500 index effect reconsidered evidence from overnight and intraday stock price performance and volume abstract this study focuses on s p500 inclusions and deletions examining the impact of potential overnight price adjustment after the announcement of an s p500 index change we find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event more importantly observing the tick by tick stock price performance and volume effects on the key days during the event window for the first time we find evidence of consistent trading patterns during trading hours a separate analysis of nasdaq and nyse listed stocks allows for a detailed examination of the price and volume effect at an intra day level we find that index funds appear to cluster their rebalancing activities near to and after the close on the event date suggesting that they are more concerned with tracking error than profit

the effect of additions to or deletions from the tse 300 index on canadian share prices in this paper we examine shares that have been added to or deleted from the tse 300 index to determine whether abnormal price movements have occurred we apply the dummy variable approach to event study methodology and adjust the estimated standard errors for arbitrary heteroscedasticity and clustering of events we also use a non parametric method of inference like authors of u s studies we find that the market reacts positively to inclusion and negatively to deletion albeit not significantly in the latter case the information content of inclusion does not account for the entire share price response lending support to the hypothesis of increased purchases by index funds jel classification g14 ce texte examine les titres qui ont ete ajoutes ou soustraits de l indice tse 300 pour determiner si des mouvements anormaux de prix s en sont suivis on utilise l approche des variables fictives dans le cadre d une methodologie qui etudie l impact d evenements et on ajuste les erreurs standards pour tenir compte de l heteroskedasticite arbitraire et de l agglomeration d evenements on utilise aussi une methode non parametrique d inference comme dans des etudes americaines du meme type on decouvre que les marche reagit positivement a l inclusion et negativement a la soustraction d un titre mais que l effet n est pas significatif dans ce dernier cas le contenu informationnel de l inclusion n explique pas entierement le mouvement dans le prix du titre ce qui apporte un support a l hypothese de l impact des achats accrus par des fonds indexes