bluuebunny/crossref_metadata_2025 huggingface dataset:
A TEST OF A RISK‐ADJUSTED DIVIDEND CAPITALIZATION MODEL: THE CASE OF LIQUIDATING FIRMS
Authors: Skantz Terrance R. , Marchesini Roberto
Published: August 2014

In this paper a direct test of the descriptive validity of the dividend capitalization model is described using the capital asset pricing model (CAPM) to specify the required rate of return. The sample comprises thirty‐five voluntarily liquidating firms for which publicly available records of liquidating dividends are available. The sample provides a novel basis for testing the dividend capitalization model since: (1) the firms' risk does not change because of investment activity, (2) the decision horizon for stock valuation purposes is clearly the period over which cash dividends are paid to shareholders, and (3) it is unnecessary to estimate dividend growth rates or terminal stock values. Results are generally consistent with a market that values these stocks by applying a risk‐adjusted dividend capitalization model.
THE INTRADAY INTERDEPENDENCE STRUCTURE BETWEEN U.S. AND JAPANESE EQUITY MARKETS
Authors: Becker Kent G. , Finnerty Joseph E. , Tucker Alan L.
Published: August 2014

Contrary to the efficient market hypothesis, previous research documents a significant correlation between lagged U.S. close‐to‐close stock market returns and current open‐to‐close Japanese equity market returns. We find that the significant correlation is limited to the first hour of Japanese trading, with subsequent hourly returns independent of lagged U.S. returns. This evidence suggests that the documented significant correlation is attributable to a sticky Japanese opening value associated with the use of nonsynchronous index data.
THE WEEKEND EFFECT AND CORPORATE DIVIDEND ANNOUNCEMENTS
Authors: Schatzberg John D. , Datta Prabir
Published: August 2014

Numerous studies document a day‐of‐the‐week effect in stock returns. Although a common explanation for this phenomenon concerns a potential daily pattern in the release of corporate information, existing studies provide conflicting evidence. To aid in resolving this issue, possible seasonalities in a sample of 138,824 dividend announcements are investigated over twenty‐six years across 3,484 firms. Tests provide no support for the information hypothesis and suggest that the anomalous pattern of returns is driven by some factor unrelated to information arrivals.
STOCK PRICE AND DEGREE OF NEGLECT AS DETERMINANTS OF STOCK RETURNS
Authors: Bhardwaj Ravinder K. , Brooks LeRoy D.
Published: August 2014

In prior research the neglected firm effect persists even after controlling for firm size. Several recent studies show that the size effect is a stock price effect. In the present study we investigate whether excess returns on neglected stocks are a manifestation of a stock price effect. Although material evidence supporting an independent neglected firm effect is still found, results are much weaker than in prior studies. Examining a large sample of New York Stock Exchange and American Stock Exchange stocks from 1977 to 1988, we find that both January and non‐January months do not have a statistically significant neglect effect after controlling for a price effect.
EMPIRICAL EVIDENCE ON THE IMPACT OF THE BID‐ASK SPREAD ON THE CHARACTERISTICS OF CRSP DAILY RETURNS
Authors: Venkatesh P. C.
Published: August 2014

It is widely recognized that Center for Research in Security Prices (CRSP) returns may differ from “true” returns because of the bid‐ask effect. Using a large sample of New York Stock Exchange and American Stock Exchange securities, I confirm a discernible bid‐ask effect, the magnitude and importance of which decrease with the security's price level (increase with the spread). I find volatility estimates using CRSP returns to be greater than those based on quote returns. However, market model properties, such as β and R2, are generally unaffected. Bid‐ask effects are clearly apparent in event studies, but because of certain offsetting effects commonly used test statistics remain unaffected. Low‐priced stocks (below $2.00) do not conform to these patterns. Finally, the evidence raises the possibility that the existing literature on filter rule tests may underestimate the bid‐ask spread component of transaction costs.
PRODUCTION TECHNOLOGY, NONDEBT TAX SHIELDS, AND FINANCIAL LEVERAGE
Authors: Manuel Timothy , Pilotte Eugene
Published: August 2014

In the literature a negative relationship between debt and nondebt tax shields is predicted only for firms that have the same production technology (i.e., firms with perfectly correlated pretax output). In this paper we examine the relationship between production technology and differences in firms' financial leverage ratios, and find that firms in the same industry with highly (lowly) correlated output make similar (dissimilar) leverage decisions. Thus, the correlation of output across states of nature helps explain leverage differences that are not explained by industry differences. Contrary to previous predictions, however, leverage differences for firms with highly correlated pretax output suggest a positive relationship between debt and nondebt tax shields.
A FURTHER UNDERSTANDING OF STOCK DISTRIBUTIONS: THE CASE OF REVERSE STOCK SPLITS
Authors: Peterson David R. , Peterson Pamela P.
Published: August 2014

In this study we analyze reverse stock splits and demonstrate that the total risk of returns to reverse splitting securities declines after the split, yet systematic risk remains essentially unchanged. In general, securities have negative abnormal stock returns at reverse split announcements, though smaller companies have stronger negative reactions. Companies forced to reverse split have positive wealth effects.
PRICING NIKKEI PUT WARRANTS: SOME EMPIRICAL EVIDENCE
Authors: Chen K. C. , Sears R. Stephen , Shahrokhi Manuchehr
Published: August 2014

The newly created Nikkei put warrants represent a recent innovation in security development. These privately issued puts enable investors to hedge or speculate on price movements in the Japanese market. Understanding the pricing behavior of these new securities provides U.S. investors and issuers with valuable information to assess potential benefits and costs. In this research two alternative pricing models are used to explain the observed prices of several privately issued Nikkei put warrants. While results from the two models indicate some pricing biases, pricing errors are very small overall.
PREPAYMENT RISK AND THE DURATION OF DEFAULT‐FREE MORTGAGE‐BACKED SECURITIES
Authors: Anderson Gary A. , Barber Joel R. , Chang Chun‐Hao
Published: August 2014

The conventional duration measure for mortgage‐backed pass‐through securities assumes that the prepayment rate is invariant to changes in market interest rates. In this paper, the conventional duration is modified to take into account the interest‐rate sensitivity of mortgage prepayments. Including interest rate sensitivity is shown to reduce substantially the duration of a mortgage‐backed pass‐through security when the current mortgage rate is less than the contract rate.
OPTIMAL BOND CALL POLICIES UNDER TRANSACTIONS COSTS
Authors: Mauer David C.
Published: August 2014

In this paper I analyze the effects of refunding transactions costs on the firm's optimal call policy. Refunding transactions costs cause the firm to delay calling a bond when its market value first reaches the call price. This effect causes the price path of a callable bond to be a locally concave function of the interest rate, reaching a maximum price above the call price. Comparative static results show that the magnitude of the premium above the call price is an increasing function of transactions costs. An empirical test on a sample of nonconvertible bonds supports the model's transactions costs prediction.
DID BLACK MONDAY HAVE A PERMANENT EFFECT?
Authors: Albert Robert L. , Smaby Timothy R. , Wyatt Steve B.
Published: August 2014

Black Monday caused an immediate disruption between index futures and stock markets, but it is not clear whether it had any lasting effects. Here we examine links between the markets that are sensitive to the liquidity shortages during Black Monday. By employing a tick‐by‐tick transactions data set of S&P 500 index futures trades and S&P 500 equity index we calculate the spot/futures basis and basis risk, the spot/futures lead/lag relation, and the bid‐ask spread. Evidence suggests that Black Monday had little continuing effect. On high‐volatility days, however, index arbitrage becomes more costly as prices are more sensitive to future trades.
THE EFFECTS OF THE INSIDER TRADING SANCTIONS ACT OF 1984: THE CASE OF SEASONED EQUITY OFFERINGS
Authors: Eyssell Thomas H. , Reburn James P.
Published: August 2014

Previous empirical research indicates that corporate insiders tend to increase (decrease) their shareholdings before events that increase (decrease) firm value. More recent evidence suggests, however, that passage of the Insider Trading Sanctions Act of 1984 (ITSA) may have deterred this behavior. Our results indicate that before passage of the ITSA, insiders exploited their access to nonpublic information by selling shares before the announcement of equity issues. However, after passage of the ITSA insiders no longer displayed this behavior. We conclude the ITSA has a deterrent effect, which is more heavily concentrated on insiders at the highest level of the firm who are most visible to regulators and other market participants.
INFORMATIONAL VERSUS PRICE‐PRESSURE EFFECTS: EVIDENCE FROM SECONDARY OFFERINGS
Authors: Hudson Carl D. , Jensen Marlin R. H. , Pugh William N.
Published: August 2014

The negative market reaction to secondary offerings is the likely result of informational or price‐pressure effects. We find a more negative announcement‐period reaction for larger offerings, which supports both explanations. However, we also find a more negative issuance‐day reaction for larger offers. Unless issuance reveals new information, this finding can only be associated with price‐pressure effects. After issuance, we observe a price recovery directly related to the relative size of the offer, which additionally supports the price‐pressure hypothesis.
SECURITY RETURN DISTRIBUTIONS AND MARKET STRUCTURE: EVIDENCE FROM THE NYSE/AMEX AND THE NASDAQ MARKETS
Authors: Aggarwal Raj , Aggarwal Reena
Published: August 2014

This paper documents significant and persistent deviations from normality in security return distributions for the NYSE, AMEX, and NASDAQ from 1974 to 1988. Controlling for January and size effects, we find that the deviations of security return distributions from normality decline with increasing portfolio size and investment horizon for the NYSE and AMEX, especially for daily returns. Deviations appear to be greater for the NASDAQ than for the two exchanges even for firms of the same size. Ratios of monthly to daily variances are also larger for the NASDAQ. These results suggest that nonparametric or other robust statistical techniques should be used when valuing equity options and other derivatives, especially when examining NASDAQ security returns. They further imply that trading strategies based on market inefficiencies are more likely to succeed on the NASDAQ.
A RE‐EXAMINATION OF THE PROXY HYPOTHESIS
Authors: Liu Y. Angela , Hsueh L. Paul , Clayton Ronnie J.
Published: August 2014

In this study we examine whether the proxy hypothesis can explain the puzzling negative relation between real stock returns and expected inflation. Our study improves upon previous tests that suffer from model misspecification and are incomplete. With correctly specified models, we provide a comprehensive test using data from four major industrialized nations during the period of floating exchange rates. Results do not support the proxy hypothesis.
Golden Parachutes: Incentive Aligners, Management Entrenchers, or Takeover Bid Signals?
Authors: Born Jeffery A. , Trahan Emery A. , Faria Hugo J.
Published: August 2014

In this paper we investigate the effect of golden parachute (GP) adoptions on shareholder wealth. We control for the potential effect a GP adoption has on the probability that a firm will receive a takeover bid by investigating the wealth effects for firms that are in play when the GP is adopted. We find that announcements are wealth neutral when firms are in play and wealth increasing when firms are not in play when a GP is adopted. The results suggest that GPs have no influence on the success of a tender offer, refuting the hypotheses that they either align manager and shareholder interests or that they entrench inefficient managers. The difference in the results for in‐play and not‐in‐play firms is consistent with the hypothesis that GPs signal an increased likelihood that a firm will receive a takeover bid.
THE DEBT MATURITY CHOICE: AN EMPIRICAL INVESTIGATION
Authors: Mitchell Karlyn
Published: August 2014

In this paper I develop and test three nonmutually exclusive hypotheses about the determinants of corporations' debt maturity choices using a sample of corporate bonds issued between 1982 and 1986. The empirical evidence strongly supports the hypothesis that firms use bond maturity to facilitate monitoring by outsiders (the monitoring hypothesis) and weakly supports the hypothesis that firms with high‐quality projects use bond maturity to signal project quality (the signaling hypothesis). The evidence does not support the hypothesis that firms use bond maturity to achieve an optimal trade‐off between interest tax shields and bankruptcy costs (the tax/bankruptcy cost hypothesis).
MEAN AND VOLATILITY SPILLOVERS ACROSS MAJOR NATIONAL STOCK MARKETS: FURTHER EMPIRICAL EVIDENCE
Authors: Theodossiou Panayiotis , Lee Unro
Published: August 2014

This paper provides additional insight into the nature and degree of interdependence of stock markets of the United States, Japan, the United Kingdom, Canada, and Germany, and it reports the extent to which volatility in these markets influences expected returns. The analysis uses the multivariate GARCH‐M model. Although they are considered weak, statistically significant mean spillovers radiate from stock markets of the U.S. to the U.K., Canada, and Germany, and then from the stock markets of Japan to Germany. No relation is found between conditional market volatility and expected returns. Strong time‐varying conditional volatility exists in the return series of all markets. The own‐volatility spillovers in the U.K. and Canadian markets are insignificant, supporting the view that conditional volatility of returns in these markets is “imported” from abroad, specifically from the U.S. Significant volatility spillovers radiate from the U.S. stock market to all four stock markets, from the U.K. stock market to the Canadian stock market, and from the German stock market to the Japanese stock market. The results are robust and no changes occur in the correlation structure of returns over time.
THE PRICING AND HEDGING OF LIMITED EXERCISE CAPS AND SPREADS
Authors: Chance Don M.
Published: August 2014

Capped options are barrier option spreads that automatically create simultaneous long and short positions. Exchange‐traded capped options were introduced in 1991, though with limited volume. Such options, however, have traded on the over‐the‐counter markets for several years. Most of these options have the unusual feature that they automatically exercise when the underlying asset closes beyond a critical strike, making them a hybrid of European and American options. In this paper I present their boundary conditions and examine the prices, deltas, gammas, and thetas of caps as well as spreads constructed with European and American options. I also examine the effect of permitting exercise based only on the closing price as opposed to exercise at any time the critical strike is reached. I show that assuming that exercise can occur at any time can lead to serious pricing errors. The results have implications for the pricing of barrier options in general, which nearly always exercise early based only on the closing price.
INVESTMENT PERFORMANCE OF INTERNATIONAL MUTUAL FUNDS
Authors: Droms William G. , Walker David A.
Published: August 2014

In this paper we add several new perspectives to the growing body of empirical evidence on the investment performance of international mutual funds by applying a pooled cross‐sectional/time‐series regression methodology to a large data base over an extended period. Risk‐adjusted and unadjusted investment returns are not related to whether a fund is load or no‐load, and asset size, expense ratios, and turnover rates are not related to investment performance. We find no reward for paying a load fee when investing in mutual funds. It is noteworthy that performance is not affected by fund size, given the explosive growth of international mutual funds.
THE EFFECT OF THE 1986 TAX REFORM ACT ON EX‐DIVIDEND DAY RETURN BEHAVIOR
Authors: Han Ki C.
Published: August 2014

In this study I examine whether the Tax Reform Act of 1986 has an effect on ex‐date stock return behavior. Results indicate that the tax reform has a significant effect on ex‐date returns for NASDAQ stocks, but not for NYSE/AMEX stocks. Further analysis suggests that the ex‐date returns on NASDAQ stocks are primarily determined by the tax premium. However, the ex‐date returns on NYSE/AMEX stocks are more influenced by short‐term trading.
USING DIVIDEND POLICY AND MANAGERIAL OWNERSHIP TO REDUCE AGENCY COSTS
Authors: Schooley Diane K. , Barney L. Dwayne
Published: August 2014

In this study we examine dividends and chief executive officer (CEO) stock ownership as interrelated mechanisms that may be used to reduce agency costs. We find a significant nonmonotonic relation between dividend yield and CEO stock ownership. Our evidence shows that until the CEO becomes entrenched, increased executive stock ownership reduces agency costs and decreases dividend yield. Beyond that point, increased stock ownership increases dividend yield. Whether additional stock ownership can reduce agency costs depends upon the CEO's degree of control in the firm.
RATIONAL EXPECTATIONS AND THE DYNAMIC ADJUSTMENT OF SECURITY ANALYSTS' FORECASTS TO NEW INFORMATION
Authors: Ackert Lucy F. , Hunter William C.
Published: August 2014

We report the results of unbiasedness tests of security analysts' earnings forecasts. By examining how analysts incorporate new information into their updated earnings forecasts we can analyze directly the effect of new information on analysts' forecast revisions and evaluate whether these revised forecasts converge to rational expectations forecasts. The forecasts made by security analysts participating in the Institutional Brokers Estimate System (IBES) database are analyzed. Using standard statistical tests, we reject the simple form of the rational expectations hypothesis. However, by extending the standard tests used in previous studies, we obtain results that suggest that analysts' earnings forecasts conform to a dynamic form of rationality. The tendency of revised forecasts to converge stochastically toward the rational expectations forecast cautions against the rejection of more complicated forms of rationality.
BANK EXPOSURE TO INTEREST RATE RISK: A GLOBAL PERSPECTIVE
Authors: Madura Jeff , Zarruk Emilio R.
Published: August 2014

In 1993, the Basle Committee on Banking Supervision considered whether to incorporate interest rate risk in risk‐based capital requirements for international banks. At issue was whether a bank's interest rate risk varies with the country of concern. While the effects of interest rate movements on U.S. banks are well documented, the effects on banks from other countries are not. We find that bank interest rate risk varies among countries, which supports the need to capture interest rate risk differentials in the risk‐based capital requirements. We also find that non‐U.S. bank values are sensitive not only to domestic interest rates, but to international interest rates as well.
INSIDER TRADING EFFECTS ON STOCK RETURNS AROUND OPEN‐MARKET STOCK REPURCHASE ANNOUNCEMENTS: AN EMPIRICAL STUDY
Authors: Raad Elias , Wu H. K.
Published: August 2014

In this paper we empirically examine the effects of insider trading activities, the percentage of common shares outstanding authorized for repurchase, and management ownership on stock returns around open‐market stock repurchase announcements. The study is conducted on a sample of 204 firms that announced open‐market stock repurchases between 1982 and 1990. Results show that insider trading activities during the month that immediately precedes the announcement have a significant effect. While stockholders of firms with insider net selling activities earn positive excess returns, those of firms with insider net buying activities earn larger and more significant excess returns. Insider trading activities during more distant periods do not show any effects on stock returns. Results also indicate that management ownership has a significant positive effect on stock returns, and this effect is more positive when the percentage of common shares outstanding authorized for repurchase is large.
AN INDIRECT TEST FOR DIVIDEND RELEVANCE
Authors: Siddiqi Mazhar A.
Published: August 2014

This paper provides an indirect test of dividend relevance conducted in periods that straddle the tax law changes effected by the Tax Reform Act of 1986. Using the abnormal ex‐dividend day return to proxy for the tax penalty of dividends, I find a negative relation between changes in this tax penalty and changes in dividends paid. This result is consistent with corporations' equating, at the margin, the costs of dividend payout to its benefits. Hence, this is indirect evidence of dividend relevance.
EVIDENCE ON THE ROLE OF TAXES ON FINANCING CHOICE: CONSIDERATION OF MANDATORILY REDEEMABLE PREFERRED STOCK
Authors: Carter Mary Ellen , Jr. Gil B. Manzon
Published: August 2014

In this study we examine the effect of firms' marginal tax rates on incremental and overall reliance on mandatorily redeemable preferred stock (MRPS). Similarities in the cash flows associated with debt and MRPS, as well as similarities in the claims of holders of debt and MRPS on the assets of issuing firms, suggest that MRPS may be viewed as a substitute for debt. However, important differences in the tax treatment of MRPS and debt suggest that firms that cannot make full use of interest tax shields may be able to finance more efficiently using MRPS instead of debt. The results indicate that, both incrementally and overall, firms with low marginal tax rates rely more heavily on MRPS than debt relative to firms with high tax rates. This finding is consistent with the proposition that firms that cannot make full use of interest tax shields finance incrementally using equity rather than debt.
THE EFFECT OF SIZE, BOOK‐TO‐MARKET EQUITY, PRIOR RETURNS, AND BETA ON STOCK RETURNS: JANUARY VERSUS THE REMAINDER OF THE YEAR
Authors: Fant L. Franklin , Peterson David R.
Published: August 2014

Size and book‐to‐market equity are shown to transcend beta in explaining stock returns. One possible explanation of the book‐to‐market equity effect is overreaction. We investigate the effect of size, book‐to‐market equity, prior returns, and beta on stock returns. We find significant reversals in January consistent with overreaction. We find a strong positive relation between returns and prior returns for February through December. Both patterns are distinct from either a size or book‐to‐market equity effect. Book‐to‐market equity is significantly related to returns, with some evidence of a stronger effect in January.
EXTERNAL FINANCING, LIQUIDITY, AND CAPITAL EXPENDITURES
Authors: Beranek William , Cornwell Christopher , Choi Sunho
Published: August 2014

Using a large panel of industrial Compustat firms from 1971 to 1988, we find long‐term external financing to be positively related to the period's capital expenditures on growth opportunities, but negatively related to beginning‐of‐the‐period financial slack, broadly defined. These findings support the view that firms tend to match long‐term sources of financing with long‐lived assets, and short‐term debt with short‐lived assets. Our results also reinforce the belief that firms prefer internal to external financing. We find no evidence that firms favor financing capital expenditures with short‐term debt, either permanently or temporarily.
DYNAMIC RELATIONS BETWEEN MACROECONOMIC VARIABLES AND THE JAPANESE STOCK MARKET: AN APPLICATION OF A VECTOR ERROR CORRECTION MODEL
Authors: Mukherjee Tarun K. , Naka Atsuyuki
Published: August 2014

By employing the vector error correction model (VECM) in a system of seven equations, we find that the Japanese stock market is cointegrated with a group of six macroeconomic variables. The signs of the long‐term elasticity coefficients of the macroeconomic variables on stock prices generally support the hypothesized equilibrium relations. Our findings are robust to different combinations of macroeconomic variables in six‐dimension systems and two subperiods. Also, the VECM consistently outperforms the vector autoregressive model in forecasting ability.
INFORMED TRADING RISK AND BID‐ASK SPREAD CHANGES AROUND OPEN MARKET STOCK REPURCHASES IN THE NASDAQ MARKET
Authors: Franz Diana R. , Rao Ramesh P. , Tripathy Niranjan
Published: August 2014

Microstructure theory contends that dealers' bid‐ask spreads should vary intertemporally with changes in the asymmetric information component of the spread. Corporate theory suggests that stock repurchase announcements signal management's private information to the securities markets. An examination of dealers' spread behavior around firms' open market repurchases in the NASDAQ market reveals a decline in spreads adjusted for dealers' inventory‐holding and order‐processing costs. This decline is attributed to a reduction in informed trading risk associated with the open market repurchase announcements.
EVIDENCE ON THE BEHAVIOR OF BID AND ASK PRICES AT THE TURN OF THE YEAR: IMPLICATIONS FOR THE SURVIVAL OF STOCK RETURN SEASONALITY
Authors: Jones Steven L. , Lee Winson
Published: August 2014

We analyze changes at the turn of the year in the relative and standardized bid‐ask spreads of New York Stock Exchange stocks before and after the introduction of personal income taxes in 1917. Previous research indicates the return seasonal arose in 1917. Here, we investigate when spread seasonals arose and whether spread changes are cross‐sectionally correlated with the return seasonal. The results indicate that the year‐end selling pressure, which began in 1917, is apparent as downward shifts in the stocks' bid and ask prices rather than as widening spreads. Additional evidence suggests the January return seasonal originated as compensation to specialists, as well as to competing traders, for incurring the costs of providing liquidity during the tax‐induced seasonal trading pattern.
OPTIMAL FUTURES HEDGE WITH MARKING‐TO‐MARKET AND STOCHASTIC INTEREST RATES
Authors: Chang Carolyn W. , Chang Jack S. K. , Fang Hsing
Published: August 2014

We investigate the effect of marking‐to‐market on an optimal futures hedge under stochastic interest rates. An intertemporal optimal hedge ratio that accounts for basis risk and marking‐to‐market is derived. This ratio includes all previous hedge ratios, with constant interest rates as special cases. In a preliminary empirical study using S&P 500 index futures contracts, we demonstrate that the futures‐forward hedging differential is nontrivial, especially in risk‐return optimization. We also show that the covariances between interest rates and spot and futures prices explain the differential: the larger the covariances are, the larger the differential will be.
THE DETERMINANTS AND DYNAMICS OF BID‐ASK SPREADS ON THE LONDON STOCK EXCHANGE
Authors: Menyah Kojo , Paudyal Krishna
Published: August 2014

We analyze the effect of various factors on the size of spreads on the London Stock Exchange since “Big Bang” and find that the price of a security, volume of transactions, risk associated with security returns, and degree of competition among market makers explain 91 percent of the cross‐sectional variation in spreads. The results are consistent with the argument that the inside spread encompasses the order‐processing, inventory‐adjustment, and adverse‐information cost of spreads. We also investigate the speed at which spreads move toward their normal levels after a temporary deviation. Although the speed of adjustment varies across firms, the cross‐sectional median of 0.896 indicates it takes more than one period (day) for the adjustment to be completed. The volume of transactions and the degree of competition among market makers are the significant factors that affect the speed of correction in spreads toward their normal levels. This implies private information is incorporated more quickly into prices for stocks with greater competition and high trading volume.
THE NEGATIVE RELATION BETWEEN DAILY INDEX RETURN SERIAL CORRELATIONS AND CONDITIONAL VARIANCES: DOES IT HAVE MATHEMATICAL OR ECONOMIC ORIGINS?
Authors: Peterson David R.
Published: August 2014

Previous research finds a negative relation between daily index return first‐order serial correlations and conditional variances. However, this finding should not necessarily be surprising since an inherent, negative mathematical relation exists between the two measures. I use progressively longer holding‐period intervals for conditional variance estimation to diminish the mathematical correspondence between variances and daily serial correlation. In the process, approximately two‐thirds to three‐quarters of the negative relation vanishes. Thus, most of the negative relation documented previously is likely due to mathematical relations. What is left may have minor economic importance.
HEDGING WITH INTERNATIONAL STOCK INDEX FUTURES: AN INTERTEMPORAL ERROR CORRECTION MODEL
Authors: Ghosh Asim , Clayton Ronnie
Published: August 2014

In this paper we extend the traditional price change hedge ratio estimation method by applying the theory of cointegration to hedging with stock index futures contracts for France (CAC 40), the United Kingdom (FTSE 100), Germany (DAX), and Japan (NIKKEI). Previous studies ignore the last period's equilibrium error and short‐run deviations. The findings of this study indicate that the hedge ratios obtained from the error correction method are superior to those obtained from the traditional method as evidenced by the likelihood ratio test and out‐of‐sample forecasts. Using the procedures developed in this paper, hedgers can control the risk of their portfolios more effectively at a lower cost.
THE CROSS‐SECTIONAL EFFECTS OF OPTION LISTING ON FIRM STOCK RETURN VARIANCES
Authors: Niendorf Bruce D. , Peterson David R.
Published: August 2014

We develop a set of hypotheses to explain cross‐sectional differences in variance changes associated with option listing. Transactions variance is decomposed into three components: the bid‐ask spread, return autocorrelations, and intrinsic variance. Each is investigated separately. We find support for hypotheses that link: (1) changes in dealer transactions costs to changes in the bid‐ask spread following option listing; (2) changes in the quantity and quality of information and the value of new information to movements of the return autocorrelation structure toward zero; and (3) changes in trading volume and the clientele that trades the underlying security to changes in intrinsic variance following option listing.
POST‐ANNOUNCEMENT DRIFTS ASSOCIATED WITH DIVIDEND CHANGES
Authors: Bae Gil S.
Published: August 2014

In this paper I assess the presence of post‐announcement drifts associated with dividend changes after controlling for earnings surprises. All quarterly cash dividend changes announced by firms listed on the New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) from 1974 through 1989 are examined. The results show that significant post‐announcement drifts associated with dividend changes are present after controlling for earnings surprises. However, the results are not conclusive on whether the market fully incorporates the simple time‐series properties of dividends.
TRADING PATTERNS OF SMALL AND LARGE TRADERS AROUND STOCK SPLIT EX‐DATES
Authors: Kryzanowski Lawrence , Zhang Hao
Published: August 2014

We investigate the trading patterns of small and large traders around stock split ex‐dates. Using the intraday transaction database for the Toronto Stock Exchange during 1983–89, we find that stock splits are associated with significant changes in trading patterns. Although stock splits appear to have little effect on the trading behavior of large traders (trade value of at least $100,000), they are associated with significant decreases in odd‐lot trading and increases in small board‐lot trading (trade value of less than $10,000). Although the liquidity premia decrease for all trade sizes, trade direction changes significantly from sell to buy after split ex‐dates for all but the large trades, where the change is in the opposite direction. The significant increase in variances after split ex‐dates is explained by various microstructure‐related variables, and small (large) trades appear to be (de)stabilizing.
SEASONED EQUITY OFFERINGS FOR NEW INVESTMENT AND THE INFORMATION CONTENT OF INSIDER TRADES
Authors: Johnson Dana J. , Serrano Jan M. , Thompson G. Rodney
Published: August 2014

Significant negative valuation effects are widely acknowledged for firms announcing seasoned equity offerings. This result is consistent with theoretical models linking new equity issues to increased adverse‐selection costs, lower management ownership in the firm, misuse of free cash flow, or expectations for earnings declines. Also increasingly evident, insiders trade around corporate announcements. We test the hypothesis that insider trading and announcements of new equity issues serve as joint signals in the market's evaluation of prospective capital investment projects. Our findings are consistent with the hypothesis that insider trading is related to market reaction to announcements of new equity issues.
AN EMPIRICAL INVESTIGATION OF STOCK DIVIDENDS‐IN‐KIND
Authors: Fields L. Paige , Wilkins Michael S.
Published: August 2014

We investigate share price reactions to announcements of dividends payable in the common stock of corporations different from the issuing firm. We find that firms that declare these dividends (typically investment companies) experience positive abnormal returns upon announcement. We also find that such dividends are more likely to be declared when the shares to be distributed have peaked in value. Consistent with this finding, we document negative announcement‐period abnormal returns for firms having their shares distributed. Additional tests reveal that prices respond more negatively when the information signal is strongest, when outside ownership is more dispersed, and when management is more entrenched.
ON THE DYNAMIC RELATION BETWEEN STOCK PRICES AND EXCHANGE RATES
Authors: Ajayi Richard A. , Mougouė Mbodja
Published: August 2014

Abstract

In this study we apply recent advances in time‐series analysis to examine the intertemporal relation between stock indices and exchange rates for a sample of eight advanced economies. An error correction model (ECM) of the two variables is employed to simultaneously estimate the short‐run and long‐run dynamics of the variables. The ECM results reveal significant short‐run and long‐run feedback relations between the two financial markets. Specifically, the results show that an increase in aggregate domestic stock price has a negative short‐run effect on domestic currency value. In the long run, however, increases in stock prices have a positive effect on domestic currency value. On the other hand, currency depreciation has a negative short‐run and long‐run effect on the stock market.
MUTUAL FUND BROKERAGE COMMISSIONS
Authors: Livingston Miles , O'Neal Edward S.
Published: August 2014

The brokerage commissions paid for portfolio transactions by a large sample of equity mutual funds are investigated. Median brokerage commissions measured as a percentage of net assets are 21 basis points per year with a standard deviation of 27 basis points. The commission levels are negatively correlated with fund size and positively correlated with fund turnover and expense ratio. The average brokerage commission measured as a percentage of assets traded exceeds the typical execution‐only commissions for large institutional traders. This finding is consistent with many mutual fund brokerage commissions including payments for research, so‐called soft dollar payments. Funds' expense ratios are positively correlated with commissions per trade, inconsistent with the idea that mutual fund managers who pay soft dollars for research have a corresponding reduction in management fees.
THE EFFECTS OF SPIN‐OFFS ON CORPORATE INVESTMENT AND PERFORMANCE
Authors: Johnson Shane A. , Klein Daniel P. , Thibodeaux Verne L.
Published: August 2014

We examine characteristics of firms involved in spin‐offs and test whether these spin‐offs induce changes in investment incentives and economic performance. We find that firms engaging in spin‐offs are larger, more highly leveraged, and have higher asset turnover and lower real asset growth than their industry rivals. We also find that spin‐offs generate significant increases in real asset growth and cash flow margin on sales for combined firm measures (spun‐off firm plus parent firm). The gains result from increases in real asset growth for parent and spun‐off firms, and improvements in cash flow margin on sales for parents. Our evidence is consistent with models in which spin‐offs create value by improving investment incentives and economic performance.
AN EMPIRICAL ANALYSIS OF MUTUAL FUND EXPENSES
Authors: Malhotra D. K. , McLeod Robert W.
Published: August 2014

Mutual fund investors are subjected to many fees and expenses related to both the management of the fund assets and the sale and distribution of the fund's shares. In recent years these expenses have increased as a percentage of assets. The preoccupation of mutual fund investors with using performance evaluation as a selection criterion is misguided because of the volatility of investment returns. Whether the fund's performance is due to superior management or just good luck is difficult to determine. On the other hand, mutual fund expenses are stable. As such, the mutual fund investor should pursue a policy of choosing funds with low expenses. In this paper we conduct an empirical analysis of these expenses. The results of our analysis of equity funds suggest that expense‐conscious investors should look at the fund size, age, turnover ratio, cash ratio, and existence of a 12b‐1 fee as key determinants of expenses. Our analysis of bond funds suggests that the key factors are the fund's sales charge, weighted average maturity, size, and existence of a 12b‐1 fee.
PRICE PRESSURE AND THE ROLE OF INSTITUTIONAL INVESTORS IN CLOSED‐END FUNDS
Authors: Sias Richard W.
Published: August 2014

A trader‐identified transactions database is employed to investigate: (1) the relation between order‐flow imbalance and closed‐end fund share prices and discounts; and (2) the role of institutional investors in closed‐end funds. Empirical results are consistent with the hypothesis that buyers (sellers) of closed‐end funds face upward‐downward‐) sloping supply (demand) curves. The results also demonstrate that ownership statistics do not accurately reflect institutional investors' importance in the closed‐end fund market. The results fail to provide evidence that institutional investors offset the positions of individual investors or that institutional investors face systematic “noise trader risk.”
CO‐MOVEMENTS IN INTERNATIONAL EQUITY MARKETS
Authors: Darbar Salim M. , Deb Partha
Published: August 2014

We examine the co‐movements of equity returns in four major international markets by characterizing the time‐varying cross‐country covariances and correlations. Using a generalized positive definite multivariate GARCH model, we find that the Japanese and U.S. stock markets have significant transitory covariance, but zero permanent covariance. The other pairs of markets examined display significant permanent and transitory covariance. We also find that, while conditional correlations between returns are generally small, they change considerably over time. An event analysis suggests that basing diversification strategies on these conditional correlations is potentially beneficial.
FRACTIONAL DIFFERENCING MODELING AND FORECASTING OF EUROCURRENCY DEPOSIT RATES
Authors: Barkoulas John T. , Baum Christopher F.
Published: August 2014

Using the spectral regression method, we test for long‐term stochastic memory in three‐ and six‐month daily returns series of Eurocurrency deposits denominated in major currencies. Significant evidence of positive long‐term dependence is found in several Eurocurrency returns series. Compared with benchmark linear models, the estimated fractional models result in dramatic out‐of‐sample forecasting improvements over longer horizons for the Eurocurrency deposits denominated in German marks, Swiss francs, and Japanese yen.
FIRM CHARACTERISTICS AND THE PRESENCE OF EVENT RISK COVENANTS IN BOND INDENTURES
Authors: Bae Sung C. , Klein Daniel P. , Padmaraj Raj
Published: August 2014

Event risk covenants (ERCs) became popular as a bondholder protection measure during the height of restructuring activities in the 1980s. We investigate the empirical relation between firm characteristics and the likelihood of ERCs in bond indentures. In particular, we examine whether a firm's agency costs of debt, financial distress costs, and/or takeover potential influence its decision to include ERCs. Employing bonds with and without ERCs issued during 1986–90, we provide evidence that the likelihood a firm will include ERCs is positively related to the firm's agency costs of debt and to its potential for takeover. The results, however, do not support the financial distress costs hypothesis.
MARKET REACTION TO DIVIDEND‐DECREASE ANNOUNCEMENTS: PUBLIC UTILITIES VS. UNREGULATED INDUSTRIAL FIRMS
Authors: Impson Michael
Published: August 2014

In this study I compare the common share price reaction to dividend‐decrease announcements by public utilities with the share price reaction to dividend‐decrease announcements by unregulated firms. Regressing cumulative prediction errors from an event study methodology on firm characteristics, the empirical evidence shows that dividend decreases by public utilities prompt stronger negative market reactions than similar announcements by unregulated firms, even when yield, yield change, firm size, and Tobin's Q differences are considered.
TIME‐VARYING FACTORS AND CROSS‐AUTOCORRELATIONS IN SHORT‐HORIZON STOCK RETURNS
Authors: Hameed Allaudeen
Published: August 2014

In this paper I show that the lead‐lag pattern between large and small market value portfolio returns is consistent with differential variations in their expected return components. I find that the larger predictability of returns on the portfolio of small stocks may be due to a higher exposure of these firms to persistent (time‐varying) latent factors. Additional evidence suggests that the asymmetric predictability cannot be fully explained by lagged price adjustments to common factor shocks: (i) lagged returns on large stocks do not have a strong causal effect on returns on small stocks; (ii) trading volume is positively related to own‐ and cross‐autocorrelations in weekly portfolio returns; and (iii) significant cross‐autocorrelation exists between current returns on large stocks and lagged returns on small stocks when trading volume is high.
SPLIT RATINGS, BOND YIELDS, AND UNDERWRITER SPREADS
Authors: Jewell Jeff , Livingston Miles
Published: August 2014

A split bond rating occurs when Moody's and Standard & Poor give different ratings to the same issue. We examine 1,277 public industrial bond issues, where 221 have split ratings, issued from 1980 through mid‐1993. For split‐rated industrial bonds, neither rating agency consistently gives higher ratings. Earlier studies find yields for split‐rated bonds to be priced as either the higher or the lower of the ratings. We find the yields on split‐rated bonds to be an average of the yields on the two ratings. Split ratings for industrial bonds appear to reflect random differences on the part of rating agencies. Our results differ from previous studies because we use a substantially larger sample and include high‐yield bonds. As long as a bond has an investment‐grade rating, the underwriter fees are found to be essentially the same for all rating categories. Below investment grade, the rating substantially affects the underwriter fee. Thus, split ratings for high‐yield bonds have an important effect on the underwriter spread.
ON STOCK RETURN SEASONALITY AND CONDITIONAL HETEROSKEDASTICITY
Authors: Beller Kenneth , Nofsinger John R.
Published: August 2014

We model the seasonal volatility of stock returns using GARCH specifications and size‐sorted portfolios. Estimation results indicate that there are volatility differences between months and that these seasonal volatility patterns are conditional on firm size. Additionally, we find that seasonal volatility does not explain seasonal returns when the reward for risk is held constant over the sample period. Specifically, our results indicate that much of the abnormal return in January for small firms cannot be entirely attributed to either higher systematic risk or a higher risk premium in January.
THE LONG‐RUN PERFORMANCE OF CONVERTIBLE DEBT ISSUERS
Authors: McLaughlin Robyn , Safieddine Assem , Vasudevan Gopala K.
Published: August 2014

We examine the long‐run operating and stock price performance of 828 convertible debt issuers. Relative to matched, nonissuing firms, convertible debt issuers have small improvements in operating performance before the offer and significant declines in operating performance from pre‐ to post‐issue. We examine the relation between several factors and operating performance. We find that for some pre‐ to post‐issue periods, operating performance changes are positively related to firm leverage and the callability of the bond, and negatively related to performance run‐up before the offer and investment in new assets. We also find some evidence that firms that issued equity in the three years before their convertible debt issue have larger declines in performance after the offer. Relative to matched, nonissuing firms, convertible debt issuers have superior stock price performance before the offer and significantly poor performance after the issue.
THE INTRA‐INDUSTRY EFFECTS OF OPEN MARKET SHARE REPURCHASES: CONTAGION OR COMPETITIVE?
Authors: Erwin Gayle R. , Miller James M.
Published: August 2014

We examine the extent to which announcements of open market share repurchase programs affect the valuation of competing firms in the same industry. On average, although firms announcing open market share repurchase programs experience a significantly positive stock price reaction at announcement, portfolios of rival firms in the same industry experience a significant and contemporaneous negative stock price reaction. This suggests that perceived changes in the competitive positions of the repurchasing firms occur at the expense of rival firms and dominate any signals of favorable industry conditions. Thus, the competitive intra‐industry effects of open market repurchases outweigh any contagion effects. In addition, cross‐sectional tests indicate that these competitive effects are more pronounced in industries characterized by a lower degree of competition and less correlation between the stock returns of the repurchasing firm and its rivals.