Studies in Economics and Finance, Vol. 33 Iss: 3 (2016)
Noisy information and stock market returns
Abstract:
Purpose this paper studies whether noisy public information that
investors receive about the expected aggregate dividend growth rate can help better
understand the large average equity premium and stock return volatility in the
US financial market.
We consider a dynamic asset pricing model with a
representative agent, who cannot observe the expected growth rate of dividends
and must learn its value by using noisy information. In addition, we present a
simple model for noisy information calibration.
With a coefficient of relative risk aversion below 10 and
the time impatience parameter between 0 and 1, our calibrated model is able to
yield an average risk-free interest rate, equity premium and stock return
volatility that are close to the stylized facts in the US financial market
Equity fund performance: can momentum be explained by the
pricing of idiosyncratic volatility?
Abstract:
Purpose this paper investigates whether idiosyncratic volatility is
priced in returns of equity funds while controlling for fund size and return
momentum.
Design/methodology/approach
Following Fama and French (1993), an idiosyncratic
volatility mimicking factor and a fund-size factor are constructed. The pricing
ability of this idiosyncratic volatility mimicking factor is investigated in
the context of Carhart (1997).
Findings
Idiosyncratic volatility is an important pricing factor even
when controlling for fund size and momentum. In addition, idiosyncratic
volatility is strongly and positively associated with the momentum effect.
Further, when controlling for the association between the momentum effect and
idiosyncratic volatility, the explanatory power of the momentum factor almost
disappears, which suggests the pricing of idiosyncratic volatility mediates
momentum and returns.
Earnings surprises and the response of CDS markets
Abstract:
Purpose this paper investigates the informational content of
earnings surprises and accounting information in CDS markets.
Design/methodology/approach
I analyse a sample of 444 US firms and 6,907 earnings
announcements. By means of parametric and non-parametric event study analysis,
I assess the informational value and the timeliness in the assimilation of
earnings surprises by CDS rates.
Findings
I show that earnings surprises contain material information
and that CDS rates are affected by the disclosure of obligors’ financial
statements. There is also supporting evidence that positive and negative
surprises induce asymmetric reactions on CDS rates, especially after accounting
for the credit risk of the obligor and the liquidity of the CDS contract.
Finally, and perhaps the most interesting conclusion of the study, there is
evidence that earnings disclosed during unstable periods lack informational
value, in opposition to normal periods.
Does the sentiment of investors explain differences between
predicted and realized stock prices?
Abstract:
Purpose the objective of this paper is to use the Barberis et al.
(1998) valuation model in order to calculate the fundamental value of a stock
and examine whether the differences between predicted and realized stock prices
are explained both by psychological factors (that affect investor reaction to
information) and by key macroeconomic variables.
Design/methodology/approach
This paper adopts a time-series analysis as well as a panel
data approach in order to examine whether the price deviations from fundamental
values are due to macroeconomic and psychological factors, using data from the
London Stock Exchange.
Findings
The results indicate that these differences are explained by
important macroeconomic variables as well as by the sentiment of investors
(that is used as a proxy of the psychological factors).
The relative term structure and the Australian-US exchange
rate
Abstract:
Purpose the purpose is to investigate whether the factors that
summarise the information in the yield curves of Australia and the United
States can predict changes in the Australian-US exchange rate (i.e. the AUD/USD
rate) and Australian dollar excess returns.
Design/methodology/approach
The paper extracts the three Nelson-Siegel factors (level,
slope and curvature) from the relative yield curve of Australia with the United
States to predict changes in the bilateral exchange rate and excess returns on
the Australian dollar. The full sample regressions allow for a shift in the
coefficient on the relative curvature factor which can account for the impact
of the Fed’s changed monetary policy to one of quantitative easing.
Findings
The paper finds that the relative curvature factor strongly
predicts changes in the AUD/USD exchange rate and Australian dollar excess
returns out to 12-months ahead in the sample that precedes the Fed’s policy of
quantitative easing. The relative curvature factor retains its predictive power
in the full sample regressions but anticipates smaller exchange rate changes
and excess currency returns in in-sample predictions made from August 2007.
The yield curves of Australia and the US reliably reflect
investor’s expectations about prospective monetary policies in each economy.
Mergers and acquisitions: a review (part 2)
Abstract:
Purpose this paper reviews the relevant literature on mergers and
acquisitions in an attempt to provide a comprehensive account of what we know
about mergers and which parts of the puzzle are still incomplete.
Design/methodology/approach
This literature review consists of three key sections. The
first part of this paper summarises the literature on the cyclical nature of
mergers referred to in the literature as merger waves. The second section
reviews the causes and consequences of takeovers; it first reviews the causes,
or drivers, of acquisitions, while focusing on the fact that acquisitions
happen in waves and then reviews the consequences of takeovers, with a
predominant focus on the impacts of mergers on the economic performance of
acquirers. The third part of the review summarises the theories as well as
previous empirical studies on determinants of announcement returns and
post-acquisition performance of combined firms.
Findings
• Merger activity demonstrates a wavy pattern, i.e. mergers
are clustered in industries through time. • The causes suggested for this
fluctuating pattern include industry and economy-level shocks, mis-valuation,
and managerial herding. • Market reaction to announcement of acquisitions is,
on average, slightly negative for acquirer stocks and significantly positive
for target stocks. The combined abnormal return is positive. These findings
have been consistent over several decades of investigation. • The prior
research also identifies a number of factors that are related to performance of
acquisitions. These factors are categorised and reviewed in five different
groups: (1) Acquirer characteristics, (2) Target characteristics, (3) Bid
characteristics, (4) Industry characteristics, and (5) Macro-environment
characteristics
0 comments:
Post a Comment