ContentsStock Market Uncertainty and the Stock-Bond Return RelationRobert Connolly, Chris Stivers, and Licheng Sun
Have World, Country, and Industry Risks Changed over
Time? An Investigation of the Volatility of Developed Stock
Markets
Brand Perceptions and the Market for Common Stock
Correlated Order Flow: Pervasiveness, Sources, and
Pricing Effects
Firm Performance, Capital Structure, and the Tax
Benefits of Employee Stock Options
Do Non-U.S. Firms Issue Equity on U.S. Stock Exchanges
to Relax Capital Constraints?
Faculty Perceptions and Readership Patterns of Finance
Journals: A Global View
Big Fish in Small Ponds: The Trading Behavior and Price
Impact of Foreign Investors in Asian Emerging Equity
Markets
Ownership Structure and Firm Value in China's Privatized
Firms: 1991-2001
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Abstracts
Stock Market Uncertainty and the Stock-Bond Return Relation We examine whether time variation in the comovements of daily stock and Treasury bond returns can be linked to measures of stock market uncertainty, specifically the implied volatility from equity index options and detrended stock turnover. From a forward-looking perspective, we find a negative relation between the uncertainty measures and the future correlation of stock and bond returns. Contemporaneously, we find that bond returns tend to be high (low) relative to stock returns during days when implied volatility increases (decreases) substantially and during days when stock turnover is unexpectedly high (low). Our findings suggest that stock market uncertainty has important cross-market pricing influences and that stock-bond diversification benefits increase with stock market uncertainty.
Have World, Country, and Industry Risks Changed over Time? An
Investigation of the Volatility of Developed Stock Markets This paper uses a volatility decomposition method to study the time-series behavior of equity volatility at the world, country, and local industry levels. Between 1974 and 2001, there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.
Brand Perceptions and the Market for Common Stock This paper investigates the effect of company brand perceptions on investor propensities to hold stocks. We find that, after controlling for other determinants of stockholdings, there is a negative and significant cross-sectional relation between institutional holdings and brand visibility, which is consistent with the notion that individual investors prefer to invest in stocks with easily recognized products. Furthermore, we find that institutional holdings are positively related to firm size and beta. Our analysis supports the notion that institutional portfolios eschew relatively neglected small firms, whereas individuals prefer holding stocks with high recognition and, consequently, greater information precision.
Correlated Order Flow: Pervasiveness, Sources, and Pricing Effects We examine the importance of indexing, industry, and broad market forces in driving common effects in order flow, returns, and trading costs. Common effects are strong for order flow and returns in a sample of S&P 500 stocks, but are weak in a sample of non-index stocks and for trading costs in both samples. Industry and broad market effects exist in order flow for both samples, but indexing effects are dominant. Correlated order flow drives common effects in returns and, to a lesser extent, those in trading costs. An event study of the effect of index addition on order flow and return comovement reinforces these conclusions. Our results show that common effects are not pervasive and have implications for diversification strategies and price formation models.
Firm Performance, Capital Structure, and the Tax Benefits of Employee
Stock Options This paper analyzes the relation between the capital structure of a firm and the tax benefits realized from the exercise of stock options. Theory suggests that firms with tax benefits from the exercise of stock options should carry less debt since tax benefits are a non-debt tax shield. We find that both long- and short-term debt ratios are negatively related to the size of tax benefits from option exercise. Moreover, one-year changes in long-term leverage are negatively related to changes in the number of options exercised. Such a relation does not exist for changes in short-term leverage. Finally, firms with option-related tax benefits tend to issue equity, with the net amount of equity issued an increasing function of these tax benefits.
Do Non-U.S. Firms Issue Equity on U.S. Stock Exchanges to Relax Capital
Constraints? The positive market reaction associated with an ADR listing is frequently attributed to a reduction in market segmentation costs that improves access to capital. If so, the benefit should be greatest for ADR firms that face relatively high indirect barriers to capital access. Our paper directly tests this supposition. We document that, following a U.S. listing, the sensitivity of investment to free cash flow decreases significantly for firms from emerging capital markets, but does not change for developed market firms. Further, emerging market ADR firms mention the need for access to external capital markets in their filing documents more frequently than their developed market counterparts and, in the post-ADR period, tout their liquidity rather than a need for capital access. Finally, the increase in capital access following an ADR is more pronounced for firms from emerging markets. Our findings suggest that greater access to external capital markets is an important benefit of a U.S. stock market listing for emerging market firms and is less important for developed market firms.
Faculty Perceptions and Readership Patterns of Finance Journals: A Global
View Journal rankings are frequently used as a measure of both journal and author research quality. Nonetheless, debates frequently arise because journal rankings do not take into account the underlying diversity of the finance research community. This study examines how factors such as a researcher's geographic origin, research interests, seniority, and journal affiliation influence journal quality perceptions and readership patterns. Based on a worldwide sample of 862 finance academics, we find remarkable consistency in the rankings of top journals. For the remaining journals, perception of journal quality differs depending on the researcher's geographic origin, research interests, seniority, and journal affiliation.
Big Fish in Small Ponds: The Trading Behavior and Price Impact of Foreign
Investors in Asian Emerging Equity Markets This paper analyzes a new dataset for the aggregate daily trading of all foreign investors in six Asian emerging equity markets and provides two new findings. First, foreigners' flows into several markets show positive feedback trading with respect to global, as well as domestic, equity returns. The nature of this trading suggests it is due to behavioral factors or foreigners extracting information from recent returns, rather than portfolio rebalancing effects. Second, the price impacts associated with foreigners' trading are much larger than earlier estimates. The results suggest that foreign investors and external conditions have a larger impact on emerging markets than implied by previous work.
Ownership Structure and Firm Value in China's Privatized Firms:
1991-2001 This paper investigates the relation between ownership structure and firm value across a sample of 5,284 firm years of China's partially privatized former state-owned enterprises (SOE) from 1991-2001. We find that state and institutional shares are significantly negatively related to Tobin's Q, and that significant convex relations exist between Q and state shares, as well as between Q and institutional shares. We also find that foreign ownership is significantly positively related to Tobin's Q. We test for potential endogeneity of ownership, and find that Q and state/foreign ownership are not jointly determined. We also test for time-series, industry, and geo-economic location effects, and find our results to be robust.
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