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This statistical study refines and updates Sharpe’s empirical paper (1975, Financial Analysts Journal) on switching between US common stocks and cash equivalents. According to the original conclusion, profitable market timing relies on a representative portfolio manager who can correctly forecast the next year at least 7 times out of 10. Four changes are made to the original setting. The new data set begins and ends with similar price-earnings ratios, a more accurate approximation of commissions is given, the rationality of assumptions is examined, a prospective and basic Monte Carlo analysis is carried out so as to consider the heterogeneous performance of a number of portfolio managers with the same forecasting accuracy. Although the first three changes improve retrospectively the odds of profitable market timing, the original conclusion is corroborated once more.

We introduce the concept of mean field games for agents using Forward utilities of CARA type to study a family of portfolio management problems under relative performance concerns. Under asset specialization of the fund managers, we solve the forward-utility finite player game and the forward-utility mean-field game. We study best response and equilibrium strategies in the single common stock asset and the asset specialization with common noise. As an application, we draw on the core features of the forward utility paradigm and discuss a problem of time-consistent mean-field dynamic model selection in sequential time-horizons.

We examine whether investor sentiment affects price discrepancies between preferred and common stocks, based on a sample of Korean firms that issue preferred stocks. While most research has focused on corporate finance features such as voting rights, we examine price discrepancies as a behavioral finance feature from a new perspective. Based on the investor sentiment index, as investor sentiment increases, price discrepancies between preferred and common stocks widen in the KOSPI market. These findings confirm that investor sentiment—not merely voting premiums, cash flow rights, and liquidity—is a significant factor in explaining price discrepancies between preferred and common stocks in Korea.

This study aims to examine the effect of cash flows on investment decision that is moderated by financial constraint and mispricing. The population of the study was all listed-manufacturing firms in Indonesia from 2014 to 2016. Samples were chosen based on the availability of firms’ financial report covering the period of the study. By using moderated regression analysis where financial constraint and mispricing as moderating variables, the study concluded that financial constraint weakens the effect of cash flow on investment. Although lower financially constrained-firms have an opportunity to choose their source of funding, they prefer to finance their investment from an internal source of funding (from cash flows) due to lower risk. Furthermore, mispricing does not have a role as a moderating variable. In this condition, overvalued firms are indifferent from choosing the source of funding. Finally, when financial constraint and mispricing are signed as a moderating variable, they weaken the effect of cash flow on investment. It means that firms with lower financial constraint and overvaluation prefer to use external funding by issuing new common stocks because it provides a lower cost of capital.

This paper examines whether new equity may be issued to recapitalize existing assets in financially distressed firms. Using a sample of 3,184 follow-on primary common stock issues offered by Korean publicly traded firms from 2000–2013, we find that more than one-third of the equities are issued to creditors in direct exchange for debt. We also determine that equity issuers are in severe financial distress prior to the issue and are more likely to experience a subsequent change in control. The proceeds are used more to replace existing debt than to increase R&D. These findings suggest that equity issues in emerging markets may be used primarily to recapitalize existing assets through debt restructuring or control transfers rather than to finance growth options.

IDX Composite is a combination of all common stock and preferred stock which registered on Bursa Efek Indonesia (BEI). IDX Composite is often used by investor to predict the stock price to get profit. But, to predict the stock price is not easy, hence it yields a high risk to investor. This study offers the usage of backpropagation algorithm to minimize the risk. Backpropagation is a supervised algorithm and will be made in Python programming language, in this case, backpropagation will use and learn the past 5 days data to predict the outcome. Also, this study shows that backpropagation have a high accuracy which reflects in Mean Square Error Testing value of 320.49865083640924 to predict IDX Composite using 0.3 learning rate and 3000 epoch., Indeks Harga Saham Gabungan (IHSG) merupakan gabungan dari seluruh saham biasa dan saham preferen yang tercatat di Bursa Efek Indonesia (BEI). IHSG dapat dijadikan acuan oleh para investor untuk meramalkan harga saham sehingga mendapatkan keuntungan. Tetapi, untuk memprediksi harga saham kedepannya merupakan hal yang cukup sulit sehingga dapat menjadi suatu resiko bagi para investor, sehingga diperlukan suatu metode yang dapat meramalkan data IHSG untuk mengurangi resiko tersebut. Dalam penelitian ini, akan digunakan algoritma backpropagation yang merupakan algoritma pembelajaran tersupervisi yang dibangun dengan menggunakan bahasa pemrograman Python. Algoritma ini akan mempelajari data 5 (lima) hari sebelumnya dan akan digunakan untuk memprediksi harga kedepannya. Penelitian ini memiliki tingkat akurasi berupa MSE testing sebesar 320,49865083640924 dengan menggunakan learning rate 0,3 dan 3.000 epoch.

We build CPS-index (Common Preferred Spread Index) using the spread return between common and preferred stock pairs, and show that CPS-index has explanatory power for long term market return. Common stocks are more sensitive to the market condition than preferred stocks so that CPS-index tends to oscillate according to market condition. We observe that the future realized market return becomes high when CPS-index is low and vice versa. There is an inverse relationship between CPS-index and the future market return of S&P500 index. The statistical analysis of the regression between CPS-index and future market return shows that CPS-index has a significant power to explain the future realized market return in 21 months or up to 48 months ahead of time. Multivariate regression analysis confirms that the inclusion of CPS-index as an explanatory variable enhances the market predictability. We apply neural network to predict the future market return and observe that CPS-index provides better prediction results in any time horizon longer than twenty seven months.

Why do companies not follow through with an IPO after filing for one? This question is investigated by examining common stock IPOs for the largest countries in Europe. We cover 80% of the Western European IPO market over the 2001–2015 period. We establish that the IPO phenomenon of withdrawal is a common feature of equity markets and identify key characteristics that influence the probability of withdrawal. Findings indicate that venture capital or private equity involvement, the presence of negative news, CEO duality, or the intent to retire debt increase the probability of IPO withdrawal. On the other hand, higher levels of corporate governance or trading volume decrease the pssrobability of IPO withdrawal. We argue that imminent agency conflicts and the lack of appropriate control mechanisms can force a company to withdraw from the IPO.

We find that removing stocks with extreme absolute strength from typical momentum portfolios can enhance their performance. Using data on common stocks traded on NYSE, AMEX, and NASDAQ, we find that stocks with extreme absolute strength feature very high volatility and are more likely to lose their momentum. Removing these stocks from typical momentum portfolios significantly reduces the volatility of the portfolios and increases the average return in most cases, improving the portfolios' performance. The removal of stocks with extreme absolute strength can also effectively alleviate the problem of momentum crashes and render momentum strategies profitable in the post-2000 era, a period during which momentum appears to have vanished.

We study the impact of online buzz prior to internet firms’ Initial Public Offerings (IPOs) on market valuation of their common stock through the first two years. Using economics of information the...

Mandatory shareholder approval of equity issuances varies considerably across and within countries. In the United States and a few other countries, management typically needs the approval of only its board of directors to issue common stock. In most countries, however, by law or stock exchange rule, shareholders must vote to approve equity issuances when using certain methods or contemplating offers that exceed a specified fraction of outstanding shares. In some countries, shareholders must approve all equity issuances. Even in the United States, shareholder approval is mandatory under certain circumstances. The differences in the stock market reaction to shareholder‐approved equity issuances and to issues undertaken unilaterally by management are strikingly and consistently large. When shareholders approve stock issuances, whether public or rights offerings, or private placements, the average announcement returns are significantly positive, on the order of 2%. But when managers issue stock without shareholder approval, as in the case of U.S. public offerings, returns are significantly negative and 4% lower, on average, than for shareholder‐approved issues. What's more, the closer in time the shareholder vote is to the issue date, and the greater the required plurality (say, two‐thirds instead of half the vote required for approval), the more positive is the market reaction to the issue—and these findings hold for each of the three main kinds of offerings that take place in all 23 countries in the author's sample. Also telling, in countries where shareholder approval is required, such as Sweden and Malaysia, rights offers predominate over public issues. But in countries like the U.S. and Japan, where managers may generally issue stock without shareholder approval, public offers predominate over rights issues. These findings suggest that agency problems—the tendency of corporate managements to put their own interests before their shareholders'—play a major role in equity issuances. Such findings are also largely inconsistent with the adverse selection, market timing, and signaling explanations that currently dominate academic thinking about equity issuances by public corporations.

We study the link between measures of stock options’ volatility and firms’ real earnings management (RM). We hypothesize that RM causes uncertainty in the value of a firm’s common stock and, as a result, increases the volatility spread and skew of the firm’s options. Spread and skew proxy for investors’ uncertainty in the value of the options underlying a stock. Consistent with our hypothesis, we find an association between a firm’s use of RM, and the volatility spread and skew in the firm’s options, more precisely in its put options. We also study the link between short selling and the extent of RM but do not find a consistent relationship between the two.

In Britain around 1900, established financial institutions for long-term savings such as life assurers, and pension funds which were just in their formative phase, did not make material allocations to publicly quoted equity markets or ordinary shares; long-established life assurers, for example, had less than 3 per cent allocated to the asset class (Baker and Collins 2003). Over the following 100 years, this picture radically changed, with equities emerging as the central asset class for many institutional investors and the term ‘the cult of (the) equity’ was coined (Scott 2002; Avrahampour 2015). As the century progressed, institutional investors superseded private individuals and became the dominant holders of British publicly quoted companies (Cheffins 2010). Despite the attractions of the asset class and their generally high returns, within a relatively short period by the end of the century, institutional equity exposure had peaked and was in decline both at life assurers and within pension funds. Here we highlight, and link together, the key actuarial (Turnbull 2017) and investing (Morecroft 2017) ideas that were influential in these developments. We also identify the main individuals who were instrumental in the application of equity investing to institutional portfolios. The article has an emphasis towards years from 1920 to 1960 when most of the changes to investment practice and actuarial theory occurred.

This paper investigates whether members of Congress use private information in their stock transactions. We analyze 61,998 congressional common stock transactions over the 2004-2010 period, and find that the buy-minus-sell portfolios of powerful Republicans outperform the market with abnormal returns exceeding 32% under a one-week holding period. These abnormal returns persist under both Democratic- and Republican-controlled Congresses. Furthermore, the portfolios of powerful Republicans with less trading experience (i.e., unsophisticated) outperform those of sophisticated powerful Republicans. Also, the advisor-assisted and self-managed portfolios of unsophisticated powerful Republicans both earn abnormal returns. Our results imply that the performance of congressional portfolios is mostly driven by private information that politicians acquire from sources inside and outside of Congress, based on their power and party membership.

This paper examines the relationship between common stock return and corporate cultural behaviour of twenty listed firms from Shanghai Stock Exchange. The particular research questions of this study include: whether corporate cultural behaviour impacts common stock returns and under what conditions it impacts shareholder expectations and corporate governance.

Successful election monitoring depends on the ability to predict where violence will be used to intimidate voters. However, the strategy of a violent electoral candidate will depend on the particular characteristics of the election, including (i) whether other candidates are able to organize violence, (ii) whether the outcome depends on nationwide voting shares or shares in individual electoral districts, and (iii) how costly it is to transport the resources used to perpetrate violent acts. Although there is already ample theory and evidence for some combinations of these characteristics, analysis of other combinations is still lacking. This paper presents a theory designed to analyse strategy in an election in which the outcome depends on nationwide voting shares and only one candidate is able to organize violence, distinguishing between the case of costless transportation and the case in which transportation is prohibitively costly. The theory predicts that in the case of costly transportation with constant returns to scale, violence will be targeted at areas where support for the opposition is relatively low. Evidence suggests that the second round of the 2008 presidential election in Zimbabwe corresponds to such a case, and statistical analysis of the geographical distribution of violence around the time of the election indicates that areas of opposition weakness did indeed suffer more violence.

This study examines whether the number of forward patent citations (along with alternative patent data)—when used as a proxy for the mixing variable—could infer the aggregate amount of economic-innovation information arriving at the New York Stock Exchange (NYSE) in the United States. The results show that the number of forward patent citations, when used as a mixing variable, fails to eliminate total volatility persistence in the conditional variance equation of the exponential generalized autoregressive conditional heteroscedastic (EGARCH) model. However, the trading volume successfully eliminates total volatility persistence, thus confirming the validity of the framework used. When the volatility is modeled with an expectation of mean return, the persistence of conditional variance is deterministically increased, and the sum of the volatility coefficients exceeds unity. The inclusion of trading volume with a time trend in the variance equation rectifies the deterministic increase in the conditional volatility. These findings suggest that the form of heteroscedasticity (i.e., as per the autoregressive conditional heteroscedastic model, ARCH model) in NYSE portfolio returns is based on the type of shocks to volatility (e.g., deterministic vs. stochastic), which manifests as news arrivals (i.e., new information arrivals proxied by trading volume) at the stock market. The volume therefore reflects the time dependence in the innovations to the ARCH error generation process. The response of volatility to volume persists over time when the volatility estimates are derived from the EGARCH model with an expectation for the mean of return. Backward patent citations, patent applications, and patents issued have been found to interact somewhat with trading volume, suggesting that each of these variables could play the role of an absorptive capacity variable as the new information flow associated with economic innovation (i.e., flow of firms’ stock of new knowledge) could be picked up by the trading volume. Keywords: Economic innovation, Patent citations, Market efficiency, Information flow, EGARCH, Trading volume, JEL classification: G12, G14, G17, D53, C58, O31

Conducting the first study of momentum impact on households’ exchange‐traded fund (ETF) trading behavior, we find that Finnish households are less contrarian when trading benchmark index ETFs than when trading common stocks. Also, their propensity to chase recent positive momentum is higher when purchasing ETFs than when purchasing stocks. As expected, results are stronger for ETF purchases than sales. Our findings are consistent with hypotheses that households are less overconfident trading index ETFs than common stocks, that contrarian behavior is more often rational when trading stocks than when trading ETFs, and that households trade ETFs for the long run.

Purpose This paper aims to investigate the empirical effects of an inconsistency in the calculation of the diluted earnings per share (EPS) number which originated in Accounting Principles Board Opinion No. 15 (APB 15) and continues in Statement of Financial Accounting Standard No. 128 (SFAS 128), EPS. The discrepancy involves the treatment of dilutive warrants and options versus other dilutive convertible securities and is explained in the section of this paper where the authors describe the proposed alternative EPS model. In a sample of 55 publicly traded companies in which they applied their model, it was found that the average increase in diluted EPS to be 5.7 per cent and the median increase to be 3.8 per cent. The authors believe that SFAS 128 should be considered, along with other factors, to be revised to direct that diluted EPS be computed in accordance with their model. Design/methodology/approach The authors selected a sample of companies from the Compustat Annual Database that had either Convertible Debt or Convertible Stock or both with a year-end between July 1, 2011 and July 1, 2012 which was the most recent data available at the time of the initial study. They then used the model assuming a “repurchase” of common shares as if the “treasury stock method” which applies to options and warrants also applied to these conversions. They then reduced the number of shares initially used to compute diluted EPS by the number of assumed repurchased shares. Using the revised number of shares, the authors recomputed diluted EPS as a percentage of the originally reported diluted EPS. Findings For the 55 companies in the sample, the average increase in diluted EPS using the “treasury stock method” was 5.7 per cent. The median increase was 3.8 per cent. The largest increase was 26.6 per cent and the smallest was 0 per cent. Research limitations/implications This is a one-year study of the sampled firms. A multi-year sample is recommended for further research. Also, the sample might be applied to foreign entities under the jurisdiction of IAS 33. Practical implications According to the Financial Accounting Standards Board (FASB) the price-earnings ratio of an equity is perhaps the most frequently cited statistic in the business of equity investments. As the denominator in the price-earnings ration is the “diluted” EPS figure calculated under generally accepted accounting principles (GAAP) under Statement of Financial Accounting No. 128 (SFAS 128), the results have very significant implications for the recommended study and revision of the diluted EPS statistic. Social implications If the current diluted EPS reported numbers result in lower stock prices than would otherwise be the case under the authors’ model, then it seems likely that these companies with large amounts of debt would have a higher cost of equity capital than would otherwise be the case. The overall result would be a different allocation of equity capital than would be the case if convertible debt and convertible equity were treated the same way as options and warrants. As we are unaware of a rationale for the disparate treatment, it is believed that this a is a misallocation caused by a statement of the Financial Accounting Standards Board (FASB) that seems flawed and recommend that it be considered to be revised. Originality/value A review of the literature found no other study addressing this issue.

This chapter presents evidence in support of the empirical ZCAPM. Based on U.S. common stock returns in the period January 1965 to December 2018, across a variety of test asset portfolios, out-of-sample cross-sectional tests of the traditional approach to specifying return dispersion (RD) in an asset pricing model yield insignificant or marginally significant estimated prices of risk in most cases. The failure of this traditional model justifies using the ZCAPM to take into account the symmetric effects of RD on stock returns. Graphical analyses of the empirical ZCAPM estimated via the EM algorithm show a close relation between zeta risk and one-month-ahead (out-of-sample) cross-sectional excess returns for a variety of test asset portfolios. Interestingly, zeta risk exhibits strong goodness-of-fit with the one-month-ahead returns of widely used size and book-to-market equity portfolios by Fama and French (1992, 1993). Further graphical results show that the empirical ZCAPM outperforms popular Fama and French (1992, 1993, 1995, 1996, 2015, 2018) three-, five-, and six-factor models in terms of predicting one-month-ahead stock returns, especially among industry portfolios. The latter poor cross-sectional performances of these popular models across different industry portfolios is a major shortfall that appears to be attributable to their inability to add much explanatory power in time-series regressions to the CAPM market model. In sum, graphical evidence based on out-of-sample returns lends strong support for the ZCAPM.

We study equity division between an entrepreneur and one or more potential investors. The investor(s) and the entrepreneur negotiate how much equity (ownership) in the startup the investor(s) should receive in exchange for their investment. The value of that equity is uncertain at the time of the negotiations. We examine how the allocation of startup equity between the entrepreneur and the investors is affected by the following: (1) the number of investors, (2) whether the investors are approached sequentially or simultaneously and (3) whether investors receive downside protection via ``Preferred Stock'', as is sometimes done in practice. Our theoretical results suggest that the entrepreneur would be better off with two investors relative to the single investor case, particularly when bargaining with two investors simultaneously. This prediction is not supported by experimental data which instead suggest that neither the number of investors, nor the timing of the negotiations affect the entrepreneur's profits. In contrast, contractual details matter: across all bargaining regimes, Preferred Stock contracts lead to a 22 to 36\% drop in entrepreneur's profits relative to Common Stock. Additional experiments show that this result persists even as teams gain more practice with contract types, and suggest that it is driven by more aggressive investor bargaining tactics under Preferred Stock contracts.

The recent wave of populism sweeping Europe and the Americas generated considerable interest among political scientists, economists, sociologists and to some extent, geographers. The vast majority of these studies focuses on individual voter decisions or national comparisons over time but neglects the within-country spatial variation of the populist vote. This paper addresses this shortcoming and applies spatial econometric techniques to explore possible explanations for spatial variation in the increase of the populist right vote between the 2013 and 2017 national elections in Austria for 2118 municipalities. Spatial variation in voting shares can result from (1) compositional effects, regional differences in the composition of voters with different characteristics, (2) broad spatial, historically evolved institutional differences, such as membership to one of the nine states, (3) unequal integration of different types of regions into the global economy, such as peripheral regions, central urban regions, old industrial regions or tourist areas, (4) spatial vote spillovers due to localized social networks, and (5) unobserved spatial processes. We find that the populist right vote gains in Austrian municipalities are affected by all processes, but that the type of regions becomes insignificant once we correct for unobservable spatial structures in the regression framework. The increase in the share of foreigners, the share of foreigners, income and inequality levels, educational differences, selected state membership, as well as spatial spillovers of populist right voting are all important to explain spatial variation in the rise of the populist right vote.

This chapter reports formal cross-sectional tests of the empirical ZCAPM compared to popular asset pricing models. As in the previous chapter, our tests utilize all U.S. common stock returns from January 1965 to December 2018. We report extensive out-of-sample Fama and MacBeth (1973) cross-sectional tests of the ZCAPM compared to other asset pricing models. Our goal is to demonstrate using a weight of stock return evidence that the ZCAPM is the dominant asset pricing model relative to existing prominent models. In brief, the results of our tests strongly favor the empirical ZCAPM over other models. In test-after-test, zeta risk loadings in the ZCAPM have the highest t-values in cross-sectional regression analyses in the range of 3–6 that well exceed all multifactors in popular models. Not only are the t-values exceptionally high by any recommended threshold in the asset pricing literature, but zeta risk loadings are consistently positive and significant in terms of pricing return dispersion sensitivity in virtually all test assets investigated here. Additionally, across a variety of test assets, goodness-of-fit as measured by \(R^2\) values is exceptionally high in our cross-sectional tests ranging from a low of approximately 70% to a high of 98%. In several commonly used test assets, little or no residual error remains to be explained by other potential factors. By contrast, popular multifactors’ loadings rarely achieve a cross-sectional t-value exceeding 3, are much less consistently priced across different test assets, and have markedly lower \(R^2\) values in most test assets. Based on these extensive tests, we conclude that the ZCAPM represents a pathbreaking innovation in asset pricing for academic research and investment practice.

This chapter gives methodological details of our sample data and empirical tests that will be used in forthcoming chapters. A large time series of common stock returns over 50 years is employed for all U.S. stocks in the CRSP database. Based on estimating the empirical ZCAPM, we provide preliminary evidence on the relation between out-of-sample (one-month-ahead) returns of stock portfolios sorted by estimated beta and zeta risks. Across different beta quintiles, equal-weighted portfolios reveal a strong relation between zeta risk and one-month-ahead stock returns. Consistent with previous studies on the empirical failure of the CAPM, no relation between beta risk and one-month-ahead stock returns is evident. Also, we review empirical test methods of asset pricing models using out-of-sample Fama and MacBeth (1973) cross-sectional regression analyses. A number of popular asset pricing models are specified that are used as benchmarks to evaluate our ZCAPM in forthcoming chapters. Finally, time-series and cross-sectional regression models for empirical ZCAPM analyses are specified.

Highlights • The time and frequency domain connectedness and spillover are among Fintech, green bonds, and cryptocurrencies. • Portfolios consisting of the assets with heavy-tail dependence. • Volatility transmission is higher in the short term. • Gold and oil, as well as the modern age asset, green bonds, turn useful as good hedgers as compared to other assets. • Fintech index and general equity indexes are not good hedging instruments for each other., The study in the age of the 4th industrial revolution examines the time and frequency domain connectedness and spill-over among Fintech, green bonds, and cryptocurrencies. Using daily data from November 2018 to June 2020, we use both DY (Diebold & Yilmaz, 2012) and BK (Baruník et al., 2017) to examine the volatility connectedness of returns series. The results of DY suggest that, first, the total connectedness of 21st century technology assets and traditional common stocks is very high, and hence in the turbulent economy, there is a high probability of contemporaneous losses. Second, Bitcoin, MSCIW, MSCI US, and KFTX are net contributors of volatility shocks whereas US dollar, oil, gold, VIX, green bond and green bond select are net receivers. Therefore, Fintech and common equities are not good hedging instruments in the same portfolio. Third, the short-term witnesses higher volatility transmission than the long-term. That is, holding assets for a long-term is likely to mitigate risks whereas trading financial assets in the short-term can increase risk because of higher volatility. Fourth, the traditional assets, gold and oil, as well as modern assets, green bonds, are useful as good hedgers compared with other assets because shock transmissions from them to Fintech, KFTX are below 0.1% and, more importantly, the total volatility spill-over of all assets in the sample is moderately average, accounting for 44.39%.

The stock market is a very robust business model, that is nonlinear in nature, it is also generally referred to as the share market. Investors prefers to use some forecasting methods or techniques, to invest in the share market, maximizing the benefit, and minimizing the risks involved with it. In this paper, we have used the linear regression model to forecast future stock prices. Experiments are conducted on common stocks such as AMAZON and ZUMIEZ, which shows that our model achieves a very high degree of reliability and makes this volatile type of company a little more predictable. 96.54% and 98.12% respectively are the reliability calculated on AMAZON and ZUMIEZ stocks.

This paper develops the first option pricing model of venture capital-backed companies and their security values that incorporates the dilutive future financing rounds prevalent in the industry. Applying our model to 19,000 companies raising 37,000 rounds shows that preferred contractual features make the most recently issued preferred shares worth on average 56% more than common shares. While future rounds have a negligible impact on most securities, they significantly impair the value of securities with high liquidation multiples or seniority. Counterintuitively, future “investor-friendly” rounds transfer value from current investors to founders and other common shareholders, significantly reducing the value of many preferred protections. Our model-implied valuations predict exit values, price changes, and outcomes. Modeled security values are consistent with prices reported by specialized intermediaries but suggest dramatic underreporting of common share values for tax purposes.

Some common stocks display extreme positive performance. Between 1973 and 2020, 3,615 U.S.-listed stocks generated at least a 5x cumulative gross return relative to a prior low point, and also had a minimum inflation-adjusted market capitalization of $500 million. Among these, 29.8% repeated the performance (to achieve a 25x multiple), 9.7% repeated twice (to achieve a 125x multiple), and 2.4% did so a third time (to achieve a 625x multiple). In general, a substantial portion of the superior performance accrued prior to the year in which the multiple was attained. However, stocks that attained these multiples showed little or no evidence of positive market-adjusted returns in subsequent months, implying that the existence of extreme positive performers does not simply reflect long horizon return momentum.

When Jeremy Siegel published his Stocks for the Long Run thesis, little information was available on stocks before 1871 or bonds before 1926. But today, digital archives have made it possible to compute real total return on stock and bond indexes back to 1793. This paper presents that new market history and compares it to Siegel’s narrative. The new historical record shows that over multi-decade periods, sometimes stocks outperformed bonds, sometimes bonds outperformed stocks, and sometimes they performed about the same. More generally, the pattern of asset returns in the modern era, as seen in the Ibbotson SBBI and other datasets that begin in 1926, emerges as distinctly different from what came before. Contrary to Siegel, the pattern of asset returns seen in the 20th century does not generalize to the 19th century. A regime perspective is introduced to make sense of the augmented historical record. It argues that both common stocks and long bonds are risk assets, capable of outperforming or underperforming over any human time horizon. [This July revision adds more international data.

This essay considers the issues raised in the latest securities fraud class action to reach the Supreme Court – Goldman Sachs v. Arkansas Teacher Retirement System – and finds that the claims asserted therein against Goldman Sachs on behalf of open-market buyers of its common stock are claims that should have been asserted on behalf of Goldman Sachs (by means of a derivative action) and against the individuals who caused the losses at issue. The losses suffered by individual buyers of Goldman Sachs stock during the extraordinarily long forty-month alleged fraud period are minimal if they exist at all. Moreover, the law is quite clear that claims on behalf of the company arising from the same constellation of facts should take precedence over any claims on behalf of individual buyers. Yet the practice that has evolved is the opposite: Class claims take priority and company claims are settled for non-monetary governance reforms of dubious value rather than for real money. The forces that have led to this classic example of market failure are both fascinating and sinister. But the bottom line is that ordinary investors – such as investors in well-diversified mutual funds and index funds – end up losing far more than they gain from class actions. Indeed, index fund investors effectively pay out about twenty dollars for every dollar they recover. Thus, the best hope for reforming the system is for index funds to step up and intervene to assert the interests of diversified investors in favor of litigating such claims as derivative actions rather than as class actions.

The purpose of this article is to identify the nature of the influence of crucial factors on the short-term underpricing of initial public offerings of common stocks of companies in the BRICS countries. Based on a sample of 1,141 companies from the BRICS countries that conducted IPOs (using Bloomberg and World Bank databases), we tested the influence of decisive factors on the underpricing of the shares of these companies. The empirical study is based on testing OLS models for different periods: for the period 2001–2018 and separately for the periods 2001–2008 and 2010–2018. The study shows that, firstly, with an increase in the volume of the placement of shares, their underestimation in an IPO decreases. In addition, having an auditor from the Big Four also reduces the underestimation of shares. Secondly, we revealed that the underpricing of shares in the course of the IPO increased with GDP growth. Besides, if companies place their shares on a foreign exchange, the underestimation of their shares increases. At the same time, such IPO parameters as the number of underwriters, the reputation of underwriters, and the deviation of the offer price from the middle of the price range during the placement period do not affect the underestimation of shares for companies from the BRICS countries. Taking into account the results of an empirical study, the article formulates recommendations for improving the efficiency of initial public offerings for companies from the BRICS countries.

This paper compares the overnight price discovery of American Depository Receipts (ADRs) and other common stocks traded in the U.S. stock market, and examines how trading activities of ADRs’ underlying shares in home markets affect the price discovery. We find that the efficiency of opening price and the price discovery during the overnight period is significantly higher than that of U.S. common stocks. Further analyses show that the price discovery of ADRs shifts from the trading day to the overnight and the opening prices of ADRs are more efficient if there are more trading activities of underlying shares in home markets. The results suggest that the trading of similar assets in multiple markets over non-overlapping hours improves the price efficiency.

Capital structure decision is one of the most important decisions in the field of financial management which involves assessment about the choice of combination of different sources of funds. These sources of funds include short term debt, long term debt, preferred stock and common stock or equity stock financing and the decision about the perfect mixture of these sources is a difficult task for the financial manager in every business firm. The perfect or ideal mixture is that where the risk and costs are minimum at the same time profits and shareholders’ wealth are maximum. Capital structure decision is a continuous process and becomes optimal when it maximizes the market value of the firm involved. Therefore, the continuous process of capital structure decisions involves an attempt to strike a balance between risks and returns in firm’s operation. Managing of optimal capital structure is of paramount importance as it would affect the profitability and ultimately the value of the firm. However, what constitutes an optimal capital structure is still a unsolved question. Despite the fact that there are many theories which tried to explain the optimal capital structure, researchers in finance have never yet find a model to determine the optimal capital structure

We test if an increase in common ownership changes future expected profits with an event study method. We collect instances of a stock entering the S&P 500 index and identify its product market competitors. We measure the change in institutional and common ownership (with product market rivals) and find that entering stocks experience a significant increase in both. We measure the stock returns of the entrant's product market rivals upon the entry news. We find that increases in common ownership (driven by the whole vector of ownership similarity) cause increases in stock returns, consistent with a hypothesis that common ownership raises profits. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We develop a model of venture capital contracting and use it to evaluate an emergent set of judicial precedents in corporate law, which we label the Trados doctrine. In our model, founders hold common stock while venture capital investors hold convertible preferred stock. We show that preferred shareholders have inefficient incentives to liquidate low-valued firms and to continue high-valued firms, while common shareholders inefficiently favor the opposite. The extent of incentive misalignment depends on the firm’s intrinsic and outside valuations, and it is most severe around preferred’s liquidation preference and conversion point. Although legal liability rules can rectify these misalignments, they can only do so categorically when management is obligated to prioritize preferred shareholders’ interests. The Trados doctrine, however, requires the opposite: under Trados, boards must accord primacy to common shareholders’ interests, treating preferred shareholders as contractual claimants. More generally, we offer a precise mechanism for how capital structure, corporate governance, and legal doctrine jointly determine firm value.

First published online: 15 January 2020 This paper investigates power-law correlations, chaos, and randomness in prices of family business, green (low Carbon), Islamic (Shariah), and common stock indices from the European zone. Specifically, the estimations of nonlinear patterns are performed in empirical mode decomposition domain to obtain time-scale computed values. The main findings follow. For all markets, price long term fluctuations are persistent, whilst price short term fluctuations are anti-persistent. In addition, short term fluctuations are chaotic, while long term fluctuations are not. Furthermore, short term fluctuations are less affected by randomness than long term fluctuations. Moreover, the level of anti-persistence and the information content in short term fluctuations are similar across all four European markets. Besides, computed nonlinear statistics from intermediate fluctuations are in general lower than those from short fluctuations, and are higher than those from long fluctuations. Our methodology is also applied to Bitcoin, NASDAQ and VIX indices for comparison purpose. Some similarities in terms of randomness and dissimilarities in terms of long memory are clearly observed between European and US indices. Finally, it is found that the correlation between (i) long memory and chaos is positive, low, and not statistically significant, (ii) between long memory and randomness is positive, large, and statistically significant, and (iii) between chaos and randomness is negative, low, and not statistically significant. Active traders and portfolio managers can follow our research approach to determine specific trading strategies at short and long run horizons. (C) 2019 Elsevier B.V. All rights reserved.

This paper investigates the role of global uncertainty, measured as VIX or common stock market volatility across a wide range of countries, on global financial asset prices after the outbreak of COVID-19 pandemic. I estimate a factor-augmented vector autoregression model that consists of multiple financial variables, based on daily frequency, where global uncertainty shocks are identified through recursive restriction. I report three main results. First, the global uncertainty shock has played a key role in the developments in financial asset prices and oil prices, explaining over a third of total variations in the variables. Second, in line with the findings in earlier studies, the uncertainty shocks are in nature global demand shocks; the shocks were associated with significant decline in global stock prices, implied inflation, interest rates, and oil prices. Third, the results further suggest that the negative impact uncertainty shocks induced by the pandemic seem to be two to four times as sizeable as whit is assessed based on data before the outbreak of COVID-19. Finally, the results are robust to alternative identification strategies, alternative data transformation, and alternative measures of financial asset prices.

Even those long-term shareholders who were rewarded with the greatest cumulative returns endured large price declines over shorter intervals. I study shareholder wealth creation for all publicly-listed U.S. common stocks during each of the seven decades since 1950. Focusing on the 100 most successful stock/decades in terms of shareholder wealth creation, I document even within the highly successful decade, shareholders experienced draw-downs that lasted an average of 10 months and involved an average loss of 32.5%. During the immediately preceding decade, draw-downs for these highly successful stocks lasted an average of 22 months and involved an average cumulative loss of 51.6%.

This paper is a data-based analysis of how and why U.S. common stocks secularly rose in concert with falling interest rates. It finds that falling rates explained 76% of the increase in stocks between 1982 and 2019. Growth in financial wealth significantly outpaced growth in the real economy and jobs, fortuitously benefitting financial investors but not working families. Economists term this “asset price inflation.

We examine the rising of odd-lot trading activity and nominal stock prices in recent years. We find that odd-lot trading activity is positively associated with nominal stock price, on both cross-sectional and time-series basis. After a stock split (reverse split), the odd-lot trading activity decreases (increases) significantly. The positive relationship between odd-lot trading activity and nominal stock price holds for both common stocks and ETFs, and for retail investor trades. For higher priced stocks, there is a higher percentage of odd-lot trades with transaction price occurring within NBBOs.