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Excess Returns (excess + return)
Selected AbstractsExcess returns, portfolio choices and exchange rate dynamics.OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 3 2002The yen/dollar case First page of article [source] Corporate usage of financial derivatives, information asymmetry, and insider tradingTHE JOURNAL OF FUTURES MARKETS, Issue 1 2010Hoa Nguyen This article investigates whether financial derivative usage by Australian corporations constitutes information asymmetry when proxied by profitable trading in the firms' securities by insiders. The findings show that insiders who trade in companies that employ derivatives make larger purchase returns compared to insiders in nonuser firms with regard to trading identity, trading intensity, variability of usage, volume of trading, and industry effects. A plausible explanation is that asymmetry is driven by derivative traders who undertake noisy transactions in firms where risk outcomes were previously transparent. Excess returns are confined to purchase transactions consistent with insiders primarily selling for noninformation reasons. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:25,47, 2010 [source] Stock Price Reactions to the Repricing of Employee Stock Options,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2005Barbara M. Grein Abstract We study whether the repricing of employee stock options is in the best interests of common shareholders by examining the excess stock returns associated with timely, noncontamin-ated repricing announcements made by Canadian firms. On the basis of three theories of why firms reprice, we develop competing predictions about the mean announcement-date excess stock return and the cross-sectional relations among excess stock returns, the estimated probability of repricing, and proxies for predictions from each theory. For a sample of 72 noncontaminated repricing announcements made by Canadian firms between November 1994 and July 2001, we find a reliably positive three-day announcement-date mean excess return of 4.9 percent. The results of our cross-sectional analyses suggest that the market responds favorably to repricings because they assist in retaining key employees even though, at the margin, they enable managers to extract rents from shareholders. We do not find sufficient statistically significant evidence to reliably conclude that repricings are done to realign employee incentives. [source] A THEORETICAL AND PRACTICAL PERSPECTIVE ON THE EQUITY RISK PREMIUM,JOURNAL OF ECONOMIC SURVEYS, Issue 2 2008Roelof SalomonsArticle first published online: 10 MAR 200 Abstract In historical perspective, equity returns have been higher than interest rates but have also varied a good deal more. However, the average excess return has been larger than what could be expected based on classical equilibrium theory: the equity risk premium (ERP) puzzle. This paper has two objectives. First, the paper presents a comprehensive overview of the vast literature developed aimed at adjusting theory and testing the robustness of the puzzle. Here we will show that the failure of theory to link asset prices to economics is mostly quantitative by nature and not qualitative (anymore). Second, beyond providing a survey of theory, we aim for a relevant practical angle as well. Our main contribution is that we spend time on why returns have been higher than investors reasonably could have expected. We present evidence that forecasts of equity returns can be enhanced by valuation models: low valuation levels (low price-to-earnings ratios) portend high subsequent returns. While conventional wisdom (several years ago) was to use historical returns to forecast future returns, a growing consensus now recognizes that the predictive power of valuation ratios is preferred. Finally we provide some practical implications based on this predictability. While the ERP is essentially a long-term issue, the likelihood of a lower risk premium increases risk for many and means that short-term volatility might not be neglected. [source] The efficiency of natural gas futures marketsOPEC ENERGY REVIEW, Issue 2 2003Ahmed El Hachemi Mazighi Recent experience with the emergence of futures markets for natural gas has led to many questions about the drivers and functioning of these markets. Most often, however, studies lack strong statistical support. The objective of this article is to use some classical statistical tests to check whether futures markets for natural gas (NG) are efficient or not. The problem of NG market efficiency is closely linked to the debate on the value of NG. More precisely, if futures markets were really efficient, then: 1) spot prices would reflect the existence of a market assessment, which is proof that speculation and the manipulation of prices are absent; 2) as a consequence, spot prices could give clear signals about the value of NG; and 3) historical series on spot prices could serve as "clean" benchmarks in the pricing of NG in long-term contracts. On the whole, since the major share of NG is sold to power producers, the efficiency of futures markets implies that spot prices for NG are driven increasingly by power prices. On the other hand, if futures markets for natural gas fail the efficiency tests, this will reflect: 1) a lack of liquidity in futures markets and/or possibilities of an excess return in the short term; 2) a pass-through of the seasonality of power demand in the gas market; 3) the existence of a transitory process, before spot markets become efficient and give clear signals about the value of NG. Using monthly data on three segments of the futures markets, our findings show that efficiency is almost completely rejected on both the International Petroleum Exchange in London (UK market) and the New York Mercantile Exchange (US market). On the NYMEX, the principle of "co-movement" between spot and forward prices seems to be respected. However, the autocorrelation functions of the first differences in the price changes show no randomness of price fluctuations for three segments out of four. Further, both the NYMEX and the IPE fail, with regard to the hypothesis that the forward price is an optimal predictor of the spot price. Consequently, unless we have an increase in the liquidity of spot markets and an increase in the relative share of NG spot trading, futures markets cannot be considered as efficient. [source] Do PPPs in Social Infrastructure Enhance the Public Interest?AUSTRALIAN JOURNAL OF PUBLIC ADMINISTRATION, Issue 2010Evidence from England's National Health Service This article outlines and critiques the main fiscal and economic rationales for the Private Finance Initiative , by far the dominant form of public-private partnership in the United Kingdom (UK) , and examines the impact of the policy on the long term financial viability of the National Health Service. It shows that the interest rate on private finance contains a significant element of ,excess return' to investors, and there is no evidence that this ,excess cost' to the public sector is offset by greater efficiency through the contracting process. It concludes that the private financing of public capital investment is highly problematic , and can have a serious impact on the finances and capacity of public authorities. [source] Competition and Profitability in European Banking: Why Are British Banks So Profitable?ECONOMIC NOTES, Issue 3 2005David T. Llewellyn Substantial differences remain between the profitability of banks in different European countries. This article considers the relationship between competition and profitability in European banking focussing on the experience of the UK where two issues are considered: why British banks have been earning excess returns for more than a decade and why British banks seem to be more profitable than their Continental counterparts. A paradigm is offered to explain this. A distinction is made between shareholder value (SHV) and stakeholder value (STV) banks whose business objectives are often different. Significant differences exist between European countries in the balance of SHV and STV banks. The UK is almost unique in Europe in having almost exclusively SHV-based banks. Pressures will intensify for all European banks to adopt SHV strategies, which will imply substantial changes in bank strategies and business operations. [source] The Impact of Macroeconomic and Financial Variables on Market Risk: Evidence from International Equity ReturnsEUROPEAN FINANCIAL MANAGEMENT, Issue 4 2002Dilip K. Patro Using a GARCH approach, we estimate a time,varying two,factor international asset pricing model for the weekly equity index returns of 16 OECD countries. We find significant time,variation in the exposure (beta) of country equity index returns to the world market index and in the risk,adjusted excess returns (alpha). We then explain these world market betas and alphas using a number of country,specific macroeconomic and financial variables with a panel approach. We find that several variables including imports, exports, inflation, market capitalisation, dividend yields and price,to,book ratios significantly affect a country's exposure to world market risk. Similar conclusions are obtained by using lagged explanatory variables, and thus these variables may be useful as predictors of world market risks. Several variables also significantly impact the risk,adjusted excess returns over this time period. Our results are robust to a number of alternative specifications. We further discuss some economic hypotheses that may explain these relationships. [source] Design and Implementation of Return on Capital Employed Performance Indicators Within a Trading Regime: The Case of Executive AgenciesFINANCIAL ACCOUNTABILITY & MANAGEMENT, Issue 1 2002Brian A. Rutherford The financial regime under which trading executive agencies operate implies that return on capital employed (ROCE) is used to indicate that revenues meet but do not exceed costs, including the cost of capital; that is, that there is neither cross-subsidisation nor hidden taxation. This paper develops a model for measuring ROCE derived from this objective. It argues that users of ROCE indicators are likely to lack financial sophistication and to want to compare performance between entities, so that indicators should be clear, readily understandable and comparable. The range of measurement and presentation methods used in practice undermines clarity and comparability and some methods are inconsistent with the model. Performance is sometimes characterised as meeting the target when this is problematic. The paper also examines outturn performance and finds some very substantial excess returns, implying hidden taxation. [source] The Dynamic Relation Between Returns and Idiosyncratic VolatilityFINANCIAL MANAGEMENT, Issue 2 2006Xiaoquan Jiang We claim that regressing excess returns on one-lagged volatility provides only a limited picture of the dynamic effect of idiosyncratic risk, which tends to be persistent over time. By correcting for the serial correlation in idiosyncratic volatility, we find that idiosyncratic volatility has a significant positive effect. This finding seems robusrt for various firm size portfolios, sample periods, and measures of idiosyncratic risk. Our findings suggest stock markets mis-price idiosyncratic risk. There may be some measurement problems with idiosyncratic risk. There may be some measurement problems with idiosyncratic risk that could be related to nondiversifiable risk. [source] The Effect of Managerial Ownership on the Short- and Long-run Response to Cash DistributionsFINANCIAL REVIEW, Issue 2 2003Keith M. Howe G32/G35 Abstract We examine both the short-run and long-run responses to the following corporate cash flow transactions: dividend increases and decreases, dividend initiations, and tender offer repurchases. Our focus is the short-run and long-run effects of managerial ownership. We hypothesize that ownership plays an important role in explaining the announcement effects for these events, owing to signaling effects and the reduction of agency problems. Our short-run results accord well with the earlier work on announcement effects for these events and show that firms with high insider ownership exhibit higher excess returns. Our long-term results indicate a drift over a three-year period following the announcement, with the excess returns for the high insider-ownership group becoming more pronounced. [source] Contagion Effects from the 1994 Mexican Peso Crisis: Evidence from Chilean StocksFINANCIAL REVIEW, Issue 1 2002Ike Mathur The contagion, or informational spillover, effects of the 1994 peso crisis from the Mexican market to the Chilean market, and to the Chilean American Depository Receipts (ADRs) trading in the U.S., are examined. Significant excess returns are observed for Chilean stocks for the event dates of the Mexican Peso crisis, providing evidence of contagion effects. Significant excess returns on these Chilean ADRs are also observed for each of the five event dates associated with the Peso crisis, suggesting that the contagion effects spilled over to the ADRs. A multiple regression model shows that the spillover contagion effects were very efficiently transmitted from the Mexican market to the Chilean market to the Chilean ADRs. Multifactor regressions show that the most significant influence on the pricing of Chilean ADRs is the raw Chilean Index, rather than the Chilean Index expressed in U.S. dollars. [source] Reward-to-Risk Ratios in the Treasury-Bill MarketFINANCIAL REVIEW, Issue 3 2001Eugene A. Pilotte G12 Abstract We estimate the ex-ante reward per unit of spot-rate volatility (the reward-to-risk ratio) for U.S. Treasury bills on a monthly basis and find that these ratios vary predictably over time. Reward-to-risk ratios are positively autocorrelated; month-to-month changes in these ratios are negatively autocorrelated. Variation in these ratios contributes at least as much variation to ex-ante excess returns as does variation in interest-rate volatility. Because ex-ante volatility and the rewards to volatility vary independently, variation in ex-ante premiums is greater than the variation attributable to changing volatility alone. [source] The post,announcement performance of dividend,changing companies: The dividend,signalling hypothesis revisitedACCOUNTING & FINANCE, Issue 2 2002Abeyratna Gunasekarage This study revisits the dividend,signalling hypothesis by examining the post,announcement performance of U.K. companies which disclose dividend and earnings news to the capital market on the same day. For this purpose, we first analyse market,adjusted excess returns for three periods around the announcement and then examine the financial performance in the year of the announcement and in the subsequent five,year period. The near announcement excess returns and the announcement,year financial profiles provide strong evidence in support of the dividend,signalling hypothesis. However, in contrast to the predictions of the hypothesis, the longer,term results suggest that the companies which announce a reduction in both dividends and earnings (bad news companies) outperform their dividend,increasing counterparts. [source] Political and Regulatory Risk in Water Utilities: Beta Sensitivity in the United KingdomJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 7-8 2001Roger Buckland UK utilities are generally regulated by the periodic setting of a price cap (the RPI-X mechanism). To establish these caps, regulators must determine what returns are appropriate on the capital employed by utilities. This paper addresses the issue of the level of risk inherent in investment in the equity of regulated water utilities in the UK. It uses the techniques of the Kalman Filter to estimate daily betas for the major utilities in the period from privatisation to mid-1999. The paper demonstrates that water utilities' risk is time-variant. It demonstrates, also, that there have been significant political and regulatory influences in the systematic risk faced by water utility shareholders. It finds beta to display little evidence of cyclical variation across the regulatory review cycle. The paper also confirms that significant excess returns have been generated over the history of the privatised water sector and suggests that over-estimation of systematic risk faced by investors in the sector may imply further excess returns in the next regulatory review period. [source] KLSE Long Run Overreaction and the Chinese New-Year EffectJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 1-2 2001Zamri Ahmad This study investigates long run overreaction and seasonal effects for Malaysian stocks quoted on the Kuala Lumpur Stock Exchange (KLSE), for the period 1986,1996. Stocks exhibiting extreme returns relative to the market over a three year period experience a reversal of fortunes during the following three years. There is also evidence that employing a contrarian trading strategy may yield excess returns. Of particular interest is the apparent existence of a Chinese New Year effect in both the level of market returns, and the overreaction profile for KLSE stocks. These seasonalities mirror the January-effect observed in US markets. [source] Further Evidence on the Performance of Funds of Funds: The Case of Real Estate Mutual FundsREAL ESTATE ECONOMICS, Issue 1 2008Kevin C.H. Chiang Funds of funds (FOFs) are created when investment companies invest in other investment companies. Although the additional layer of fees incurred by FOFs has a negative effect on returns, there is empirical evidence that real estate FOFs generate superior performance net of fees and risk adjustments. The evidence is inconsistent with a growing consensus that most actively managed mutual funds do not, on average, generate excess returns after adjusting for fees and risk. This study explains this apparent contradiction and finds that most real estate FOFs do not outperform their benchmarks under alternative risk adjustment specifications. [source] Wealth Effects of Diversification and Financial Deal Structuring: Evidence from REIT Property Portfolio AcquisitionsREAL ESTATE ECONOMICS, Issue 3 2003Robert D. Campbell This study examines the strategic characteristics and shareholder wealth effects of a popular vehicle for Real Estate Investment Trust growth in the 1990s: the acquisition of a portfolio of properties from a single seller. We examine a sample of 209 REIT portfolio acquisitions during 1995-2001. We observe a wide variety of financing strategies and find an array of different categories of sellers. Contrary to results reported in real estate transactions of this sort in the past, we find that announcement-period shareholder returns are significantly positive in the aggregate. We present evidence that excess returns to acquirers result from (1) wealth benefits received when companies reconfirm their geographical focus in the acquisition, (2) positive information conveyed by the use of project-specific private debt and (3) a positive signal sent to the market when transactions are financed by stock privately placed with financial institutions. [source] Market Efficiency and Return Statistics: Evidence from Real Estate and Stock Markets Using a Present-Value ApproachREAL ESTATE ECONOMICS, Issue 2 2001Yuming Fu This paper develops a methodology to identify asset price response to news in the framework of the Campbell,Shiller log-linear present-value equation. We further show that a slow price adjustment in real estate markets not only induces a high serial autocorrelation in excess returns, but also dampens the return volatility and the correlation with excess returns in other asset markets. Using Hong Kong real estate and stock market data, we find that the quarterly real estate price assimilates only about half the effect of market news, whereas the quarterly stock price incorporates the news fully. Our analysis identifies a cumulative price adjustment that recovers lost information in real estate returns due to market inefficiency and thereby restores the real estate return volatility and the correlation between real estate and stock markets. [source] Political Cycles in the Australian Stock Market since FederationTHE AUSTRALIAN ECONOMIC REVIEW, Issue 4 2009Andrew C. Worthington This article examines the political cycles in Australian stock returns from 1901,2005. The article defines the political cycle in terms of the party in power, ministerial tenure and election information effects. The market variables are returns, excess returns over inflation and excess returns over interest rates. Descriptive analysis suggests differences in the variance of returns under Labor and non-Labor ministries, but no significant differences in mean returns. Using a generalised autoregressive conditional heteroskedastistic-M model, returns are found to be higher only for non-Labor ministries before 1949 and there is no difference in excess returns over inflation or interest throughout the full sample. [source] Consumption, Aggregate Wealth, and Expected Stock ReturnsTHE JOURNAL OF FINANCE, Issue 3 2001Martin Lettau This paper studies the role of fluctuations in the aggregate consumption,wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption,wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the dividend payout ratio, and several other popular forecasting variables. Why should the consumption,wealth ratio forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption,aggregate wealth (human capital plus asset holdings) ratio summarizes expected returns on aggregate wealth, or the market portfolio. Although this ratio is not observable, we provide assumptions under which its important predictive components for future asset returns may be xpressed in terms of observable variables, namely in terms of consumption, asset holdings and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio. [source] Are the Best Small Companies the Best Investments?THE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2002W. Scott Bauman Abstract Previous research finds that large companies previously judged to be excellent growth companies have subsequently been poor investments. We examine small companies selected by Business Week on the basis of multiple criteria used in annual articles featuring highly rated growth companies. We study the investment performance over the three years before eleven annual Business Week publications and the three years after publication. We find positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. This reversal in investment performance appears to be due to a mean-reversion tendency in operating performance, in which the earnings and the past rates of return on capital of such companies subsequently decrease significantly. [source] A Non-Linear Analysis of Excess Foreign Exchange ReturnsTHE MANCHESTER SCHOOL, Issue 6 2001Jerry Coakley In this paper we explore the dynamics of US dollar excess foreign exchange returns for the G10 currencies and the Swiss franc, 1976,97. The non-linear framework adopted is justified by the results of linearity tests and a parametric bootstrap likelihood ratio statistic which indicate threshold effects or differential adjustment to small and large excess returns. Impulse response analysis suggests that the effect of small shocks to excess returns inside the no-arbitrage band exhibits most persistence. Large shocks outside the band decay most rapidly and also exhibit overshooting. These phenomena are explained in terms of noise trading strategies and transaction costs. [source] Risk Sensitivity of Bank Stocks in Malaysia: Empirical Evidence Across the Asian Financial CrisisASIAN ECONOMIC JOURNAL, Issue 3 2004Chee Wooi Hooy The present study examines the sensitivity of commercial banks' stock excess returns to their volatility and financial risk factors, measured by interest rates and exchange rates, across the recent Asian financial crisis. In general, we found that there were no significant differences among Malaysian commercial banks in their risk exposure prior to and during the Asian financial crisis. The introduction of selective capital controls, a fixed exchange rate regime and a forced banking consolidation program, however, had increased the risk exposure of both large and small domestic banks. The effects of these risk factors were significantly detected in both large and small banks. [source] Determinants of Corporate Bond Returns in Korea: Characteristics or Betas?,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 3 2009Woosun Hong Abstract This study investigates how the corporate bond's characteristics and Betas affect bond returns by using extensive Korean corporate bonds data from 2001 to the first half of 2007. Overall, our results indicate that bond characteristics provide significant explanations to excess returns while market factors (i.e., Betas) do not. It is strikingly different from the U.S. study of Gebhardt et al. (2005), which showed that market factors notably affect the excess returns of U.S. corporate bonds. [source] Shareholders versus stakeholders: corporate mission statements and investor returnsBUSINESS ETHICS: A EUROPEAN REVIEW, Issue 4 2002Mohammed Omran This paper seeks to discover whether companies that adopt a stakeholder approach, and thereby demonstrate a wider remit of corporate responsibility, provide inferior returns to those that embrace the shareholder value approach. To classify approaches, mission statements were analysed, the final sample comprising 32 shareholder oriented companies and 48 stakeholder oriented companies. To assess performance both accounting,based and market,based measures were used. A number of moderating variables were taken into account: systematic (beta) risk, gearing (long,term debt to total long,term finance), tax ratios, and firm size. ANOVA and Kruskall,Wallis tests revealed that mission orientation did not affect performance, whether in terms of stock returns or excess returns. Neither were accounting returns on equity different overall, although shareholder oriented companies experienced wider variations in this measure. A number of multiple regressions were also performed. However, the mission dummy was not found to be a significant variable. [source] | |||||||||||||||||||||||||