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Long-term Investors (long-term + investor)
Selected AbstractsContagion as a Wealth EffectTHE JOURNAL OF FINANCE, Issue 4 2001Albert S. Kyle Financial contagion is described as a wealth effect in a continuous-time model with two risky assets and three types of traders. Noise traders trade randomly in one market. Long-term investors provide liquidity using a linear rule based on fundamentals. Convergence traders with logarithmic utility trade optimally in both markets. Asset price dynamics are endogenously determined (numerically) as functions of endogenous wealth and exogenous noise. When convergence traders lose money, they liquidate positions in both markets. This creates contagion, in that returns become more volatile and more correlated. Contagion reduces benefits from portfolio diversification and raises issues for risk management. [source] A note on transaction costs and the interpretation of dividend drop-off ratiosACCOUNTING & FINANCE, Issue 3 2001Graham Partington In a recent edition of this Journal, Bartholdy and Brown (1999) presented an analysis of the ex-dividend share price behaviour of shares listed on the New Zealand Stock Exchange. The authors conclude that their results are consistent with the tax clientele effect (driven by long-term investors) and that there is little or no support for the short-term trading hypothesis. Our purpose is to highlight the importance of transaction costs in analyses such as Bartholdy and Brown's. We argue that their results have an alternative interpretation because their analysis excludes the impact of transaction costs. We extend their model to include transaction costs and show that their results are not necessarily inconsistent with the short-term trading hypothesis. A critical point of our analysis is that, in the presence of transaction costs, the equilibrium drop-off ratio for dividend strip traders will be less than one, and, in some cases, can be less than the equilibrium drop-off ratio for long-term investors. [source] Domestic and Foreign Earnings, Stock Return Variability, and the Impact of Investor SophisticationJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2005JEFFREY L. CALLEN ABSTRACT We examine the importance of foreign earnings relative to domestic earnings for a sample of U.S. multinationals using variance decomposition. Our methodology represents an alternative and complementary approach over the prior literature, which is based on traditional regressions and earnings response coefficients. We document that domestic earnings are more important in explaining the variance of unexpected returns than are foreign earnings and that the relative importance of domestic earnings is a decreasing function of investor sophistication. Last, we classify institutional investors as either short- or long-term oriented following Bushee [1998]. We find that the variance contribution of foreign earnings increases with the level of investment by long-term investors. In contrast, there is no significant relation between the degree of ownership by short-term (or transient) investors and the variance contribution of domestic and foreign earnings. Overall, our results are consistent with Thomas's [1999] finding that investors on average underestimate the persistence of foreign earnings. [source] Illiquidity and Pricing Biases in the Real Estate MarketREAL ESTATE ECONOMICS, Issue 3 2007Zhenguo Lin This article addresses the micro-analytic foundations of illiquidity and price dynamics in the real estate market by integrating modern portfolio theory with models describing the real estate transaction process. Based on the notion that real estate is a heterogeneous good that is traded in decentralized markets and that transactions in these markets are often characterized by costly searches, we argue that the most important aspects defining real estate illiquidity in both residential and commercial markets are the time required for sale and the uncertainty of the marketing period. These aspects provide two sources of bias in the commonly adopted methods of real estate valuation, which are based solely on the prices of sold properties and implicitly assume immediate execution. We demonstrate that estimated returns must be biased upward and risks downward. These biases can be significant, especially when the marketing period is highly uncertain relative to the holding period. We also find that real estate risk is closely related to investors' time horizons, specifically that real estate risk decreases when the holding period increases. These results are consistent with the conventional wisdom that real estate is more favorable to long-term investors than to short-term investors. They also provide a theoretical foundation for the recent econometric literature, which finds evidence of smoothing of real estate returns. Our findings help explain the apparent risk-premium puzzle in real estate,that is, that ex post returns appear too high, given their apparent low volatility,and can lead to the formal derivation of adjustments that can define real estate's proper role in the mixed-asset portfolio. [source] Foreign currency for long-term investors*THE ECONOMIC JOURNAL, Issue 486 2003John Y. Campbell Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long-term investors. Domestic bills are risky for long-term investors, because real interest rates vary over time and bills must be rolled over at uncertain future interest rates. This risk can be hedged by holding foreign currency if the domestic currency tends to depreciate when the domestic real interest rate falls. Empirically this effect is important. [source] | ||||||||||