"The Components Of Stock Prices: Evidence From The Japanese Stock Markets"

This study establishes permanent and temporary components of equity returns in the Japanese equity markets using, as explanatory variables, the fundamentals of stock prices.  We employ the structural Vector Auregression Approach (VAR) to a data set for the period January 1955 to December 1997.  We consider the "information" hypothesis of dividends to justify the components of stock returns.

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Unknown Unknowns: Uncertainty About Risk and Stock Returns

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109018000480 ◽

2018 ◽

Vol 53 (4) ◽

pp. 1615-1651 ◽

Cited By ~ 28

Author(s):

Guido Baltussen ◽

Sjoerd van Bekkum ◽

Bart van der Grient

Keyword(s):

United States ◽

Stock Returns ◽

Stock Prices ◽

Stock Markets ◽

The United States ◽

Pricing Mechanism ◽

European Stock Markets ◽

Low Uncertainty ◽

High Uncertainty

Stocks with high uncertainty about risk, as measured by the volatility of expected volatility (vol-of-vol), robustly underperform stocks with low uncertainty about risk by 8% per year. This vol-of-vol effect is distinct from (combinations of) at least 20 previously documented return predictors, survives many robustness checks, and holds in the United States and across European stock markets. We empirically explore the pricing mechanism behind the vol-of-vol effect. The evidence points toward preference-based explanations and away from alternative explanations. Collectively, our results show that uncertainty about risk is highly relevant for stock prices.

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Risk, uncertainty and stock returns predictability – a case of emerging equity markets

Journal of Financial Economic Policy ◽

10.1108/jfep-08-2017-0075 ◽

2018 ◽

Vol 10 (4) ◽

pp. 438-455

Author(s):

Rakesh Kumar

Keyword(s):

Stock Returns ◽

Stock Markets ◽

Structural Break ◽

Negative Relationship ◽

Equity Markets ◽

Growth Period ◽

Risk And Uncertainty ◽

Content Type ◽

International Equity Markets ◽

The Impact

Purpose This paper aims to investigate the predictability of stock returns under risk and uncertainty of a set of 11 emerging equity markets (EEMs) during the pre- and post-crash periods. Design/methodology/approach Listed indices are considered to serve the proxy of stock markets with a structural break in data for the period: 2000-2014. As preliminary results highlight the significant autocorrelations in stock returns, Threshold-GARCH (1,1) model is used to estimate the conditional volatility, which is further decomposed into expected and unexpected volatility. Findings Results highlight that the volatility has symmetric impact on stock returns during the pre-crash period and asymmetric impact during the post-crash period. While testing the relationship of stock returns, a significant positive (negative) relationship is found with expected volatility during the pre-crash (post-crash) periods. The stock returns are found positively related to unexpected volatility. Research limitations/implications Business, political and other market conditions of sample stock markets are fundamentally different. These economies were liberalized in different years, which may affect the degree of integration with international equity markets. Practical implications The findings highlight that investors consider the impact of expected volatility in forecasting of stock returns during the growth period. They realize returns in commensurate to risk of their portfolios. However, they significantly reduce their investments in response to expected volatility during the recession period. The positive relationship between stock returns and unexpected volatility highlights the fact that investors realize extra returns for exposing their portfolios to unexpected volatility. Originality/value Pioneer efforts are made by using T-GARCH (1,1) procedure to analyse the problem. Given the emergence of emerging equity markets, new insight in dynamics of stock returns provide interesting findings for portfolio diversification under risk and uncertainty.

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Financial instability, integration and volatility of emerging South Asian stock markets

South Asian Journal of Business Studies ◽

10.1108/sajbs-07-2016-0059 ◽

2017 ◽

Vol 6 (2) ◽

pp. 177-190 ◽

Cited By ~ 7

Author(s):

Rakesh Kumar ◽

Raj S. Dhankar

Keyword(s):

Stock Returns ◽

South Asian ◽

Stock Markets ◽

Equity Markets ◽

International Market ◽

Portfolio Diversification ◽

Financial Instability ◽

Content Type ◽

Long Run ◽

Short Run

Purpose The purpose of this paper is to examine the short- and long-run spillover effect of international financial instability on emerging South Asian stock markets. The paper also investigates the financial integration regionally. Design/methodology/approach Granger causality test is used for short-run causal relations. Since results of preliminary test highlight the significant autocorrelations in stock returns, GARCH class models with extreme shocks in international financial market are utilized to test the long-run spillover impact on stock returns. Findings Results indicate significant short- and long-run spillover impacts of international financial instability on the stock returns. They highlight the significant co-integration of South Asian stock markets with the international market. Significant correlations in stock returns and volatility reveal the degree of regional integration to be high between India, Pakistan and Sri Lanka. Research limitations/implications Business, political and market conditions of South Asian stock markets are fundamentally different from each other. These economies were liberalized at different time, which in turn may affect the degree of integration with international equity markets and regionally alike. Practical implications Financial liberalization has linked the South Asian stock markets to the rest of the world. Stock prices move in the same line with the emergence of global expected and unexpected economic shocks. The benefits that arise from the diversification of funds will be eradicated in the long run. Investors with long investment horizons will not actually benefit from portfolio diversification in South Asian equity markets. The Bangladesh stock market does not respond to volatility in international market in the short run and may be a good destination for short-term investment. Originality/value Pioneer efforts are made by utilizing a novel approach with the use of net volatility change in world financial instability for measuring the short- and long-run impacts. Given the emergence of South Asian stock markets, new insights into their vulnerability to world financial shocks provide interesting findings for portfolio diversification.

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The Impacts Of Institutional Stock Ownership On Stock Returns And Performance: A Financial Market Perspective

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v3i3.2758 ◽

2011 ◽

Vol 3 (3) ◽

Author(s):

Johnston Osagie ◽

Gbolahan Solomon Osho ◽

Cynthia Sutton

Keyword(s):

Stock Returns ◽

Financial Market ◽

Stock Prices ◽

Stock Price ◽

Institutional Ownership ◽

Small Companies ◽

Font Size ◽

And Performance ◽

The Relationship ◽

Market Perspective

Recent studies indicate that corporations with high Institutional ownership have higher stock prices than those with less Institutional ownership. Even small companies with high Institutional ownership have higher stock prices in their range. Institutions have researchers and analysts to investigate the financials and the industry potential of the firms. As a result, the perception is that high institutional ownership indicates good value. This study investigates if the percentage of institutional ownership directly correlates with the price of stocks.  The relationship between the Institutional ownerships and price was prevalent. This was more indicative among the large cap stocks than the small caps stocks.  It was also found that the higher the percentage of Institutional ownership does reflect a higher stock price.  This was manifest among the large caps than the small caps.

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Performance and development of a thin stock market: the Stockholm Stock Exchange 1912–2017

Financial History Review ◽

10.1017/s0968565020000104 ◽

2020 ◽

pp. 1-19

Author(s):

Kristian Rydqvist ◽

Rong Guo

Keyword(s):

Stock Market ◽

Stock Returns ◽

Stock Prices ◽

Stock Price ◽

Stock Exchange ◽

Stock Selection ◽

Data Set ◽

Transaction Prices ◽

Limit Orders ◽

A Value

We estimate historical stock returns for Swedish listed companies in a newly constructed data set of daily stock prices that spans more than 100 years. Stock returns exhibit all the familiar characteristics. The growth of the public sector depressed the stock market, and the process of globalization revitalized it. Banks played an important role in the early development of the stock market. There was little trading in the past, and we examine the effects on return measurement from missing data. Stock selection and the replacement of missing transaction prices through search back procedures or limit orders make little difference to a value-weighted stock price index, while ignoring the price effects of capital operations makes a big difference.

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US policy uncertainty and stock returns: evidence in the US and its spillovers to the European Union, China and Japan

The Journal of Risk Finance ◽

10.1108/jrf-10-2019-0190 ◽

2020 ◽

Vol 21 (5) ◽

pp. 621-657

Author(s):

Thomas C. Chiang

Keyword(s):

Monetary Policy ◽

Fiscal Policy ◽

Trade Policy ◽

Stock Returns ◽

Stock Prices ◽

Stock Markets ◽

Implied Volatility ◽

Policy Uncertainty ◽

Content Type ◽

China And Japan

Purpose Recent empirical studies by Antonakakis, Chatziantoniou and Filis (2013), Brogaard and Detzel (2015) and Christou et al. (2017) present evidence, which supports the notion that a rise in economic policy uncertainty (EPU) will lead to a decline in stock prices. The purpose of this paper is to examine US categorical policy uncertainty on stock returns while controlling for implied volatility and downside risk. In addition to the domestic impacts of policy uncertainty, this paper also presents evidence that changes in US policy uncertainty promptly propagates to the global stock markets. Design/methodology/approach This study uses a GED-GARCH (1, 1) model to estimate changes of uncertainties in US monetary, fiscal and trade policies on stock returns for the sample period of January 1990–December 2018. Robustness test is conducted by using different set of data and modeling techniques. Findings This paper contributes to the literature in several aspects. First, testing of US aggregate data while controlling for downside risk and implied volatility, consistently, shows that responses of stock prices to US policy uncertainty changes, not only display a negative effect in the current period but also have at least a one-month time-lag. The evidence supports the uncertainty premium hypothesis. Second, extending the test to global data reveals that US policy uncertainty changes have a negative impact on markets in Europe, China and Japan. Third, testing the data in sectoral stock markets mainly displays statistically significant results with a negative sign. Fourth, the evidence consistently shows that changes in policy uncertainty present an inverse relation to the stock returns, regardless of whether uncertainty is moving upward or downward. Research limitations/implications The current research is limited to the markets in the USA, eurozone, China and Japan. This study can be extended to additional countries, such as emerging markets. Practical implications This paper provides a model that uses categorical policy uncertainty approach to explain stock price changes. The parametric estimates provide insightful information in advising investors for making portfolio decision. Social implications The estimated coefficients of changes in monetary policy uncertainty, fiscal policy uncertainty and trade policy uncertainty are informative in assisting policymakers to formulate effective financial policies. Originality/value This study extends the existing risk premium model in several directions. First, it separates the financial risk factors from the EPU innovations; second, instead of using EPU, this study investigates the effects from monetary policy, fiscal policy and trade policy uncertainties; third, in additional to an examination of the effects of US categorical policy uncertainties on its own markets, this study also investigates the spillover effects to global major markets; fourth, besides the aggregate stock markets, this study estimates the effects of US policy uncertainty innovations on the sectoral stock returns.

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Testing Semi-strong Form Efficiency of Stock Market

The Pakistan Development Review ◽

10.30541/v40i4iipp.651-674 ◽

2001 ◽

Vol 40 (4II) ◽

pp. 651-674 ◽

Cited By ~ 1

Author(s):

Salman Syed Ali ◽

Khalid Mustafa

Keyword(s):

Stock Returns ◽

Stock Prices ◽

Stock Markets ◽

Efficient Market Hypothesis ◽

Seasonal Effects ◽

Efficient Market ◽

New Information ◽

Empirical Regularities ◽

Day Of The Week ◽

Stock Traders

The efficient market hypothesis suggests that stock markets are “informationally efficient”. That is, any new information relevant to the market is spontaneously reflected in the stock prices. A consequence of this hypothesis is that past prices cannot have any predictive power for future prices once the current prices have been used as an explanatory variable. In other words the change in future prices depends only on arrival of new information that was unpredictable today hence it is based on surprise information. Another consequence of this hypothesis is that arbitrage opportunities are wiped out instantaneously. Empirical tests of the efficient market hypothesis actually test for these consequences in various ways. Some of them have been summarised in earlier chapters. These tests generally could not conclusively accept the random-walk hypothesis of stock returns even when GARCH effects were accounted for. Many studies have found empirical regularities that are contrary to the efficient market hypothesis. For example, the monthly, weekly and daily returns on stocks tend to exhibit discernable patterns, such as seasonal affects, month of the year affect, day of the week affect, hourly affect etc. In case of Pakistan’s stock markets too such affects are identified. Such as the Ramadan affect [see Hussain and Uppal (1999)], seasonal effects and day of the week affect. Further, the wide spread use of “technical analysis” among stock traders and their ability to predict to some extent the direction of movements in the prices of individual stocks over medium term testifies to the existence of patterns and seasonal trends.

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The Early Impact of Government Financial Intervention Policies and Cultural Secrecy on Stock Market Returns During the COVID-19 Pandemic: Evidence From Developing Countries

International Journal of Financial Research ◽

10.5430/ijfr.v12n2p401 ◽

2021 ◽

Vol 12 (2) ◽

pp. 401

Author(s):

Fouad Jamaani ◽

Manal Alidarous ◽

Abdullah Al-Awadh

Keyword(s):

Developing Countries ◽

Stock Market ◽

Stock Markets ◽

Equity Markets ◽

Equity Market ◽

Equity Returns ◽

Market Returns ◽

Daily Growth ◽

Role Of Government ◽

Stock Market Returns

This paper examines the role of government financial intervention policies and cultural secrecy on equity market returns during the start of the COVID-19 pandemic in developing countries’ stock markets. We employ global data including 939 observations across 32 developing countries (23 emerging and 9 frontier stock markets) from December 1 to April 28, 2020. Our results show that the above-mentioned policies that set out to curb the COVID-19 pandemic succeed in increasing equity returns. It reflects investors’ improved perceptions of governments’ commitment to stabilizing the economy during the pandemic in developing, emerging, and frontier equity markets. Results show that investors in all equity markets discount differences in cultural secrecy in processing market information when investing in stock markets. We find that equity market investors in developing and emerging countries truly react negatively to the rise in the number of confirmed COVID-19 cases reported. Yet, we find that COVID-19 wields no influence on equity market returns in frontier equity markets. This presents frontier equity markets as a safe-haven investment destination during a global health outbreak. Our work helps investors during such events to identify the best and worst investment destinations in developing, emerging, and frontier stock markets. At the same time, it is important to understand the critical roles of: firstly, the introduced government financial intervention policies; and secondly, the daily growth in reported COVID-19 cases on stock market returns.

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Interlinkages among Asian, European and the U.S Stock Markets: A Multivariate Cointegration Analysis

Journal of Economics and Behavioral Studies ◽

10.22610/jebs.v4i3.310 ◽

2012 ◽

Vol 4 (3) ◽

pp. 129-141 ◽

Cited By ~ 2

Author(s):

P. Sakthivel

Keyword(s):

Error Correction ◽

Stock Returns ◽

Stock Prices ◽

Stock Markets ◽

Cointegration Analysis ◽

Vector Error Correction ◽

Vector Error ◽

Integration Test ◽

The Us ◽

The Impact

The present study attempts to investigate the dynamic interlinkages among the Asian, European and US stock markets. Daily closing prices of twelve stock indices relating to the period from 3rd January 1998 to 30th June 2010 and are used in the analysis. Both short and long run relationships are examined through Johansen-Juselius co integration and Vector Error Correction models (VECM) and Impulse Response Function (IRF). The results of the co integration test show strong co integration relationship across international stock prices indices. The results of the Vector Error Correction model reveal that the US and some of European and Asian Stock markets lead the Indian stock market. Finally, the evidence suggests that the impact of the US market on Indian stock returns is much higher than other way round.

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Use Of Earnings Information For Stock Pricing In Different Market Cycles: The Effect Of Discretionary Accruals

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v7i5.2294 ◽

2011 ◽

Vol 7 (5) ◽

Cited By ~ 1

Author(s):

Alireza Daneshfar ◽

Mohammad J. Saei

Keyword(s):

Earnings Management ◽

Stock Returns ◽

Stock Prices ◽

Discretionary Accruals ◽

Ratio Analysis ◽

Test Results ◽

Font Size ◽

True Nature ◽

Earnings Information ◽

Abnormal Stock Returns

This study examines the association between stock prices and discretionary accruals in different stock market cycles and presents evidence about the discrepancy in prior research that investors were able to identify earnings management in some cases, but not in some other cases. We argue that investors’ reaction to the true nature of EPS changes may be different in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycle, and are more critical in neutral and pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in a neutral or pessimistic cycle than in an optimistic cycle. Using the U.S. quarterly data from July 01, 1997 to June 29, 2001, three market cycles were identified: optimistic, neutral and pessimistic. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The finding suggests that a more delegate and technical analysis of EPS changes is required when earnings information is used for stock pricing. It also suggests that a consideration of market cycle effect on investors’ use of EPS could improve the earnings-based ratio analysis. The findings propose that researchers interested in investigating the association between stock prices and earnings management should control for the effect of the market cycle during which their samples are drawn.

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