Increasing Capital Gains from Common Stock Investments

AbstractWe discuss a mathematical model for optimal cash management. A firm wishes to manage cash to meet demands for daily operations, and to maximize terminal wealth via bank deposits and stock investments that pay dividends and have uncertain capital gains. A Stochastic Volatility (SV) model is adopted for the capital gains rate of a stock, providing a more realistic way to describe its price dynamics. The cash management problem is formulated as a stochastic optimal control problem, and solved numerically using dynamic programming. We analyze the implications of the heteroscedasticity described by the SV model for evaluating risk, by comparing the terminal wealth arising from the SV model to that obtained from a Constant Volatility (CV) model.

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Abnormal Returns from the Common Stock Investments of the U.S. Senate

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109000003161 ◽

2004 ◽

Vol 39 (4) ◽

pp. 661-676 ◽

Cited By ~ 51

Author(s):

Alan J. Ziobrowski ◽

Ping Cheng ◽

James W. Boyd ◽

Brigitte J. Ziobrowski

Keyword(s):

Financial Markets ◽

Federal Government ◽

Abnormal Returns ◽

Common Stock ◽

Decision Making Process ◽

Government Decision ◽

The Common ◽

The Government ◽

Stock Investments ◽

The U.S

AbstractThe actions of the federal government can have a profound impact on financial markets. As prominent participants in the government decision making process, U.S. Senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993–1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive.

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Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives

Business and Politics ◽

10.2202/1469-3569.1308 ◽

2011 ◽

Vol 13 (1) ◽

pp. 1-22 ◽

Cited By ~ 21

Author(s):

Alan J. Ziobrowski ◽

James W. Boyd ◽

Ping Cheng ◽

Brigitte J. Ziobrowski

Keyword(s):

House Of Representatives ◽

Abnormal Returns ◽

Common Stock ◽

Trading Activity ◽

Corporate Insiders ◽

The Common ◽

Stock Investments ◽

The U.S ◽

Informational Advantage

A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders. We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).

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