School Of Business Administration: Financial Review

· Abstract: The study examines a sample of 895 stocks that moved from Nasdaq to the New York Stock Exchange or to the American Stock Exchange between 1971 and 1994. We show how various measures of liquidity such as the bid-ask spread, trading volume, and stock price precision improve in somewhat different ways upon transfer to NYSE (Amex). We also find that reductions in trading costs (% spread) and in pricing error volatility (Hasbrouck's ss) can explain most of stock market's positive response to exchange listing. Thus, liquidity has many facets and cannot be represented by the bid-ask spread alone.

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"'Marking to Market' and Treasury-Bill Futures Prices: Some Empirical Evidence"

Seungmook Choi and Mel Jameson
Volume 35, No. 1, pp. 15-28

· Abstract: Financial economists have not found empirical evidence of a "marking-to-market" effect in Treasury-bill futures contracts, despite a firm theoretical basis for its existence. Therefore, we speculate that confounding effects, possibly due to liquidity preferences, influence futures-forward price spreads. By using an empirical specification that allows for both effects, we present empirical evidence that Treasury-bill futures-forward price spreads are sensitive to the volatility of the underlying commodity in ways predicted by the theory of the marking-to-market effect.

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"Multivariate GARCH Modeling of Exchange Rate Volatility Transmission in the European Monetary System"

Colm Kearney and Andrew J. Patton
Volume 35, No. 1, pp. 29-48

· Abstract: We construct a series of 3-, 4- and 5-variable multivariate GARCH models of exchange rate volatility transmission across the important European Monetary System (EMS) currencies including the French franc, the German mark, the Italian lira, and the European Currency Unit. The models are estimated without imposing the common restriction of constant correlation on both daily and weekly data from April 1979-March 1997. Our results indicate the importance of checking for specification robustness in multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) modeling, we find that increased temporal aggregation reduces observed volatility transmission, and that the mark plays a dominant position in terms of volatility transmission.

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"Bank Growth Choices and Changes in Market Performance"

Ken B. Cyree, James W. Wansley, and Harold A. Black
Volume 35, No. 1, pp. 49-66

· Abstract: Changes in bank market performance are compared for banks that choose not to grow, to branch, bank acquire, product expand, or some combination. Using the change in market value-to-book value ratios, banks that include acquiring other banks as part of their growth strategy have significantly positive changes in performance. Positive performance by bank acquirers is in contrast to many studies, but prior research has not reviewed other growth activities in a single model, nor used market-based measures to review performance over longer time periods following bank expansion.

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"An Examination of the 1992 Increase in the Allowable Carryover of Reserves in the Bank Settlement Process"

Mark D. Griffiths and Drew B. Winters
Volume 35, No. 1, pp. 67-84

· Abstract: This paper examines the Federal Reserve's increase of the allowable carryover in the bank settlement process to improve bank flexibility in achieving settlement. The implication of increasing flexibility is reduced rate volatility. We find federal funds loan volume increases, but find no evidence of a reduction in federal funds rate volatility. These results are consistent with the increased carryover creating a profitable loan opportunity without changing the incentives that create the identified patterns in federal funds. We believe the difference between our results and the Federal Reserve's intention, derive from the difference in the trading behavior of the marginal and average bank.

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"Closed-End Fund Expenses and Investment Selection"

D.K. Malhotra and Robert McLeod
Volume 35, No. 1, pp. 85-104

· Abstract: Investment returns on closed-end funds are highly volatile. Because expenses have a definite negative impact on closed-end fund returns, investors should include the expense ratio as a criterion for fund selection in addition to performance, investment objective, and risk of the fund. This paper constructs a model of the expense ratio of closed-end funds to explain cross-sectional differences in the expense ratios for the period between 1989-1996. We relate closed-end fund expenses to fund characteristics and identify the factors that can help investors choose low expense closed-end funds.

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"Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application"

Mike Cudd and Rakesh Duggal
Volume 35, No. 1, pp. 105-120

· Abstract: This study explores the importance of capturing industry-specific distributional characteristics in analyses based on financial ratios. As a test case, the study replicates Palepu (1986), who employs financial ratios in logit models to investigate the usefulness of six acquisition hypotheses in predicting takeover targets. Without adjustment for industry-specific distributional characteristics, this study's findings are only consistent with one of the six acquisition hypotheses. After adjusting for distributional properties, the results are consistent with four of the six acquisition hypotheses. Furthermore, the adjusted model produces a classification accuracy significantly greater than chance, as well as significantly greater than that observed for the unadjusted model.

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"Contagion Effects of Dividend Reduction or Omission Announcements in the Electric Utility Industry"

Michael Impson
Volume 35, No. 1, pp. 121-136

· Abstract: This study examines the contagion effects of dividend reduction or omission announcements in the electric utility industry. Using a series of ten electric utility dividend announcements covering the period 1979-1991, I analyze differences in contagion reactions across utilities. I find the strength of the contagion reaction is significantly related to utility size, average dividend yield, debt ratio, market-to-book ratio, cash flow, and Altman=s Z-score. There is also evidence of a flight to quality, including a preference for utilities operating in more favorable regulatory environments.

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The University of Mississippi: School of Business Administration