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“Stochastic
Properties of Time-Averaged Financial Data: Explanation
and Empirical Demonstration Using Monthly Stock Prices”
Jack W. Wilson,
Charles P. Jones, and Leonard L. Lundstrum
“A
Comparison of Reverse Leveraged Buyouts and Original
Initial Public Offers: Factors Impacting their Issuance
in the IPO Market”
Karen M. Hogan,
Gerard T. Olson, and Richard J. Kish
“Motivation
and Performance of Seasoned Offerings by Closed-End
Funds”
Aigbe Akhigbe and Jeff Madura
“An
Improved Approach to Computing Implied Volatility”
Donald R. Chambers and Sanjay K. Nawalkha
“Factors
Influencing Dividend Policy Decisions of Nasdaq Firms”
H. Kent Baker and E. Theodore Veit
“The
Dynamic Relation Between Stock Returns, Trading Volume,
and Volatility”
Gong-meng Chen, Michael Firth, and Oliver Rui
“The
Lead-Lag Relation Between Spot and Futures Markets Under
Different Short-Selling Regimes”
Joseph K.W. Fung, Li Jiang, and Louis T.W. Cheng
“Stochastic
Properties of Time-Averaged Financial Data: Explanation and Empirical
Demonstration Using Monthly Stock Prices”
Jack W. Wilson, Charles P. Jones, and Leonard L. Lundstrum
Volume 37, No. 3, pp. 175-190
This article considers the potential statistical problems
resulting from the use of averaged rather than
end-of-period data in financial research. Averaged
data are widely employed throughout the literature
without explicit recognition that the use of such data
results in biased estimates of the variance, covariance
and autocorrelation of the first as well as higher order
changes. We illustrate the magnitude of the
biases, using the S&P 500 end-of-month series over the
period March 1957 to February 2001. Results
confirm the predictions of Working and of Schwert.
In addition, an analysis of the properties of
higher-order lags indicates that the bias persists, a
result not previously suggested in the literature.
We also find that these statistical biases are time
varying--which has significant implications for
empirical financial research.
“A Comparison of
Reverse Leveraged Buyouts and Original Initial Public Offers:
Factors Impacting their Issuance in the IPO Market”
Karen M. Hogan, Gerard T. Olson, and Richard J. Kish
Volume 37, No. 3, pp. 1-18
The purpose of this paper is to assess the factors that
affect the returns earned by investors in early trading
of reverse LBOs and compare those results to factors
affecting original IPOs which are matched by size,
industry, and issue date. A mean excess return of 7.64%
is observed for the sample of reverse LBOs during the
period 1987 to 1998. This return is uniformly lower than
returns earned by investing in original IPOs. These
results support the information asymmetry hypothesis.
The results also show that factors such as number of
months the LBO was privately held, the over-allotment,
or greenshoe option, the size of the issue, insider
ownership, and gross spread impact the returns earned by
investors in reverse LBOs. We find that the level of
insider participation and the over-allotment option are
more important to original IPOs than to reverse LBOs in
explaining the excess returns earned by shareholders in
early trading. We find, however, that the size of the
offering has more impact on excess returns for reverse
LBOs than for original IPOs.
“Motivation and Performance of Seasoned Offerings by
Closed-End Funds”
Aigbe Akhigbe and
Jeff Madura
Volume 37, No. 3, pp. 101-122
We examine the motivation and
performance of closed-end funds that engage in seasoned
public or rights offerings. We find that
closed-end funds are more motivated to engage in
seasoned offerings when their shares exhibit a
relatively high premium (compared to their corresponding
NAV) and have a high degree of liquidity. We also
find a significant negative valuation effect on average
in response to seasoned offerings by closed-end funds.
Our cross-sectional analysis reveals that the valuation
effect at the time of the seasoned offering is more
unfavorable for funds that have relatively high expense
ratios and are relatively large. Furthermore, we
find that the closed-end funds experience significant
negative valuation effects over the three-year period
subsequent to the seasoned offering, implying poor
post-offering performance.
“An Improved Approach to Computing Implied Volatility”
Donald R. Chambers
and Sanjay K. Nawalkha
Volume 37, No. 3, pp. 89-100
A well-known problem in finance is
the absence of a closed form solution for volatility in
common option pricing models. Several approaches have
been developed to provide closed form approximations to
volatility. This paper examines Chance's (1993, 1996)
model, Corrado and Miller's (1996) model and Bharadia,
Christofides and Salkin’s (1996) model for approximating
implied volatility. We develop a simplified extension of
Chance’s model that has greater accuracy than previous
models. Our tests indicate dramatically improved
results.
“Factors Influencing Dividend Policy Decisions of
Nasdaq Firms”
H. Kent Baker, E.
Theodore Veit, and Gary E. Powell
Volume 37, No. 3, pp. 19-38
This study reports the results of
a 1999 survey of Nasdaq-listed firms. Respondents
provided information about the importance of 22
different factors that influence their dividend policy.
Our results suggest that many managers of Nasdaq firms
make dividend decisions consistent with Lintner’s (1956)
survey results and model. The results also show
significant differences between the manager responses of
financial and non-financial firms on nine of the 22
factors. This finding implies the presence of industry
effects on dividend policy decisions. In general, the
same factors that are important to Nasdaq firms are also
important to NYSE firms.
“The Dynamic Relation Between Stock Returns, Trading
Volume, and Volatility”
Gong-meng Chen,
Michael Firth, and Oliver Rui
Volume 37, No. 3, pp. 153-174
We examine the dynamic relation
between returns, volume, and volatility of stock
indexes. The data come from nine national markets and
cover the period from 1973 to 2000. The results show a
positive correlation between trading volume and the
absolute value of the stock price change. Granger
causality tests demonstrate that for some countries,
returns cause volume and volume causes returns. Our
results indicate that trading volume contributes some
information to the returns process. The results also
show persistence in volatility even after we incorporate
contemporaneous and lagged volume effects. The results
are robust across the nine national markets.
“The Lead-Lag Relation Between Spot and Futures Markets
Under Different Short-Selling Regimes”
Joseph K.W. Fung, Li
Jiang, and Louis T.W. Cheng
Volume 37, No. 3, pp. 65-88
We examine the lead-lag relation
between index futures and the underlying index under
three types of short-selling restrictions on stocks in
Hong Kong. Our results indicate that lifting
short-selling restrictions can enhance the informational
efficiency of the stock market relative to the index
futures. We also investigate the impact of two market
characteristics, market conditions and the magnitude of
mispricing on the lead-lag relations under different
short-selling regimes. Our findings suggest that if we
remove restrictions, the contemporaneous price relation
between the futures and cash markets becomes stronger
particularly in the falling market and when the cash
market is relatively overpriced.