In this paper we aim to check whether there is persistence in stock returns generated by companies. The study is carried out on the entire universe of companies in the 28 EU countries. To examine the persistence phenomenon, we develop a new test based on dependency analysis, using auto-regressive models in time series created ad-hoc. This methodology serve to document, as a general result, that 20% of EU companies are maintained persistently between better or worse. We note that these results have several important implications for practitioners and companies, for the EU as a whole, for researchers and the efficient market hypothesis, and also methodological implications arise since a new persistence test is developed.
{"title":"Persistence in Generating Returns by the European Union Companies","authors":"Luis Ferruz, Guillermo Badía","doi":"10.2139/ssrn.2886369","DOIUrl":"https://doi.org/10.2139/ssrn.2886369","url":null,"abstract":"In this paper we aim to check whether there is persistence in stock returns generated by companies. The study is carried out on the entire universe of companies in the 28 EU countries. To examine the persistence phenomenon, we develop a new test based on dependency analysis, using auto-regressive models in time series created ad-hoc. This methodology serve to document, as a general result, that 20% of EU companies are maintained persistently between better or worse. We note that these results have several important implications for practitioners and companies, for the EU as a whole, for researchers and the efficient market hypothesis, and also methodological implications arise since a new persistence test is developed.","PeriodicalId":119550,"journal":{"name":"UC Davis: Finance (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134150469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2005-12-07DOI: 10.1002/9781118267806.CH4
Arturo Bris, I. Welch, Ning Zhu
Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995-2001. We find that bankruptcy costs are very heterogeneous and sensitive to measurement method. Still, Chapter 7 liquidations appear no faster or cheaper (in terms of direct expense) than Chapter 11 bankruptcies. But Chapter 11 seems to preserve assets better, and thereby allows creditors to recover relatively more. Our paper also provides a large number of further empirical regularities.
{"title":"The Costs of Bankruptcy","authors":"Arturo Bris, I. Welch, Ning Zhu","doi":"10.1002/9781118267806.CH4","DOIUrl":"https://doi.org/10.1002/9781118267806.CH4","url":null,"abstract":"Our paper explores a comprehensive sample of small and large corporate bankruptcies in Arizona and New York from 1995-2001. We find that bankruptcy costs are very heterogeneous and sensitive to measurement method. Still, Chapter 7 liquidations appear no faster or cheaper (in terms of direct expense) than Chapter 11 bankruptcies. But Chapter 11 seems to preserve assets better, and thereby allows creditors to recover relatively more. Our paper also provides a large number of further empirical regularities.","PeriodicalId":119550,"journal":{"name":"UC Davis: Finance (Topic)","volume":"10 11","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120812469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Agents who place greater weight on the risk of downside losses than they are attach to upside gains demand greater compensation for holding stocks with high downside risk. We show that the cross-section of stock returns reflects a premium for downside risk. Stocks that covary strongly with the market when the market declines have high average returns. We estimate that the downside risk premium is approximately 6% per annum and demonstrate that the compensation for bearing downside risk is not simply compensation for market beta. Moreover, the reward for downside risk is not subsumed by coskewness or liquidity risk, and is robust to controlling for momentum and other cross-sectional effects.
{"title":"Downside Risk","authors":"Joseph Chen, Andrew Ang, Yuhang Xing","doi":"10.2139/ssrn.641843","DOIUrl":"https://doi.org/10.2139/ssrn.641843","url":null,"abstract":"Agents who place greater weight on the risk of downside losses than they are attach to upside gains demand greater compensation for holding stocks with high downside risk. We show that the cross-section of stock returns reflects a premium for downside risk. Stocks that covary strongly with the market when the market declines have high average returns. We estimate that the downside risk premium is approximately 6% per annum and demonstrate that the compensation for bearing downside risk is not simply compensation for market beta. Moreover, the reward for downside risk is not subsumed by coskewness or liquidity risk, and is robust to controlling for momentum and other cross-sectional effects.","PeriodicalId":119550,"journal":{"name":"UC Davis: Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129349127","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines whether the historically high returns associated with the size effect, the book-to-market effect, and the momentum effect can be explained within an asset pricing framework suggested by Merton's (1973) Intertemporal Capital Asset Pricing Model. Controlling for the market, an asset may earn a risk premium if it performs poorly when the prospects for the future turn sour. I develop a model with time-varying expected market returns and time-varying market volatilities to reflect thechanges in the investment opportunity set of the economy. Campbell's (1993, 1996) technique of substituting out aggregate consumption delivers two key insights.An underlying mechanism is that in the absence of frictions,the aggregate budget constraint restricts variations in market returns to affect aggregate consumption at some horizon. Hence the first insight is that if a factor reflects the changes in the investment opportunity set, its risk premium should be linked to the amount of information that it conveys about the future. The second insight is that the risk premia across factors should be linked to each other through the willingness of investors tobear risk. I test whether the returns associated with the size effect, the book-to-market effect, and the momentum effect are consistent with these restrictions.This model is estimated using a multivariate VAR-GARCH model with non-Gaussian innovations. The estimates suggest that the historical returns on thebook-to-market effect and the momentum effect are too high to be explained as compensation for exposures to adversechanges in the investment opportunity set.
{"title":"Intertemporal CAPM and the Cross-Section of Stock Returns","authors":"Joseph Chen","doi":"10.2139/ssrn.301918","DOIUrl":"https://doi.org/10.2139/ssrn.301918","url":null,"abstract":"This paper examines whether the historically high returns associated with the size effect, the book-to-market effect, and the momentum effect can be explained within an asset pricing framework suggested by Merton's (1973) Intertemporal Capital Asset Pricing Model. Controlling for the market, an asset may earn a risk premium if it performs poorly when the prospects for the future turn sour. I develop a model with time-varying expected market returns and time-varying market volatilities to reflect thechanges in the investment opportunity set of the economy. Campbell's (1993, 1996) technique of substituting out aggregate consumption delivers two key insights.An underlying mechanism is that in the absence of frictions,the aggregate budget constraint restricts variations in market returns to affect aggregate consumption at some horizon. Hence the first insight is that if a factor reflects the changes in the investment opportunity set, its risk premium should be linked to the amount of information that it conveys about the future. The second insight is that the risk premia across factors should be linked to each other through the willingness of investors tobear risk. I test whether the returns associated with the size effect, the book-to-market effect, and the momentum effect are consistent with these restrictions.This model is estimated using a multivariate VAR-GARCH model with non-Gaussian innovations. The estimates suggest that the historical returns on thebook-to-market effect and the momentum effect are too high to be explained as compensation for exposures to adversechanges in the investment opportunity set.","PeriodicalId":119550,"journal":{"name":"UC Davis: Finance (Topic)","volume":"88 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121320539","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Barber and Lyon (1996a) and Kothari and Warner (1996) document conventional tests of long-run abnormal returns are misspecified. In this research, we propose alternative methods to test for long-run abnormal returns. Our methods have two key characteristics. First, long-run abnormal returns are calculated using reference portfolios that yield an abnormal return measure with a population mean that is identically zero. Second, our methods control for the documented positive skewness in long-run abnormal returns calculated using reference portfolios. We control for the positive skewness by either (1) adjusting conventional t statistics using well-documented statistical methods, or (2) generating the empirical distribution of mean long-run abnormal returns via simulation. In addition to yielding reasonably well-specified test statistics in a variety of sampling situations, we document that these two methods are more powerful than the control firm approach analyzed by Barber and Lyon.
{"title":"Holding Size While Improving Power in Tests of Long-Run Abnormal Stock Returns","authors":"B. Barber, R. Lyon, Chih-Ling Tsai","doi":"10.2139/ssrn.1278","DOIUrl":"https://doi.org/10.2139/ssrn.1278","url":null,"abstract":"Barber and Lyon (1996a) and Kothari and Warner (1996) document conventional tests of long-run abnormal returns are misspecified. In this research, we propose alternative methods to test for long-run abnormal returns. Our methods have two key characteristics. First, long-run abnormal returns are calculated using reference portfolios that yield an abnormal return measure with a population mean that is identically zero. Second, our methods control for the documented positive skewness in long-run abnormal returns calculated using reference portfolios. We control for the positive skewness by either (1) adjusting conventional t statistics using well-documented statistical methods, or (2) generating the empirical distribution of mean long-run abnormal returns via simulation. In addition to yielding reasonably well-specified test statistics in a variety of sampling situations, we document that these two methods are more powerful than the control firm approach analyzed by Barber and Lyon.","PeriodicalId":119550,"journal":{"name":"UC Davis: Finance (Topic)","volume":"126 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1996-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128604819","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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