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A Note on the Flow of Capital in Outstanding Common and Preferred Shares between Canada and the United States

Published online by Cambridge University Press:  19 October 2009

Matthew Robertson
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Extract

In this note a distributed lag model is employed to analyze the flow of capital in outstanding issues of Canadian stocks between Canada and the United States. It is proposed that the movement of such capital reflects, to a large extent, changes in the relative earnings yield on stocks in the two markets.

Type
Communications
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 1 , January 1972 , pp. 1425 - 1427
Copyright
Copyright © School of Business Administration, University of Washington 1972

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References

1 St is positive in the case of an inflow of capital to Canada in the form of net purchases by U.S. investors of Canadian shares. St is negative otherwise.

2 To represent the Canadian price-earnings ratio, the Toronto Stock Exchange ratio for industrial stocks was used. The data was supplied by the Toronto Stock Exchange. The corresponding price-earnings ratio employed for the United States was Moody's ratio for industrial stocks on the New York market. The data was taken from Moody's Industrial Manual, 1970. The data series for capital flows was abstracted from various issues of Sales and Purchases of Securities between Canada and Other Countries, Dominion Bureau of Statistics, Ottawa (Cat.No. 67–002).

3 See Durbin, J., “Testing for Serial Correlation in Least-Squares Regression when Some of the Regressors are Lagged Dependent Variables,” Econometrica, Vol. 38, No. 3 (May 1970)Google Scholar. The statistic is given as follows: where V (γ) is the OLS estimate of the variance of the coefficient of the lagged dependent variable, n is the number of observations, and a is the serial correlation statistic, an estimate of which can be obtained from the expression, a = 1 − ½ d, with d the standard Durbin-Watson statistic; h is tested as a standard normal deviate.