We analyze the flow of money between mutual fund categories, finding strong evidence of seasonality in investor risk aversion. Aggregate investor flow data reveal an investor preference for safe mutual funds in autumn and risky funds in spring. During September alone, outflows from equity funds average $13 billion, controlling for previously documented flow determinants (e.g., capital-gains overhang). This movement of large amounts of money between fund categories is correlated with seasonality in investor risk aversion, consistent with investors preferring safer (riskier) investments in autumn (spring). We find consistent evidence in Canada and also in Australia, where seasons are offset by 6 months.

We show that the abnormal returns on high default risk stocks documented by Vassalou and Xing (2004) are driven by short-term return reversals rather than systematic default risk. These abnormal returns occur only during the month after portfolio formation and are concentrated in a small subset of stocks that had recently experienced large negative returns. Empirical evidence supports the view that the short-term return reversal arises from a liquidity shock triggered by a clientele change.

This paper applies a single measure of investment performance to mutual fund portfolios for the 20-year period 1948–1967. It criticizes the efficacy of market indices, at least for the purpose of evaluating aggregate results of managed portfolios; it tests the predictive value of past results in forecasting future performance; and finally, it identifies two factors that are positively related to fund performance during the time period studied.

This is the first study of corporate bond mutual fund performance that examines detailed security-level holdings and returns. The new database allows us to decompose the costs and benefits of active management. In contrast to prior research on equity funds that shows evidence of stock-selection ability, we do not find evidence consistent with bond fund managers, on average, being able to select corporate bonds that outperform other bonds with similar characteristics. We find neutral to weakly positive evidence of ability to time corporate bond characteristics. Overall results show that the costs of active management on average appear larger than the benefits.

The exchange rate is an important variable that affects international competitiveness and performance of Japanese firms. We use an unconditional and a conditional multi-factor asset pricing model to examine whether exchange risk is recognized and priced in the Japanese stock market. The results indicate that the exchange risk is generally priced in Japan. More specifically, we provide evidence, in the unconditional model, that the exchange risk is priced in both weak and strong yen periods, when the bilateral yen/U.S. dollar exchange rate measure is used. The results are more mixed when the trade-weighted exchange rate is used. For the conditional model, the exchange risk is priced regardless of the exchange rate measure used. The combined evidence from the two models suggests an interesting observation about the role of the secular exchange rate trend in shaping the perception of exchange risk in the Japanese capital markets.

We study the transmission of bank distress to nonfinancial firms from 34 countries during the 2007–2009 financial crisis using systemic and bank-specific shocks. We find that bank distress is associated with equity valuation losses and investment cuts to borrower firms with the strongest lending relationships with banks. The losses are not offset by borrowers’ access to public debt markets and are concentrated in firms with the greatest information asymmetry problems and weakest financial positions. Our findings suggest that public debt markets do not mitigate the effects of relationship bank distress during financial crises.

The object of the present study was to test the random-walk model, by runs analysis and spectral densities, against representative stock market indexes of the Bombay, New York, and London Stock Exchanges. The three indexes examined were the Bombay Variable Dividend Industrial Share Index (BVDISI), consisting of 603 industrial stocks, the New York Standard and Poor's 425 Common Stock Index (S & P 425), and the London Financial Times-Actuaries 500 Stock Index (London F.T.-A.). The test period covered 132 monthly observations for each index for the 11-year period 1963–1973.

The general characteristics of the London F.T.-A. were found to be slightly different from the other two indexes studied. The first difference series the London F.T.-A. has higher mean and variance than BVDISI and S & P 425. However, the first differences of the log indexes did not show any significant differences. In this study, no effort was made to explain any inconsistencies between the London F.T.-A. and the other indexes, although previous studies [4, 12, 13, 20] have attributed such differences partly to institutional The behavior of the BVDISI is statistically indistinguishable from the London F.T.-A. and S & P 425 in terms of the tests of this paper. In runs analysis of consecutive price changes of the same sign, the study confirmed that the expected number of runs and observed number of runs are very close each other. For all the indexes, the actual and expected distribution of length turns out to be extremely similar, with probability equal to 0.5 rise or fall.

Further, the spectral densities, estimated for the first difference (raw and log transformed) of each index, confirmed the randomness of the and no systematic cyclical component or periodicity was present. Based tests, it is evident that stocks on the Bombay Stock Exchange obey a random walk and are equivalent in this sense to the behavior of stock prices in markets of advanced industrialized countries examined in this article.

We investigate the joint dynamics of returns and trading volume of 556 foreign stocks cross-listed on U.S. markets. Heterogeneous-agent trading models rationalize how trading volume reflects the quality of traders’ information signals and how it helps to disentangle whether returns are associated with portfolio-rebalancing trades or information-motivated trades. Based on these models, we hypothesize that returns in the home (U.S.) market on high-volume days are more likely to continue to spill over into the U.S. (home) market for those cross-listed stocks subject to the risk of greater informed trading. Our empirical evidence provides support for these predictions, which confirms the link between information, trading volume, and international stock return comovements that has eluded previous empirical investigations.

This study examines the average abnormal returns, average abnormal trading volume, and reported insider trading of corporate control target firms during a period of possibly informed trading. This period begins on the unpublicized initiation date (as reported in a postannouncement date proxy statement or 14-D1) and ends on the publication date of the first Wall Street Journal story signalling an impending change in corporate control. We find that the preannouncement date average abnormal return noted by other researchers begins after the unpublicized initiation date of the transaction. We find no evidence of the preannouncement date average abnormal trading volume noted by previous researchers; instead, we find average abnormal volume beginning with the first public information regarding the transaction.

We conduct the first broad-based international study on bank-level failures covering 92 countries over 2000–2014, investigating national cultural variables as failure determinants. We find individualism and masculinity are positively associated with bank failure, but they operate through different channels. Managers in individualist countries assume more portfolio risk, while governments in masculine countries allow banks to operate with less liquidity and less often bail out troubled institutions. Findings are robust to accounting for endogeneity, different techniques and measures, and additional controls. Results have implications for prudential policies, including regulation, supervision, and bailout strategies, that may partially mitigate some negative effects of culture.

We investigate whether trades made by chief financial officers (CFOs) reveal more information about future stock returns than those by chief executive officers (CEOs). We find that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs. During 1992–2002, CFOs earned an average 12-month excess return that is 5% higher than that by CEOs. The superior performance by CFOs occurs notwithstanding controls for risk factors and persists even after their trades are publicly disclosed. Further analysis shows that CFO purchases are associated with more positive future earnings surprises than CEO purchases, suggesting that CFOs incorporate better information about future earnings.

This paper uses a volatility decomposition method to study the time-series behavior of equity volatility at the world, country, and local industry levels. Between 1974 and 2001, there is no noticeable long-term trend in any of the volatility measures. Then in the 1990s there is a sharp increase in local industry volatility compared to market and country volatility. Thus, correlations among local industries have declined. More assets are needed to achieve a given level of diversification, and there is more of a penalty for not being well diversified by industry. Local industry volatility leads the other volatility measures.

We analyze 3,547 initial public offerings (IPOs) from 1985 through 2003 to determine the impact of acquisition activity on long-run stock performance. The results show that IPOs that acquire within a year of going public significantly underperform for 1- through 5-year holding periods following the 1st year, whereas nonacquiring IPOs do not significantly underperform over these time frames. For example, the mean 3-year style-adjusted abnormal return is – 15.6% for acquirers and 5.9% for nonacquirers. Our cross-sectional and calendar-time results suggest that the acquisition activity of newly public firms plays an important and previously unrecognized role in the long-run underperformance of IPOs.

We show that the consolidation of orders is important for producing efficient prices, especially during times of high liquidity demand. The NYSE's centralized opening call market performs better than Nasdaq's decentralized opening process on typical trading days. The NYSE is much better than Nasdaq on witching days when index arbitrage activity subjects S&P 500 stocks to large, predictable, and mostly informationlessorder flow around quarterly futures contract expirations. Nasdaq opening price efficiency improves to NYSE levels once Nasdaq initiates a consolidated opening call in November 2004, but prices on the decentralized Nasdaq remain less efficient at other times of day.

Information may be the key to differential rewards from investment in capital markets. Corporate insiders are thought to have information not available to others which provides them an advantage in investment activities. This has piqued the interest of regulatory officials and investors. For example, regulators in both Canada and the United States have required insiders to report their trading activities and have placed restrictions on the nature of these activities. Additionally, investors have attempted to use information on insider trading activities as a foundation for their own investment strategies.

I consider a market microstructure model in which the rates of public and private information arrival are probabilistic. The latter depends on the availability of private information that is stochastically changing over time. In equilibrium, traders estimate the availability of private information using past priods' trading volume and use this information to adjust their strategies. The time-series properties include contemporaneous correlation between price variability and volume and autocorrelation in price variability (similar to GARCH). The model explains why trading volume contains useful information for predicting volatility and provides predictions on the limit and market order placement strategies of traders.

This paper investigates the response of stock prices to dividend shocks in a bivariate model of stock prices and price-dividend spreads. Dividend process is modeled as the sum of a permanent component and a temporary component. By using the stock price valuation (present value) model, the two components are related to stock prices. The stock market responds significantly not only to permanent shocks to dividends, but also to temporary shocks to dividends. Furthermore, initial responses of stock prices to the temporary shocks are as strong as those to the permanent shocks. As a result, substantial variation in stock prices is due to the temporary shocks. This finding provides empirical support for the imperfect information hypothesis that emphasizes the failure of investors to clearly distinguish between the two components of dividends, and also suggests that the observed mean-reverting behavior of stock returns should be explained by incorporating a significant temporary component into stockprices. The price-dividend spreads are primarily accounted for by the temporary shocks to dividends, and respond strongly to them, suggesting that, in response to the temporary shocks to dividends, stock prices respond excessively relative to dividends.

We hypothesize that political activism is valuable because it helps reduce political uncertainty, which, in turn, fosters firm innovation. We find that firms that support more politicians, winning politicians, politicians on congressional committees with jurisdictional authority over the firms’ industries, and politicians who join those committees innovate more. We employ a natural experiment to show a causal effect of political activism on innovation. We also show evidence of intra-industry and geographical political activism spillovers.

In this paper, we derive simple, directly computable conditions for minimum-variance portfolios to have all positive weights. We show that either there is no minimum-variance portfolio with all positive weights or there is a single segment of the minimum-variance frontier for which all portfolios have positive weights. Then, we examine the likelihood of observing positively weighted minimum-variance portfolios. Analytical and computational results suggest that: i) even if the mean vector and covariance matrix are compatible with a given positively weighted portfolio being mean-variance efficient, the proportion of the minimum-variance frontier containing positively weighted portfolios is small and decreases as the number of assets in the universe increases, and ii) small perturbations in the means will likely lead to no positively weighted minimum-variance portfolios.

We examine the fit between the ownership data provided by four surrogate databases and the data collected from proxy statements. We discover an unambiguous pecking order among the surrogates relative to the benchmark ownership statistics of corporate proxy statements. Corporate Text is first, followed in descending order by Compact Disclosure, Value Line, and Spectrum. Further tests show that reporting discrepancies in the Value Line and Spectrum databases could affect economic inferences drawn from regressions using their ownership data. A field guide describing each data source's reporting conventions, formats, and strategies for data aggregation may be downloaded from the Journal of Financial and Quantitative Analysis' web site (http://webenu.washington.edu/~jfqa/hold/andeapdx.pdf).