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Abstract

Recent empirical work by Banz (1981) and Reinganum (1981) documents abnormally large risk-adjusted returns for small firms listed on the NYSE and the AMEX. The strength and persistence with which the returns appear lead both authors to conclude the single-period, two-parameter capital asset pricing model is misspecified. This study (1) confirms that total market value of common stock equity varies inversely with risk-adjusted returns, (2) demonstrates that price per share does also, and (3) finds that transaction costs at least partially account for the abnormality.

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... Investors may ask small firms for higher returns to compensate for this expectation of higher distress risk. Another reason proposed by Stoll and Whaley (1983) 33 is that the abnormal risk-adjusted returns of small-cap stocks may be explained by their higher transaction costs, but these results are affected by the length of the investment horizon; ...
... Investors may ask small firms for higher returns to compensate for this expectation of higher distress risk. Another reason proposed by Stoll and Whaley (1983) 33 is that the abnormal risk-adjusted returns of small-cap stocks may be explained by their higher transaction costs, but these results are affected by the length of the investment horizon; ...
... Second, many studies highlight the time-varying nature of firm size. According to Stoll and Whaley (1983) 48 , whether an investor is able earn abnormal returns net of transaction costs from smallcap stocks is "contingent upon the length of investment horizon". More precisely, small-cap stocks earn higher returns than do large-cap stocks if they are bought and subsequently held for at least two months or more. ...
Chapter
Covid-19 distress has awakened and reinforced some long-standing trending topics related to portfolio risk management and systemic risk mitigation. Portfolio managers have started to test flexible multi-asset portfolio strategies (Global Macro Strategies) based on the interpretation of large macroeconomic conditions, including the asset allocations of long and short positions in equities, bonds, commodities, etc. This study aims to test the risk-adjusted contribution of Sukuk (Islamic bonds) and Green Bonds as alternative instruments compared to conventional fixed-income, covering the last Covid-19 crisis. The asset allocation is designed following the fundamentals of Global Macro and solving a risk-parity optimisation problem using a specifically developed MATLAB™ algorithm. The findings will provide insights into the testing hedge and safe-haven power of Sukuk and Green Bonds, contributing to the widening literature on portfolio risk management and developing an alternative asset allocation functional with Global Macro fundamentals.
... Motivated by earlier studies, the following control variables which influence liquidity are included in the regression: the firm size, return volatility, share price, share turnover rate, institutional ownership and leverage ratio (see Stoll and Whaley, 1983;Agarwal, 2007;Rhee and Wang, 2009;Brockman et al. 2009;Chung et al. 2010). Firm size is the book value of asset. ...
... For the coefficients of the control variables, we find they are by and large strongly related to spreads and depth, and they accord with past studies (see Benston and Hagerman, 1974;Stoll and Whaley, 1983;Agarwal, 2007;Brockman et al., 2009). Specifically, a larger size, a higher 24 The contrast in results for the price impact for the pooled OLS and the fixed effects model could be due to omitted variables bias that plagues the pooled OLS estimation method. ...
Article
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This paper documents that state ownership is associated with higher stock liquidity, a finding consistent with lower investor risk perception of firms which benefit from state ownership, like preferential financing and regulation, and implicit government guarantees. The effect is found to be stronger when government ownership confers stronger benefits like firms with state controlling rather than non-controlling shareholders, and when the benefits of government ownership are important-for smaller firms, for financially constrained firms, and especially during the financial crisis period. These results suggest that investors perceive government ownership as value-enhancing, which increases their willingness to trade in such stocks.
... Many previous studies (Basu, 1977;Banz, 1981;Stoll andWhaley, 1983 andReinganum, 1981) came out with the view that increase in the debt of a company increases the risk of the equity shareholders. They found a significant positive relationship between the expected returns and the debt-equity ratio. ...
... Many previous studies (Basu, 1977;Banz, 1981;Stoll andWhaley, 1983 andReinganum, 1981) came out with the view that increase in the debt of a company increases the risk of the equity shareholders. They found a significant positive relationship between the expected returns and the debt-equity ratio. ...
Article
Purpose Asset pricing revolves around the core aspects of risk and expected return. The main objective of the study is to test different asset pricing models for the Indian securities market. This paper aims to analyse whether leverage and liquidity augmented five-factor model performs better than Capital Asset Pricing Model (CAPM), Fama and French three-factor model, leverage augmented four-factor model and liquidity augmented four-factor model. Design/methodology/approach The data for the current study comprises records on prices of securities that are part of the Nifty 500 index for a time frame of 14 years, that is, from October 2004 to September 2017 consisting of 183 companies using time series regression. Findings The results indicate that the five-factor model performs better than CAPM and the three-factor model. The model outperforms leverage augmented and liquidity augmented four-factor models. The empirical evidence shows that the five-factor model has the highest explanatory power among the entire asset pricing models considered. Practical implications The present study bears certain useful implications for various stakeholders including fund managers, investors and academicians. Originality/value This study presents a five-factor model containing two additional factors, that is, leverage and liquidity risk along with the Fama-French three-factor model. These factors are expected to give more value to the model in comparison to the Fama-French three-factor model.
... Authors in [2] proclaimed that the stock market is very efficient and trading prices totally reflect the available data, which is referred as the Efficient Market Hypothesis (EMH), while fundamental or technical analysis would not lead to profit that is consistently over-average for investors. Nonetheless, not all researchers agree with EMH [3], as some conventional methods in financial economics proclaim that stock markets have anomalies [4][5]. Most studies use technical analysis, which includes older stock volumes and prices, in order to demonstrate trading profits and predict future stock market prices [6]. ...
Article
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Stock market historical information is often utilized in technical analyses for identifying and evaluating patterns that could be utilized to achieve profits in trading. Although technical analysis utilizing various measures has been proven to be helpful for forecasting and predicting price trends, its utilization in formulating trading orders and rules in an automated system is complex due to the indeterminate nature of the rules. Moreover, it is hard to define a specific combination of technical measures that identify better trading rules and points, since stocks might be affected by different external factors. Thus, it is important to incorporate investors’ sentiments in forecasting operations, considering dynamically the varying stock behavior. This paper presents a sentiment aware stock forecasting model using a Log BiLinear (LBL) model for learning short term stock market sentiment patterns, and a Recurrent Neural Network (RNN) for learning long-term stock market sentiment patterns. The Sentiment Aware Stock Price Forecasting (SASPF) model achieves a much superior performance compared to standard deep learning based stock price forecasting models.
... Reinganum (1983), following on from the findings of Keim, suggested that the so-called 'January effect' is consistent with tax loss selling. Stoll & Whaley (1983) confirmed the negative correlation between market value and risk-adjusted returns, but also found a similar correlation between share prices and returns. They provided further empirical evidence which suggests that transaction costs partially account for the small firm effect. ...
Article
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Recent studies on the New York Stock Exchange have provided empirical evidence which suggests that small market capitalization firms outperform large market capitalization firms in terms of share price performance. This appears valid even after adjusting for the additional risk borne by the small firms. This has become known as the 'small firm effect' and questions the validity of many traditional pricing models such as the Capital Asset Pricing Model. In this paper, the small firm effect is examined on the Johannesburg Stock Exchange. The risk-adjusted performance of portfolios comprising large firms is contrasted with that of small firms. Three measures of size are used, namely market capitalization, asset base and traded volume. In all three cases, no evidence of a small firm effect is apparent. Indeed, if anything, the large firms appear to provide superior investment performance on the JSE.
... The price quoted for a share is based on the price at the last transaction. Consequently shares which are traded infrequently will be positively autocorrelated and the estimated beta value will be underestimated (Stoll & Whaley, 1983). ...
Article
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The objective of this study is to determine whether companies listed on the Johannesburg Stock Exchange (JSE) overreacted to the arrival of unanticipated information during the period 1975-1992. In this article, a modified version of the Efficient Market Hypothesis called the Uncertain Information Hypothesis (UIH) is tested in order to explain the response of rational, risk-averse investors to news of a dramatic financial nature. The findings demonstrate that regardless of whether the news was good or bad, the average pattern of price adjustments after the initial reaction was significantly positive. Because the volatility of the share prices was also shown to rise significantly after both unanticipated good and bad news, the incremental returns to shareholders can be interpreted as compensating investors for bearing the added risk associated with uncertainty. The results provide strong support for the UIH. The findings do not support the alternative hypothesis that investors consistently overreact to unexpectedly large price changes. It would appear that the JSE reacts to uncertain information in an efficient, if not instantaneous manner.
... Also, there was some criticism of the argument that stock markets are inefficient and profitable. Studies that asserted stock markets are profitable and have anomalies were criticized for not considering all transaction costs [11]- [13]. EMH is still the subject of intense debate. ...
Article
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We applied Deep Q-Network with a Convolutional Neural Network function approximator, which takes stock chart images as input for making global stock market predictions. Our model not only yields profit in the stock market of the country whose data was used for training our model but also generally yields profit in global stock markets.We trained our model only on US stock market data and tested it on the stock market data of 31 different countries over 12 years. The portfolios constructed based on our model’s output generally yield about 0.1 to 1.0 percent return per transaction prior to transaction costs in the stock markets of 31 countries. The results show that some patterns in stock chart images indicate the same stock price movements across global stock markets. Moreover, the results show that future stock prices can be predicted even if the model is trained and tested on data from different countries. The model can be trained on the data of relatively large and liquid markets (e.g., US) and tested on the data of small markets. The results demonstrate that artificial intelligence based stock price forecasting models can be used in relatively small markets (emerging countries) even though small markets do not have a sufficient amount of data for training.
... Hau- gen & Lakonishok (1988) advanced the window dressing hypothesis which states that investors sell certain stocks at the end of the year in order to present more acceptable portfolio performance in year-end reports. Stoll & Whaley (1983) found that transaction costs in small firms and Chang & Pinegar (1990) found that seasonality in the risk premier explained the January effect. Lastly, Kohers & Kohli (1992) found that the In emerging markets, for example, in the Indian stock market Gupta (2017) studied the January effect using 15 years worth of data and found no anomalous evidence. ...
Article
This paper is a comprehensive investigation of the evolution of various monthly anomalies (January effect, December effect, and the Mark Twain effect) in the US stock market for its entire history. This is done using various statistical techniques (average analysis, Student's t-test, ANOVA, the Mann–Whitney test) and a trading simulation approach). To confirm our results we extended the analysis to the UK, Japan, Canada, France, Switzerland, Germany and Italy stock markets. The results indicate that the January effect was most prevalent in the US and that the December effect and the Mark Twain effect were never prevalent in the US. This result was confirmed in other markets as well. The January effect was most prevalent in the middle of the 20th century but has since disappeared. Furthermore, the January effect provided exploitable profit opportunities. Our results are consistent and add to the existing literature through the use of a complete history of the US market. Overall, the US stock market is consistent with the Adaptive Market Hypothesis.
... The portfolio is backtested when there are no transaction costs, i.e., when tc = 0, and when tc = 0.5% and tc = 1%, respectively. These numbers are consistent with the transaction cost estimates in Stoll and Whaley [84], Keim and Madhavan [54], Novy-Marx and Velikov [68], and Fong, Holden, and Trzcinka [37]. ...
Conference Paper
In this dissertation, we focus on constructing trading strategies through the method of functional generation. Such a construction is of great importance in Stochastic Portfolio Theory established by Robert Fernholz. This method is simplified by Karatzas and Ruf (Finance and Stochastics 21.3:753-787, 2017), where they also propose another method called additive functional generation. Inspired by their work, we first investigate the dependence of functional generation on an extra finite-variation process. A mollification argument and Komlós theorem yield a general class of potential arbitrage strategies. Secondly, we extend the analysis by incorporating transaction costs proportional to the trading volume. The performance of several portfolios in the presence of dividends and transaction costs is examined under different configurations. Next, we analyse the so-called leakage effect used to measure the loss in portfolio wealth due to renewing the portfolio constituents. Moreover, we further explore the method of additive functional generation by considering the conjugate of a portfolio generating function. The connection between functional generation and optimal transport is also studied. An extended abstract can be found before the first chapter of this dissertation.
... The first methods for the quantitative metric of transaction costs are reflected in the works of Demsetz (1968); North and Wallis (1986); Stoll and Whaley (1983); Bhardwaj and Brooks (1992); Williamson (1993); and many others. However, the first research of this kind was focused on the United States insurance and investment construction sectors, and not to the public economy sector. ...
Article
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Nowadays, the most typical reforms in higher education are conducted through the reorganization of universities either in the form of a merger, acquisition, or new status attainment. As a result, universities which educate local leaders for their respective national economies and have a profound impact on the regional economic development, as well as the composition of the labor market and intellectual potential, often encounter negative economic outcomes. The reforms that are imposed by the policymakers “from above” often hamper the development of universities and prevent them from fulfilling their roles described above. The process of reforming higher education in Russia is in many ways similar to the changes in the higher education systems of other European countries, in particular in post-Communist transition economies. Firstly, this process went through the integration into the global market of educational services. Secondly, it proceeded with the rethinking of the role of the university as a self-sustainable business organization. Thirdly, it was concluded by an increase in the demand and accessibility of education using the advancements offered by the digital technologies. Our paper argues that focused and well-balanced economic institutional design might be required for the sustainable development of reorganized leading universities. The project perspective implies that it is necessary to develop an institutional design in relation to what the organization seeks to achieve (either as its regulator or reformer) and how it intends to achieve these goals. In connection with the foregoing, we propose the following principles of designing effective institutions for the sustainable development of reorganized universities: (i) preservation of education as a “mixed” good (i.e., one that has the features of both public and private goods); (ii) transparency of decision making; (iii) complementarity of institutional change; and last but not least (iv) reduction in transaction costs.
... " David McLean informed us that they also surveyed asset pricing experts to make sure they were not missing anything. 3 For other trading cost studies, see Stoll and Whaley (1983), Schultz (1983), Ball, Kothari, and Shanken (1995), Knez and Ready (1996), Pontiff and Schill (2001), Korajczyk and Sadka (2004), Lesmond, Schill, and Zhou (2004), and Hanna and Ready (2005), McLean (2010), Hou, Kim, and Werner (2016), Patton and Weller (2017), Frazzini, Israel, and Moskowitz (2015), and Briere et al. (2019). For other papers on the decay of predictability over time, see Schwert (2003), Marquering, Nisser, and Valla 2006, Huang and Huang 2013, Chordia, Subrahmanyam, and Tong (2014, Jacobs and Müller (2017), Chu, Hirshleifer, and Ma (2017), and Chen and Zimmermann (2019 ...
... Hence the greater transaction costs of these small, low-priced stocks account for institutional investor aversion towards them, even aside from the realm of risk preferences (Falkenstein, 1996). Regarding the liquidity argument, Fernando et al. (2004) suggest that institutional aversion towards low-priced stocks may be due to their illiquidity (Brennan and Subrahmanyam, 1996;Gompers and Metrick, 2001;McInish and Wood, 1992) or because of a positive relationship between price and size (Stoll and Whaley, 1983). ...
Building on the catering hypothesis and institutional investor preference literature, we propose a generalized catering hypothesis that managers cater their share price level to different types of investor (individual vs institutional) in order to attract them, conditional on the firm’s preferences as to ownership mix. We show that an institutional ownership premium provides strong explanatory power to the change in share price norm. This evidence supports our hypothesis that managers cater their share price level to the preference of institutional investors, but only when there is substantial benefit in doing so. Further tests reveal that the premium is higher for long term than for short term investors.
... Acharya and Pedersen (2005) and Pastor and Stambaugh (2003) liquidity risk premiums that are usually high for illiquid stocks. Additionally, Stoll and Whaley (1983) show that compared to large firms, small firms are expected to have a higher rate of return because the stocks of the small firms are more illiquid. Martinez et al. (2005) empirically find a positive relationship between stock returns and stock illiquidity. ...
Article
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This paper investigates empirically the impact of stock liquidity and investor protection on corporate capital structure. We predict that stock liquidity has a significantly negative impact on firm leverage and this negative impact is stronger in a country where the investor protection is strong. The sample consists of 2,203 firms listed in the UK, Germany, France, and Italy over the period from 2009 to 2018. Using a firm fixed effects model, we find evidence supporting our prediction. Our results are robust when we use a random effects model model, or when we employ an alternative measure of investor protection. Additionally, we find that an exogenous event that reduced the investor protection could dampen the negative impact of stock liquidity on firm leverage. Our paper suggests that future studies should consider the effects of factors related to the level of investor protection when investigating the relationship between stock liquidity and firm characteristics, such as firms’ default risk.
... Berk (1995) argues that Firm size or size effect is better able to explain cross-section variation in asset returns than other CAPM and multifactor models, as the most prominent contradiction of the paradigm (Fama and French 1997), and as evidence of misspecification of the CAPM compared to evidence from inefficient capital markets and size effects can be used as a proxy for opportunity cost of risk capital. This is supported by theoretical thinking and early empirical research which found that the impact of stock prices on a stock trading is caused by firm size (Loeb (1983), Stoll and Whaley (1983), and Keim and Madhavan (1991). Even though the issue of firm seze effect faded in the 1980s but it is still relevant in the Indonesian capital market, which many investors see in terms of market capitalization (bluechip or not, large or small capitalization and aspects of whether the company is part of the business group or single company). ...
Article
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This study aims to reveal whether intellectual capital performance is able to mediate the effect of profitability, leverage, company size, and age of the company on intellectual capital disclosure. This study used a sample of banking companies in Indonesia. Furthermore, research data was processed by using a path analysis approach through the WarpPLS tool. Based on the data analysis, it was found that the profitability and age of the company directly and indirectly affected the intellectual capital performance and intellectual capital disclosure. This means that the intellectual capital performance can increase the effect of profitability and age of the company on intellectual capital disclosure. On the other hand, leverage and company size were not able to show an effect on intellectual capital performance and intellectual capital disclosure either directly or indirectly, therefore the intellectual capital performance was not able to be a mediating variable between leverage and company size on intellectual capital disclosure. So the results of this study suggest banking companies to optimize intellectual capital information in annual financial statements and other financial statements so that the public as a reader can make it as material in decision making.
... Institutional investors have an affinity toward higher quality and larger capitalization stocks (Del Guercio 1996). Past findings (e.g., Stoll and Whaley 1983;Dyl and Elliott 2006) estimate a positive relationship between market capitalization and share price. Prior literature (Falkenstein 1996) also supports that institutional investors prefer high-priced stocks, and Gompers and Gompers and Metrick (2001) further showed that institutional investors tend to avoid low-priced shares and suggested a negative relationship between individual ownership and IPO issue size. ...
Article
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In this paper, we establish the significance and effects of initial public offer (IPO) offer price ranges on subscription, initial trading, and post-IPO ownership structures. The primary market in India provides a unique setting for estimating the effect of various initial public offer (IPO) price ranges and IPO issue factors on the initial demand for an IPO among investors, measured by full IPO subscription/oversubscription, initial turnover (liquidity), and the post-IPO listing ownership structure among investors (ownership). For the IPO pre-listing stage, this study uses firth logistic regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the full subscription/oversubscription of an IPO in each investor category. For the post-IPO listing stage, the study uses OLS regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the initial trading ratio (IPO listing day trading) and the ownership percentage between institutional and individual investors. We find that all investor categories show a lesser likelihood for full subscription or oversubscription of an IPO issue at the lowest range of IPO offer prices. At the post-listing stage, the results indicate a diverse IPO offer price range in which individuals and institutions maximize their respective ownership holdings after the IPO listing. The results further show that lower promoter holdings diffuse higher ownership among individual shareholders by targeting lower IPO offer prices, thus increasing control.
... Previous researches have shown that company size, stock price volatility, stock price and turnover are related to liquidity. Smaller trading stocks are more expensive for company size because there is less relevant information about these companies [10]. In addition, volatility increases the inventory risk of market makers and the risk of unintentional short-term speculative trading [11]. ...
Article
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The negative impact of foreign participation on the liquidity of companies that allow a high degree of foreign institutional ownership has been widely documented. This article provides a unique environment for the limited participation of qualified foreign institutional investors (QFIIs) in China’s A-share market, and examines how these factors affect stock liquidity in emerging markets. Contrary to previous findings, the participation of foreign investors has helped increase the liquidity of affected stocks by facilitating increased trading activity. Improved liquidity in small businesses is more important than large ones. The findings of this article are the endogenous robustness and the impact on the stock market, industry impact, and possible impact on the stock exchange. In addition, when analyzing sub-samples of QFII companies, QFII’s liquidity improvement effect is even stronger. This article aims to through data analysis on the stock liquidity provide Chinese stock market with management suggestions.
... İşlem maliyetleri arttıkça piyasalarda anormal hareketlerin arttığını ve makroekonomik değişkenlerin piyasa geleceğini tahminleme gücünü yitirmeye başladığını ortaya koyan çalışmasında Stoll ve Whaley, işlem maliyetlerinin ekonomik etkinlik üzerindeki olumsuz etkisine dikkat çekmiştir. Öte yandan literatürde ekonomik derinlik ve etkinlik arttıkça, işlem maliyetlerinin de azalacağı yönündeki görüşler bu konunun uzun vadede bir problem olacağına dair algıyı geri plana çekmiştir (Stoll & Whaley, 1983). ...
Thesis
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Çalışmanın amacı, blockchain veya türevi altyapılar kullanan kripto para birimlerinin mevcut durumunu ve geleceğini ele almaktır. Bu amaçla, ortaya çıkışından günümüze, kripto para birimlerinin teknolojik altyapı ve ekonomik model olarak evrim süreci incelenmiştir. İnceleme sürecinde kripto para piyasalarının geleceğinde etkili olacağı düşünülen faktörler, araştırma sorularına dönüştürülmüştür. Piyasa etkinliği, fiyat balonları ve piyasa manipülasyonlarına dair araştırma soruları, ilgili bölümler kapsamında analiz edilmiştir. Kripto para piyasalarının etkinliğini sınama amacıyla, piyasa derinliği ve volatilite yapısı arasındaki ilişki, 8 kripto para birimi için asimetrik GARCH modelleri (FIGARCH, FIAPARCH, FIGARCH CHUNG, FIEGARCH, FIEGARCH BBM) kullanılarak analiz edilmiştir. Analiz bulguları, kripto para piyasalarında uzun hafıza probleminin varlığını ortaya koymaktadır. Buna ek olarak, bu piyasalarda işlem hacmi arttıkça volatilitenin azaldığı ve dolayısıyla, piyasa etkinliğinin arttığı gözlemlenmektedir. Bu bulguları takiben, söz konusu kripto para birimlerinin fiyat serilerinde, fiyat balonlarının varlığı araştırılmıştır. Bu amaçla 8 kripto para birimi SADF testi kullanılarak analiz edilmiştir. Test sonuçlarından hareketle, fiyat seviyelerinin balon olarak nitelendirilebileceğine dair bir bulguya rastlanmamıştır. Bitcoin piyasalarındaki fiyat sıçramalarını inceleme amacıyla, “Pump and Dump” tipi manipülasyonlardan kaynaklı sıçramalar, deneysel bir vaka analizi çalışması kapsamında ele alınmıştır. Çalışma kapsamında oluşturulan portföyde kripto para piyasalarında manipülasyonun mümkün olduğu uygulamalı olarak gözlenmiştir. Bunu takiben, manipülatif fiyat sıçramalarının yapısını tespit etme amacıyla, Bitcoin piyasası dakikalık frekansta 1.162.887 adet gözlem kullanılarak Jump-Difüzyon yöntemi ile analiz edilmiştir. Jump-Difüzyon analizi bulguları, piyasaların belirli bir derinlik seviyesini aştıktan sonra manipülasyonlara karşı bağışıklık kazandığı yönündedir. Araştırma bulguları, mevcut kripto para piyasalarının gelişim süreci için öngörülen yapının, rasyonel piyasa dinamikleri ile çatışacak şekilde tasarlandığına dikkati çekmektedir. Belirli bir değer üretim sistemine karşılık gelecek şekilde tasarlanmış, blockchain tabanlı varlıkların piyasaya sunulmasıyla, kripto para piyasalarının yapısının değişeceği tahmin edilmektedir. Bu çalışma, güncel finans literatürünün en tartışmalı konularından birisi olan kripto para piyasalarının potansiyelini, kavramsal bir çerçeve oluşturan analizler ile test ederek tahminlemesi aracılığıyla literatüre katkı sağlamaktadır.
... The interaction between economies of scale and transaction costs is complex, not least because of the non-convexities of both functions and the possible U-shape of the transaction costs function in asset specificity [65][66][67]. Recent studies outside the agricultural context suggest that economies of scale mediate the influence of asset specificity on transaction costs [66,68,69]. Specifically, if assets involved in certain transactions are not characterized by high specificity, increasing economies of scale can help economize on a larger share of the transaction costs [70]. ...
Article
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The study investigates how the agricultural sector can respond to a growing non-food biomass demand. Taking Germany as an example, a stylized case of biomass production under conditions of technological advance and constantly growing demand is modelled. It is argued that biomass producers might seek to adjust their farm size by simultaneously optimizing benefits from the production scale and transaction cost savings, where transaction costs are measured using Data Envelopment Analysis. The results extend the debate on transaction costs and structural change in agriculture by revealing a possible synergy and trade-off between transaction cost savings and benefits from (dis)economies of scale. They show that if larger farms cannot economize on transaction costs, then investments in land and labor, needed to adjust to higher biomass demand, partly compromise the returns to scale, which decelerates the farm size growth. A higher degree of asset specificity gives rise to transaction costs and reduces the rate at which the farm size decreases. Smaller producers may disproportionally benefit from their higher potential of transaction cost savings, if advanced technologies can offset the scale advantage of larger farms. The findings inform policymakers to consider this complex effect when comparing the opportunities of smaller and larger agricultural producers in the bioeconomy.
... Despite its grand appearance by Banz (1981) as an asset pricing anomaly in financial literature, within a short period "size effect" has gone under debate. This debate started when Keim (1983) and few other scholars (See Brown et al.,1983;Schultz, 1983;Stoll and Whaley, 1983) noted that the "size effect" may have disappeared. Keim (1983) examine NYSE and AMEX common stocks month-bymonth and observed that the relation between abnormal returns and size is always negative. ...
Article
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Traditionally, firm size has adopted in numerous heuristic asset pricing models as a determining factor of expected stock returns. So far as like systematic risk “beta”, there is diminutive consensus over the magnitude and firmness of the “size” premium. Converging on the controversy this article attempts to examine the traditional Capital Asset Pricing Model (CAPM) and “size” augmented CAPM in the Dhaka Stock Exchange (DSE). The goal of this article is to examine the impact of an overall market factor and factor related to the firm size risk on expected stock returns at the portfolio level. Our sample encompasses non-financial stocks listed in DSE, with daily observations starting from January 2014 to December 2018. Depending on Market Capitalization and Book-to-Market Ratios we construct nine different portfolios, Ordinary Least Square (OLS) regression methodology is used to examine the models. Unlike common reckoning, we observe the strong existence of the “size” effect in frontier equity market DSE and has a tangible impact on explaining expected stock returns at the portfolio level. Additionally, the “size” augmented Capital Asset Pricing Model explains DSE better than the standard CAPM, may indeed be a good tool for a realistic assessment of the expected asset returns, and can improve the description of equilibrium in the Frontier equity market DSE. JEL classification numbers: E44, G11, G12. Keywords: Capital Asset Pricing Model (CAPM), Size Premium, Frontier Equity Market.
... In addition to the two abovementioned explanatory hypotheses, some researchers have identified market microstructure effects, such as bid-ask spread (Stoll and Whaley 1983) and thin trading, as essential factors explaining abnormal returns in January (Roll, 1981 andRoll 1983). Kohers and Kohli (1992) link the anomaly to the business cycle, and Aguiar et al. (1997) argue that the high returns in January are related to a large volume of commercial transactions associated with lower real interest rates. ...
Article
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This paper examines the existence of the month-of-the-year effects in four different continents, namely Europe, Asia, America, and Oceania. Nine indexes were analyzed in order to verify differences between monthly returns from January 1990 to December 2013, followed by an examination of the January effect, Halloween effect, and the October effect, testing for statistical significance using an OLS linear regression in order to verify whether those effects offer consistent opportunities for investors. Investors with globally diversified portfolios benefit from the Halloween effect, with a 1.2% average monthly excess return in winter and spring, while the pre-dotcom-bubble period had a better performance than the post-dotcom-bubble period. In the global post-dotcom-bubble period, there is statistical evidence for 1.60% and 1% lower average monthly returns in January (the January effect) and in months other than October (the October effect), respectively, contradicting the literature. The dotcom bubble seems to be responsible for the January effect differing from what might otherwise have been expected in the later period. There is no consistent and clear impact on continental incidence. The Halloween effect is revealed to be a fruitful strategy in the FTSE, DAX, Dow Jones, BOVESPA, and N225 indexes taken one-by-one. The January effect excess average return was only statistically significative for the pre-dotcom-bubble period for globally diversified portfolios. This paper contributes to a wider global and comparable view upon month-of-the-year effect.
... We anticipate a negative relationship between the post-split individual changes (DINDSH s ) and price-to-book values. Regarding market capitalization, Stoll and Whaley (1983) note a positive association between the market value of equity and the price per share for common stocks. Higher capitalization stocks tend to split nominal prices to lower prices to portray themselves as small-cap companies and attract individual shareholders (Dyl and Elliott 2006;Weld et al. 2009). ...
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Abstract This article focuses on a wealth-constrained individual investor preference for lower price ranges in the Indian secondary equity market, using stock-split data to gauge the effects of lower price ranges on individual ownership. The hypothesis is that individual investors operate within a price range of choice. The overall findings address three specific contributions. First, the impact of various post-split price (PSP) bands on both individual and institutional investors is assessed. Second, a specific PSP range is estimated that triggers a shift in ownership from institutional investors to individual investors. Third, the article shows the firm-specific characteristics for companies that target lower-priced stocks. Key Findings ▪ The lowest bands of post split price (PSP) have maximum positive impact on ownership of individual shareholders. ▪ The lowest bands of post split price have maximum negative impact on ownership of institutional shareholders. ▪ The Shift in ownership from institutional investors to individual investors happens at the lowest bands of Post split price (PSP). ▪ Companies having lower price-to-book ratios and higher market capitalization target lower market prices (PSP) to attract individual shareholders post split.
... The success of stock trading depends largely on getting the exact time to sell or purchase stocks. It is very difficult to anticipate, despite developments in technical analysis of stock prices and trading points.According to the Efficient Market Hypothesis, Fundamental analysis or technical analysis does not lead, to higher Returns on Investments(ROI) [2][3][4][5], which are consistently above average. Computer science studies are concerned with the examination of non-conventional metrics or external variables that assist in the analysis of the stock market [6]. ...
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Thesis
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This study revisits size effect and its associated issues, in the Indian market, as recent studies question the persistence of size premium in the global context. We use data from NIFTY 200 stocks for the period 2005 to 2018 and find size effect to be significant for both market-based and accounting-based measures of size. It is not impacted by any definitional issues as highlighted by Berk (Financ Anal J 53(5):12–18, 1997). Size effect also remains significant despite alternative portfolio constructions i.e. forming quintiles, deciles, scores of portfolios even though the premiums vary. Existing literature on size anomaly does not focus on size drift and survivorship bias. We specifically address these dimensions relating to size effect which have received less attention in prior work. In this study, size effect is found to be sensitive to drift in market capitalization. Historical market capitalization used to categorize medium (large) firms may now be a basis for classifying small (medium) firms in recent time periods. Small sized portfolio adjusted for drift provides substantially higher return compared to unadjusted small sized portfolio. Further, to evaluate survivorship bias, size-based portfolios are redesigned using changing components of NIFTY 200 for each formation period. This leads to considerable weakening of size effect. Investors must take this fact into consideration while creating size based portfolios. However, upon using another stable universe of F&O traded stocks, size effect is found to be significant. The study contributes to size anomaly literature for Indian market and shall be useful for portfolio managers, investors, academia and regulators.
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This study documents the wide deviation of securitized real estate assets in equity REITs from the value of the underlying commercial properties. A procedure for estimating the net asset value of REITs is developed and the estimates are used to investigate the sources of premiums/discounts from net asset value in a large sample of equity REITs. To avoid measurement error bias, two-way analysis of variance is used to test for differences among size and property-type categories. The results indicate that retail REITs trade at significant premiums relative to the average REIT while warehouse/industrial REITs trade at discounts and small REITs trade at significant discounts while large REITs trade at premiums. The discounts and premiums from net asset value do not translate into higher cash flow yields.
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Investors attend importance to forecast the price of financial assets, thus, the factors affecting the stock price are usually the focus of financial research in the field, in which the most important factors to scholars are firm size transmission effect and price-volume relationship. In this study, the analysis of these two items in the Taiwan stock market is conducted. The results indicate that the firm size transmission effect is almost significant, and the reversal phenomenon also exists. However, before the financial tsunami, the firm size transmission effect does not significantly exist; this result also indirectly proves the directional asymmetry of the market returns, proposed by McQueen, Pinegar, and Thorley (1996). For price and volume relationship, big cap index reveals that volume leads to price before the financial tsunami, and small cap index appears that price leads to volume in 2010.
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We demonstrate a strong relationship between short-term small-firm premium and future low-beta anomaly performance. Rises (declines) in small-firm prices temporarily improve (deteriorate) funding conditions, benefiting (impairing) the short-run returns on the low-beta strategy. To investigate this phenomenon, we examine returns on betting-against-beta (BAB) and small-minus-big (SMB) factor portfolios in 24 developed markets for the years 1989–2018. A zero-investment strategy of going long (short) in BAB factors in the quintile of countries with the highest (lowest) three-month SMB return produces a mean return of 1.46% per month. The effect is robust when controlling for major risk factors in equity markets, alternative portfolio construction methods, and subperiod analysis. The predictability of BAB performance by SMB returns is also present in the time series of individual country returns, forming the grounds for effective timing in the low-beta strategies.
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We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of liquidity on default risk is more pronounced in countries with poorer investor protection and information environments. Further, this effect is attenuated (strengthened) for firms with greater information efficiency (governance monitoring). Overall, our findings highlight the important role of regulatory settings in shaping the impact of stock liquidity on default risk in international markets.
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This chapter discusses the problem of selecting optimal security portfolios by risk-averse investors who have the alternative of investing in risk-free securities with a positive return or borrowing at the same rate of interest and who can sell short if they wish. It presents alternative and more transparent proofs under these more general market conditions for Tobin's important separation theorem that “ … the proportionate composition of the non-cash assets is independent of their aggregate share of the investment balance … and for risk avertere in purely competitive markets when utility functions are quadratic or rates of return are multivariate normal. The chapter focuses on the set of risk assets held in risk averters' portfolios. It discusses various significant equilibrium properties within the risk asset portfolio. The chapter considers a few implications of the results for the normative aspects of the capital budgeting decisions of a company whose stock is traded in the market. It explores the complications introduced by institutional limits on amounts that either individuals or corporations may borrow at given rates, by rising costs of borrowed funds, and certain other real world complications.
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Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used 111 event studies to measure security price performance. Abnormal performance is Introduced into this data. We find that a simple methodology based on the market model performs well under a wide variety of conditions. In some situations, even simpler methods which do not explicitly adjust for marketwide factors or for risk perform no worse than the market model. We also show how misuse of any of the methodologies can result in false inferences about the presence of abnormal performance.
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Considerable attention has recently been given to general equilibrium models of the pricing of capital assets. Of these, perhaps the best known is the mean-variance formulation originally developed by Sharpe (1964) and Treynor (1961), and extended and clarified by Lintner (1965a; 1965b), Mossin (1966), Fama (1968a; 1968b), and Long (1972). In addition Treynor (1965), Sharpe (1966), and Jensen (1968; 1969) have developed portfolio evaluation models which are either based on this asset pricing model or bear a close relation to it. In the development of the asset pricing model it is assumed that (1) all investors are single period risk-averse utility of terminal wealth maximizers and can choose among portfolios solely on the basis of mean and variance, (2) there are no taxes or transactions costs, (3) all investors have homogeneous views regarding the parameters of the joint probability distribution of all security returns, and (4) all investors can borrow and lend at a given riskless rate of interest. The main result of the model is a statement of the relation between the expected risk premiums on individual assets and their "systematic risk." Our main purpose is to present some additional tests of this asset pricing model which avoid some of the problems of earlier studies and which, we believe, provide additional insights into the nature of the structure of security returns. The evidence presented in Section II indicates the expected excess return on an asset is not strictly proportional to its B, and we believe that this evidence, coupled with that given in Section IV, is sufficiently strong to warrant rejection of the traditional form of the model given by (1). We then show in Section III how the cross-sectional tests are subject to measurement error bias, provide a solution to this problem through grouping procedures, and show how cross-sectional methods are relevant to testing the expanded two-factor form of the model. We show in Section IV that the mean of the beta factor has had a positive trend over the period 1931-65 and was on the order of 1.0 to 1.3% per month in the two sample intervals we examined in the period 1948-65. This seems to have been significantly different from the average risk-free rate and indeed is roughly the same size as the average market return of 1.3 and 1.2% per month over the two sample intervals in this period. This evidence seems to be sufficiently strong enough to warrant rejection of the traditional form of the model given by (1). In addition, the standard deviation of the beta factor over these two sample intervals was 2.0 and 2.2% per month, as compared with the standard deviation of the market factor of 3.6 and 3.8% per month. Thus the beta factor seems to be an important determinant of security returns.
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This paper reexamines the anomalous evidence concerning the efficiency of the listed options exchanges. We focus on the structure of trading costs in that market, and note several costs which generally have been ignored, the largest of which is the bid-ask spread. When we adjust the published trading rules for our estimates of these trading costs, the reported abnormal returns are eliminated.
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Numerous studies observe abnormal returns after the announcement of quarterly earnings. Ball (1978) suggests those returns are not evidence of market inefficiency, but instead are due to deficiencies in the capital asset-pricing model. This paper tests whether abnormal returns are observed when steps are taken to reduce the effect of deficiencies in the capital asset-pricing model. Significant abnormal returns are observed, but do not cover the transactions costs unless one can avoid direct transactions costs (e.g., a broker). The paper also investigates whether those abnormal returns can be attributed to a deficiency in the capital asset-pricing model. The conclusion is they cannot.
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Security market regulators, among others, are concerned to know whether or not dealers are natural monopolists. Based on a randomly drawn sample of 314 over-the-counter stocks, the results of this study suggest that while there are economies of scale, they are not on the dealer level. In addition, both systematic and unsystematic risk were tested for association with the transaction costs in this market. The evidence suggests unsystematic risk is related to spread.
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When shares are traded infrequently, beta estimates are often severely biased. This paper reviews the problems introduced by infrequent trading, and presents a method for measuring beta when share price data suffer from this problem. The method is used with monthly returns for a one-in-three random sample of all U.K. Stock Exchange shares from 1955 to 1974. Most of the bias in conventional beta estimates is eliminated when the proposed estimators are used in their place.
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Nonsynchronous trading of securities introduces into the market model a potentially serious econometric problem of errors in variables. In this paper properties of the observed market model and associated ordinary least squares estimators are developed in detail. In addition, computationally convenient, consistent estimators for parameters of the market model are calculated and then applied to daily returns of securities listed in the NYSE and ASE.
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This paper suggests that it is not possible to demonstrate, using the best available empirical methods, that the expected returns on high yield common stocks differ from the expected returns on low yield common stocks either before or after taxes. A taxable investor who concentrates his portfolio in low yield securities cannot tell from the data whether he is increasing or decreasing his expected after-tax return by so doing. A tax exempt investor who concentrates his portfolio in high yield securities cannot tell from the data whether he is increasing or decreasing his expected return. We argue that the best method for testing the effects of dividend policy on stock prices is to test the effects of dividend yield on stock returns. Thus the fact that we cannot tell, using the best available methods, what effects dividend yield has on stock returns implies that we cannot tell what effect, if any, a change in dividend policy will have on a corporation's stock price.
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Photocopy. Thesis (Ph. D.)--University of Chicago, 1979. Bibliography: leaves 91-94.
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This paper reexamines some recent tests of whether holders of shares with higher dividend yields receive higher risk-adjusted rates of return to compensate for the heavier taxes on dividend payments than on long-term capital gains. Our particular concern is with tests using short-run measures of dividend yield--that is, measures that seek to deduce the differential tax burden on dividends over long-term capital gains from differences in rates of return on shares that do not pay a cash dividend during the return interval. We show that such measures are inappropriate for that purpose. Any yield-related effects associated with such measures must arise from sources other than the long-term tax differential. For the short-run measures considered here, the yield-related effects found in some tests are traced to biases, one of a fairly subtle kind, introduced by dividend announcement effects.
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I. Introduction, 79. — II. Inventory management and supply of liquidity, 80. —III. Empirical findings, 87. — IV. Conclusions, 93.
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The paper examines the optimal behavior of a single dealer who is faced with a stochastic demand to trade (modeled by a continuous time Poisson jump process) and facing return risk on his stock and on the rest of his portfolio (modeled by diffusion processes). Using stochastic dynamic programming, we derive the optimal bid and ask prices that maximize the dealer's expected utility of terminal wealth as a function of the state in which he finds himself. The relationship of the bid and ask prices to inventory of the dealer, instantaneous variance of return, stochastic arrival of transactions and other variables is examined.
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This study examines the empirical relationship between the return and the total market value of NYSE common stocks. It is found that smaller firms have had higher risk adjusted returns, on average, than larger firms. This ‘size effect’ has been in existence for at least forty years and is evidence that the capital asset pricing model is misspecified. The size effect is not linear in the market value; the main effect occurs for very small firms while there is little difference in return between average sized and large firms. It is not known whether size per se is responsible for the effect or whether size is just a proxy for one or more true unknown factors correlated with size.
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This study documents empirical anomalies which suggest that either the simple one-period capital asset pricing model (CAPM) is misspecified or that capital markets are inefficient. In particular, portfolios based on firm size or earnings/price (E/P) ratios experience average returns systematically different from those predicted by the CAPM. Furthermore, the ‘abnormal’ returns persist for at least two years. This persistence reduces the likelihood that these results are being generated by a market inefficiency. Rather, the evidence seems to indicate that the equilibrium pricing model is misspecified. However, the data also reveals that an E/P effect does not emerge after returns are controlled for the firm size effect; the firm size effect largely subsumes the E/P effect. Thus, while the E/P anomaly and value anomaly exist when each variable is considered separately, the two anomalies seem to be related to the same set of missing factors, and these factors appear to be more closely associated with firm size than E/P ratios.
Article
University of Pennsylvania, and Donaldson, Lufkin, and Jenrette, Inc., respectively. The authors wish to thank Professors Fisher Black, Eugene Fama, Irwin Friend, Stephen Ross, and Randolph Westerfield for their much appreciated comments, and the Rodney L. White Center for Financial Research for financial support
A direct test of Roll's conjecture on the small firm size effect
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Trading costs for listed options: The implications for market efficiency
  • Phillips
Marketability of common stocks in Canada and the U.S.A.: A comparison of agent versus dealer dominated markets
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Capital asset prices: A theory of market equilibrium under conditions of risk
  • Sharpe
Competition and the pricing of dealer services
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