David R. Peterson's research while affiliated with Florida State University and other places

Publications (85)

Article
Confidentially marketed public offers (CMPOs) represent a popular innovation in the market for seasoned equity offers (SEO) despite large negative announcement reactions. We find that CMPOs are often used by small firms with negative operating cash flows to raise a relatively substantial amount of capital, which is used largely for R&D intensive in...
Article
Using a comprehensive sample of securities litigation, we examine the effect of financial fraud on the subsequent use of external financing. We find that firms with a recent history of securities litigation, particularly more severe litigation, are less likely to seek external debt and equity financing. This negative relationship between prior liti...
Article
Given that the idiosyncratic volatility (IDVOL) of individual stocks co‐varies, we develop a model to determine how aggregate idiosyncratic volatility (AIV) may affect the volatility of a portfolio with a finite number of stocks. In portfolio and cross‐sectional tests, we find that stocks whose returns are more correlated with AIV innovations have...
Article
Full-text available
We analyze the changes in cash holding policies of S&P 500 firms before and after their inclusion in the index. One year after inclusion, the mean industry-adjusted cash holdings of these firms decline by nearly 32% from the year before inclusion. Several factors explain this decline. The precautionary motive for cash subsides due to these firms be...
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Full-text available
We hypothesize that managers who receive high equity-based compensation have greater incentive to avoid ownership dilution by timing their seasoned equity offers to periods when investors temporarily overvalue their stock. We provide empirical support for this hypothesis using a measure of equity-based compensation that reflects the sensitivity of...
Article
Quarterly earnings conference calls are becoming a more pervasive tool for corporate disclosure. However, the extent to which the market embeds information contained in the tone (i.e. sentiment) of conference call wording is unknown. Using computer aided content analysis, we examine the incremental informativeness of quarterly earnings conference c...
Article
We theoretically develop and empirically test a model in which investor overconfidence produces overpricing of high idiosyncratic volatility stocks in the presence of binding short-sale constraints. The theory predicts that, upon mitigation of short-sale constraints, high volatility stocks will experience both more short sales and more negative mar...
Article
We show that the negative relation between realized idiosyncratic volatility, measured over the prior month, and returns is robust in non-January months. Controlling for realized idiosyncratic volatility, we show that the relation between returns and expected idiosyncratic volatility is positive and robust. Realized and expected idiosyncratic volat...
Article
This study investigates if changes in risk-neutral systematic volatility, skewness, and kurtosis, are priced, either symmetrically or asymmetrically, as systematic risk factors in the cross-section of stock returns. The moments are constructed using options on the S&P 500, and represent investors' expectation of the distribution of future market re...
Article
This paper shows that a New Year's gambling preference of individual investors impacts prices and returns of assets with lottery features. January call options, especially the out-of-the-money calls, have higher retail demand and are the most expensive and actively traded. Lottery-type stocks outperform their counterparts in January but tend to und...
Article
Assuming a symmetric relation between returns and innovations in implied market volatility, Ang, Hodrick, Xing, and Zhang (2006) find that sensitivities to changes in implied market volatility have a cross-sectional effect on firm returns. Dennis, Mayhew, and Stivers (2006), however, find an asymmetric relation between firm-level returns and implie...
Article
Using the risk-neutral volatility and skewness computed from options on the S&P500, we show there is an asymmetric contemporaneous relation between stock returns and changes in implied market volatility and skewness. Changes in expected market volatility and skewness are cross-sectionally priced only when implied market volatility or skewness incre...
Article
We investigate whether hedge funds arbitrage market anomalies. We examine a seven-factor model including traditional Fama and French (1993) and Carhart (1997) factors and factors associated with the anomalies of earnings momentum, equity financing, and asset growth rates. We find the average hedge fund employs a strategy consistent with the asset g...
Article
Evidence exists of abnormal stock returns at and following stock split announcements. The successful prediction of splits may therefore enhance investor returns, yet few studies attempt such forecasts. We note a neglected aspect of prior prediction studies—that companies enjoying a favorable stock market response to a previous split are more likely...
Article
We investigate the relation between seasoned equity issuers' stated intended use of proceeds and their subsequent long-run stock and operating performance. Stated intended uses of proceeds are: investment, recapitalization, and general corporate purposes. We find that issuers stating recapitalization or general corporate purposes experience abnorma...
Article
Full-text available
Using computer based content analysis, we quantify the linguistic tone of quarterly earnings conference calls for publicly traded Real Estate Investment Trusts (REITs). After controlling for the earnings announcement, we examine the relation between conference call tone and the contemporaneous stock price reaction. We find that the tone of the conf...
Article
We explore whether changes in stock return skewness and kurtosis, as implied in option prices preceding earnings announcements, provide information about subsequent stock and option returns through the announcement. We demonstrate that the change in skewness and kurtosis can be related to changing jump risk premiums, where jump risk can be associat...
Article
Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Earlier studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility...
Article
In January high idiosyncratic volatility stocks on average outperform low volatility stocks regardless of firm size, book-to-market equity, past returns, and institutional trading, while in other months they underperform. This positive January relation is concentrated among low-price stocks that also exhibit negative mean, but highly skewed, return...
Article
Prior studies find that the CBOE volatility index (VIX) predicts returns on stock market indices, suggesting implied volatilities measured by VIX are a risk factor affecting security returns or an indicator of market inefficiency. We extend prior work in three important ways. First, we investigate the relationship between future returns and current...
Article
Since the 1987 crash, option prices have exhibited a strong negative skew, implying higher implied volatility for out-of-the-money puts than at- and in-the-money puts. This has resulted in incorporating multiple jumps and stochastic volatility within the data generating process to improve the Black-Scholes model in an attempt to capture negative sk...
Article
The underperformance of high idiosyncratic volatility stocks, as documented by Ang, Hodrick, Ying, and Zhang (2006, JF), is a pure non-January phenomenon. This non-January negative relation between idiosyncratic volatility and stock returns is more pronounced among firms with greater constraints in short selling, and when short-sale constraints are...
Article
We identify finance professors’ opinions on the efficiency of the stock markets in the United States and assess whether their views on efficiency influence their investing behavior. Employing a survey distributed to over 4,000 professors, we obtain four main results. First, most professors believe the market is weak to semi-strong efficient. Second...
Article
We employ the Fama-French time-series regression approach to examine liquidity as a risk factor affecting stock returns. Prior studies establish liquidity as an important consideration in investment decisions. Here, liquidity is found to be an important factor affecting portfolio returns, even after the effects of market, size, book-to-market equit...
Article
Executive stock options (ESOs) have been extensively examined. An unexplored but highly relevant issue is how the options are valued and what information this valuation provides to the market. Understanding ESOs valuation is difficult because there is no set method. Using a model such as Black-Scholes requires an input for volatility that is the fi...
Article
Evidence exists of abnormal stock returns at and following stock split announcements. The successful prediction of splits may therefore enhance investor returns, yet few studies attempt such forecasts. We note a neglected aspect of prior prediction studies—that companies enjoying a favorable stock market response to a previous split are more likely...
Article
Exchange traded funds (ETFs) mirror an existing index by holding the same component stocks and matching the weighting scheme. ETFs offer services and investment flexibility that indexed mutual funds generally do not. We expect that if ETFs offer additional benefits over index funds, such as intra-day and option trading, then certain investors shoul...
Article
Insurers in the U.S. hold over $5 trillion in assets, with approximately $1 trillion of these assets held in equities. While insurers manage underwriting risk with reinsurance, insurers increasingly manage asset risk with options, futures, and other derivatives. We demonstrate, using all options on the S&P 100 from 1996-2002, that 1) the shape of t...
Article
This study presents an empirical, event-time analysis of the financial impact of product recall announcements on the equity holders of affected firms. Product recalls convey relevant information to the market at the time the announcement is reported in The Wall Street Journal. Further, security prices continue to react significantly to product reca...
Article
We investigate differences in purchase premiums and returns of common stock the day following the offer expiration of firms conducting Dutch auction self-tender offers to see whether firms overpay for shares in fixed-price offers. After controlling for the proportion of shares sought and firm size, no statistically significant differences in premiu...
Article
Size and book-to-market equity are shown to transcend beta in explaining stock returns. One possible explanation of the book-to-market equity effect is overreaction. We investigate the effect of size, book-to-market equity, prior returns, and beta on stock returns. We find significant reversals in January consistent with overreaction. We find a str...
Article
Two important sources of predictability in security returns are serial cross-correlations and time-varying factors. Harneed (1997) finds that serial cross-correlation patterns in security returns do not exist after controlling for a general, time-varying factor structure in returns. This paper finds significant serial cross-correlations in daily re...
Article
This study examines whether autocorrelations or cross-autocorrelations are more closely associated with the weekend phenomenon. Our results show a significant day-of-the-week pattern in autocorrelations associated with the weekend phenomenon. However we find no marginal influence of a day-of-the-week pattern in cross-autocorrelations on the weekend...
Article
During empirical testing of the Capital Asset Pricing Model an assumption is typically made that risk is intertemporally constant. However, prior research finds that risk changes over time. We empirically test a conditional dual-state cross-sectional model allowing risk to change through prior identification of different market and economic states....
Article
Prior studies find evidence of asymmetric size-based portfolio return cross-autocorrelations where lagged large-firm returns lead current small-firm returns. However, Boudoukh, Richardson, and Whitelaw (1994) question whether this economic relationship is independent of the impact of portfolio return autocorrelation. We formally test for this indep...
Article
Using the dual-beta model of Bhardwaj and Brooks (1993), this study examines the cross-section of realized stock returns. Bull-market betas are significantly positively related to returns and, except for some models in January, bear-market betas are significantly negatively related to returns. These relationships are not lost even after other indep...
Article
We examine the January return seasonality of real estate investment trust (REIT) common stock and underlying assets. Both stock returns and the National Association of Realtors median home price index exhibit January seasonals. However, the median home price index explains little of the seasonal stock returns and a significant January effect in sto...
Article
We examine empirically the role of transaction costs and information quality as causes of cross-autocorrelations in security returns. Nonsynchronous trading influences are addressed by forming weekly returns based on averages of closing inside bid and ask quotations for NMS securities. Stock return volatility scaled by the bid-ask spread is employe...
Article
The purpose of this paper is to examine changes in stock return variances following option introduction. The sample consists of National Market System stocks and employs both transaction returns and returns based on bid and ask quotes. Variances are decomposed into portions attributable to bid-ask spreads, return autocorrelations, and intrinsic var...
Article
This study examines the influence of day-of-the-week patterns in security returns on long-run IPO underperformance. Comparisons are made between the IPOs in Ritter's database, and a constructed set of matching firms based on SIC code and size, using NYSE, AMEX, and NASDAQ securities. It is found that virtually all of the IPO underperformance occurs...
Article
We develop a set of hypotheses to explain cross-sectional differences in variance changes associated with option listing. Transactions variance is decomposed into three components: the bid-ask spread, return autocorrelations, and intrinsic variance. Each is investigated separately. We find support for hypotheses that link: (1) changes in dealer tra...
Article
Previous research finds a negative relation between daily index return first-order serial correlations and conditional variances. However, this finding should not necessarily be surprising since an inherent, negative mathematical relation exists between the two measures. I use progressively longer holding-period intervals for conditional variance e...
Article
I examine abnormal stock returns associated with published by the Value Line Investment Survey. At the time of their publication, stock highlights elicit strong positive abnormal returns. They also have positive abnormal returns at the time of the earnings announcement preceding stock highlight publications. Post-earnings announcement drift is pres...
Article
We examine the reaction of stocks and the responses of financial analysts' earnings forecasts to securities recommended as "Stock Highlights" by VALUE LINE INVESTMENT SURVEY. Significant abnormal returns appear around the publication of stock highlights. Stock price responses are relatively efficient and permanent. Using earnings exception data pro...
Article
In their analysis of self-tender offers. Howe et al. (1992) reject the free cash flow hypothesis. We expand their analysis in two ways, exploring implications of using long-run measures of Tobin's q as opposed to current q's and incorporating cash flow signalling. We find that acceptance or rejection of the free cash flow hypothesis is sensitive to...
Article
Several studies suggest that the credit crunch was due in large part to banks' needs to raise their capital ratios. The changes in bank capital ratios may have been in response to financial market or regulatory standards. This study develops a model to test the relative impact of the regulators and the financial markets on bank holding companies' (...
Article
In this study I examine the effect of organized options trading on stock price behavior immediately following stock price declines of 10 percent or more. A matched-pair sample of National Market System option and nonoption firms are analyzed from June 1985 through December 1992. After controlling for the bid-ask bounce, firm size, share price, retu...
Article
In this study we examine two factors affecting variance increases following stock distributions: changing bid-ask spreads and the true variability of the underlying value of the firm. Employing data from the CRSP NASDAQ and NMS files, we find a relatively minor role for changing spreads. Increases in true variances are the major component of varian...
Article
In this study the authors analyze reverse stock splits and demonstrate that the total risk of returns to reverse splitting securities declines after the split, yet systematic risk remains essentially unchanged. In general, securities have negative abnormal stock returns at reverse split announcements, though smaller companies have stronger negative...
Article
This study examines the role of the medium of exchange in the explanation of returns and the distribution of wealth between parties in mergers and acquisitions. The wealth changes of shareholders of acquiring and acquired firms is examined for 272 mergers consummated between 1980 and 1986. We find that the distribution of the wealth gains does not...
Article
This study examines the presence of contagion effects associated with the failure of First RepublicBank. Banks are segregated on the basis of whether their stock price reactions are likely due to industry-based information effects or contagion effects. Also considered are announcements during the same period of time associated with third world loan...
Article
This contribution studies the effects of credit contagion on the credit risk of a portfolio of bank loans. To this aim we introduce a model that takes into account the counterparty risk in a network of interdependent firms that describes the presence of business relations among different firms. The location of the firms is simulated with probabilit...
Article
This study examines two-stage acquisitions, focusing upon first- and second-stage excess returns for both acquired and acquiring firms, and analyzing the relation between acquisition returns and ownership interest. The evidence suggests that target-firm shareholders do not free ride. Evidence is also provided indicating that premiums are paid by th...
Article
Previous literature documents significant seasonalities in stock market returns. One explanation is seasonality in earnings information. If true, a return index comprised solely of firms reporting earnings should exhibit stronger intertemporal seasonalities than a return index comprised of firms not reporting earnings. Employing all New York and Am...
Article
In this study common stock, call, and put option returns from 1983 to 1985 are examined by day of the week and time of day. Stock and call return patterns generally are similar, both having relatively low weekend returns and relatively high returns late in the trading day. Put options have high weekend returns, but do not have low returns late in t...
Article
Recent studies document abnormal stock returns at stock split announcements. Three hypotheses related to expected future earnings--the trading range, attention, and signaling hypotheses--have been offered as explanations. Evidence has also been provided that splitting firms have greater postannouncement earnings growth than control nonsplitting fir...
Article
This study examines call and put option returns from 1983 to 1985 for the presence of a January seasonal effect, a monthly effect, and a day-of-the-week effect. Results indicate the presence of seasonality in call returns, with returns significantly higher in early January and significantly lower on Mondays. Put returns generally exhibit less seaso...
Article
An adaptation of the Cox-Ross/Emanuel-MacBeth call option valuation model for constant elasticity of variance diffusion processes is tested here against an adaptation of the Black-Scholes call option valuation model for the pricing of call currency options. Synchronized transactions data supplied by the Philadelphia Exchange are used. A maximum lik...
Article
Here, the relation between stock price reactions to announced dividend changes and the yields of the underlying securities is examined. A significant positive (negative) relationship is detected between announcement date returns and yield for dividend increases (decreases) even after controlling for the magnitude of the dividend change. Price react...
Article
The federal bank regulators imposed numerical capital guidelines in December 1981. If these guidelines are binding, then banking organizations may respond to the costs of regulation in various ways. If the regulations are not binding, then further reliance may be placed on market discipline. This study develops two models of changes in the equity c...
Article
Recent studies find abnormal common stock price behavior associated with ex-dates of stock splits. Volatility increases are substantia) and abrupt. This study extends previous analyses to the options market by examining investor perceptions of volatility increases through implied standard deviations of returns. Investors fail to anticipate volatili...
Article
Currency call option transactions data and the Black‐Scholes option pricing model, as modified by Merton for continuous dividends and as adapted to currency options by Biger and Hull and by Garman and Kohlhagen, are used to imply spot foreign exchange rates. The proportional deviation between implied and simultaneously observed spot rates is found...
Article
The United States federal bank regulators imposed numerical capital guidelines in 1981. If these guidelines are binding on bank holding companies, then theoretical evidence suggests that banking organizations may be increasing asset risk. This study tests empirically the hypothesis that the guidelines are binding. Two models of changes in bank hold...
Article
This study examines daily price reactions to initial reviews of securities by the Value Line Investment Survey. The reviews are found to convey information to the market as significant abnormal returns are found over a 3-day period around release of the information. Furthermore, there is no statistically significant subsequent price reation after t...
Article
This study examines security price reactions to the adoption of new-issue dividend reinvestment plans. The sample is broken down into three subsamples: nonutilities, utilities adopting plans prior to May 1981, and utilities adopting plans after July 1981. For the nonutility corporations, no significant market reaction is observed. The utilities ado...
Article
The assumption that changing expected cash flows and discount factors affect a security's return is at the foundation of many financial models. This study examines empirically the hypothesis that expected stock return variability is a function of cash flow and discount rate uncertainty. Maximum likelihood estimation techniques and expectational dat...
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This study examines the effect of issuing common stock on shareholder wealth under two alternative methods of registration, shelf registration under the Securities and Exchange Commission's Rule 415 and the traditional method of registering shares for immediate sale. The stock price reactions accompanying security registrations and offerings over t...
Article
Miller and Scholes (1978) hypothesize that the marginal tax rate on dividend income may be less than the marginal rate of tax on capital gains. Their hypothesis is dependent upon individuals utilizing existing provisions of the Code which serve to reduce the taxation of dividends. In this study, estimates of the marginal and effective rates of tax...
Article
The purpose of this study is to investigate the relationship between return and yield in the context of ex ante data from The Value Line Investment Survey and by examining the role of dividends as a proxy for risk. The use of ex ante data should substantially reduce the confounding of tax and information effects that has affected earlier studies. H...
Article
This study offers an alternative method of calculating marginal personal tax rates through the pairing of nontaxable (industrial development and pollution control) and taxable corporate bonds. This procedure is shown to produce matched bond pairs that are comparable. Two hundred pairs of bonds are examined from the second quarter of 1973 through th...
Article
The nature of the stochastic process generating the path of security prices through time plays an important role in dynamic theories of financial economics. An important consideration is the possible dependency of return variances on price levels. Using 55 years of data separated into five-year intervals, this study demonstrates that, in general, s...
Article
This study examines the role of heterogeneous expectations as a determinant of short selling of common stock. A theoretical model demonstrates that the degree of heterogeneity of opinion and the number of investors in a market both positively influence short selling. This theory is substantiated empirically using ex-ante data. Short selling is rela...

Citations

... Corporate misconduct is serious and can cause significant harm to firms. Hutton et al. (2014) suggest that companies reduce their capital expenditures and research and development spending following a lawsuit filing. This affects firms' external financing options by signaling uncertainty, which hence affects investment opportunities. ...
... The advantage of using implied volatility is that in addition to providing a forward looking measure of risk, it also reflects the market's ability to anticipate changes in the level of risk. Several researchers have examined the change in implied volatility surrounding many events in the market, such as earnings announcements Wolfson 1979, 1981), stock splits (Klein and Peterson 1988;Sheikh 1989), and the announcements of mergers and acquisitions (Levy and Yoder 1993). Donders and Vorst (1996) show that implied volatilities decline following scheduled announcement dates, presumably because the content of the event is revealed. ...
... Conversely, a dividend decrease is generally viewed as a negative signal, most often resulting in a negative CAR surrounding the announcement. 2 Prior studies, such as Ghosh and Woolridge (1988) and Fehrs et al. (1988) also suggest that the information conveyed by dividend changes is asymmetric. The market often reacts more significantly to dividend decreases than increases; hence companies are reluctant to cut their dividends (Kalay 1980). ...
... Motivated in large measure by the work of Edward Miller (1977), a number of recent studies have investigated the impact of divergent expectations on security risk and return (see Bart and Masse, 1981;Friend, Westerfield and Granito, 1978;and Peterson and Peterson, 1982). In addition, some theoretical work has been done on the impact of divergent expectations on trading volume (see ...
... The use of the recorded short interest as a proxy for the amount of adverse information excluded from the market price requires that observed short positions be proportional to short sales to be undertaken in the absence of restrictions. However, empirical results from Peterson and Waldman (1984) and Brent, Morse and Stice (1990) contradict this relationship. Constraints on short sales are different among securities (margin requirements, the securitys liquidity level) and among investors (legal or contractual prohibitions on institutional investors). ...
... Ang, Hodrick, Xing and Zhang (2006), motivated by Chen's (2003) intertemporal consumption-based model that predicts the change in expected future volatility should be a priced risk factor, find that innovations in VIX are priced in the cross-section of expected stock returns. However, DeLisle, Doran and Peterson (2009) find that positive VIX innovations are contemporaneously cross-sectionally priced, but negative innovations are not. ...
... Doran, (2009), studied the structural relationship between implied volatility world currency prices and their currency options. Study showed that the rate of change of implied volatility of options for the short term is higher than the rate of change of implied volatility for the long term for these options (Doran, (2009). ...
... As part of the process of reorganizing assets, dealing with problem loans and getting rid of bad loans to decrease the number of nonperforming loans is essential. Financial institutions may benefit from a better economic framework if short-term and long-term junior loans were replaced with longterm liabilities (via debt conversion) (John, Daunders & Senbet, 1995;Karacadag & Taylor, 2001;Wall & Peterson, 1995). Shareholders may provide a direct injection of cash, or the government may give a bailout as additional funds for the financial institution (Dziobek and Pazarbasioglu, 1997;Rose, 1994). ...
... Given the growth in African capital markets, the popularity of tax systems and their impact on of the firms' financial policy cannot be overlooked. While most studies have concentrated on developed economies, they have mainly produced inconclusive findings (Ang & Peterson, 1986;Gordon & Lee, 2001;Graham, 1996aGraham, , 1996bGraham, , 1999MacKie-Mason, 1990;Shum, 1996). The few studies focusing more generally on determinants of capital structure in Ghana and South Africa include Abor and Biekpe (2005), Abor and Biekpe (2006), Yartey (2006), and Abor (2007). ...
... To establish the control variables, we have taken into account previous studies that have analysed risk related to size (Ang et al. 1985;Kim et al. 2002), liquidity (Moyer and Chatfield 1983;Borde 1998), solvency (Borde 1998;Laeven and Levine 2009;Lee and Jang 2007) and profitability (Borde 1998;Fiegenbaum and Thomas 1988). ...