Behavior Of Security Prices Research Articles

Predisclosure Information, Firm Capitalization, and Security Price Behavior Around Earnings Announcements

Several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month (e.g., Ball and Brown [1968] and Brown and Kennelly [1972]). This has been attributed (at least partly) to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release. The evidence above reflects an average finding across all firms. One question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific characteristics that lead to differential amounts of predisclosure information. This study focuses on size (capitalization) as one such characteristic.' A firm

The effect of the information environment on the relationship between financial disclosure and security price variability

This study provides a test of the relationship between changes in a firm's disclosure environment and its security price behavior. The initiation of interim reporting is examined. Theory suggests that the marginal information content of an annual report is greater when it has not been preceded by interim reports and that greater return variability will be observed at the annual report announcement date. The variance of returns upon release of the annual report is compared in the ‘annual-report-only’ and ‘annual-plus-quarterly-reports’ environments. As predicted by the theory, variability is significantly greater in the ‘annual-report-only’ environment.

The information content of SEC accounting series release no. 190

The study examines the security price behavior of firms at the time of three events: the proposal of the SEC's accounting series release (ASR 190) to require replacement cost disclosures, the adoption of ASR 190, and the initial filing of the data with the SEC. The primary analysis focuses upon differential security return behavior among reporting firms. Several extensions, including a comparison with nonreporting firms, are also conducted. The basic findings indicates no security price effects and is consistent with the hypothesis that no information was provided to the market during the three time intervals studied. Alternatively, the inability to find an effect may be due to a misspecification in the research design. However, the basic finding is robust under several additional analyses and specifications.

On financial disclosure and the behavior of security prices

The paper addresses the question: what impact does a change of a firm's information-disclosure environment have on its stock price behavior? Assuming that disclosure does not have any effects on production financing programs, that the CAPM obtains, and information can be characterized as ‘linear’, a number of results are provided. It is shown that disclosure leads to increased variability in stock price; the result is consistent with several empirical studies [Beaver (1968), May (1971), and Patell and Wolfson (1979)]. Further, the price that would be expected in a richer information environment is simply equal to the price that actually obtains in a less rich environment. Finally, risk and return parameters are essentially independent of changes in the disclosure environment.

Market Prices vs. Equilibrium Prices: Returns' Variance, Serial Correlation, and the Role of the Specialist

MUCH OF THE ENIGMATIC character of observed price patterns is no (louot attributable to the prices' dependence on an incessantly changing environment (which is only partly observable) through a complex system. The relationship between prices and the environment has always been a central aspect of financial economics. Recent research on the microstructure of the mechanism has sought to extend the theory to the interplay between the dynamic behavior of security prices and the structure of organized security markets.' This effort is accelerated by current discussions on a possible reorganization of the exchanges in a National Securities Market. A particularly controversial aspect of this reorganization concerns the role that designated specialists should play in the system. The various reorganization proposals, which diverge widely in the planned role of the specialist and in other aspects of organization, would probably generate distinctly different patterns of price movements.2 Economic theory is strikingly mute on these issues of microstructure. Received theory proclaims that financial markets should always equilibrate the notional supplies and demands of all traders by instantaneously posting an 'equilibrium price'. The theory then focuses attention on the sublimity of these equilibrium prices: equilibrium prices have strong welfare implications, equilibrium prices follow the random walk law of stock price returns, etc. The basic argument for the relevance of the equilibrium notion for observed markets casually relies on the power of the invisible hand: should the current price fail to clear the exactly, the net excess demand (or supply) must somehow drive the price to its equilibrium value. The approach in empirical studies of 'stockmarket efficiency' is similarly aloof. Such studies are typically concerned with the hypothesis that observed prices are sufficiently good approximations of some equilibrium values.3 They make no explicit reference to characteristics of the mechanism which may or may not accelerate the convergence towards equilibrium and enhance efficiency. Could the designated market making specialist, who is totally ignored in traditional economic theory, serve a useful purpose in this respect?

The API and the Design of Experiments

Residual analysis techniques, generically labeled Abnormal Performance Index (API) tests, have served as the primary experimental procedure in a wide variety of empirical financial accounting research studies. Through various types of API calculations, investigators have observed the security price behavior which preceded and accompanied such events as stock splits, secondary distributions, annual earnings announcements, accounting changes, and earnings forecasts.' Other API studies have drawn inferences about the content of quarterly earnings reports, tax accounting procedures, depreciation methods, and product-line reporting.2 The range of interpretations has included the demonstration of statistically unusual behavior, the imputation of information content or relevance to investors, and the expression of investor preference for a particular accounting technique. The discussion presented here attempts analytically to characterize the experimental design of API studies and to focus attention on the role of models of investor expectations. I address the questions of what constitutes an adequate model, what makes one model better than

The Stochastic Dependence of Security Price Changes and Transaction Volumes in a Model with Temporally Dependent Price Changes

Abstract A model of security price behavior is presented, which allows for the observed temporal dependence in price changes from one transaction to the next and for the stochastic dependence between price changes and the numbers of shares traded. Tests of the model are conducted with data for corporate bonds and stocks. The results reveal some interesting differences in the two price processes.

The Stochastic Dependence of Security Price Changes and Transaction Volumes in a Model with Temporally Dependent Price Changes

Abstract A model of security price behavior is presented, which allows for the observed temporal dependence in price changes from one transaction to the next and for the stochastic dependence between price changes and the numbers of shares traded. Tests of the model are conducted with data for corporate bonds and stocks. The results reveal some interesting differences in the two price processes.

Estimation of Stable Law Parameters: Stock Price Behavior Application

Abstract A point of considerable interest is whether the asymmetric stable laws rather than the symmetric stable laws provide for a closer representation of the behavior of security prices. Our empirical results indicate that the asymmetric laws are more appropriate than the symmetric stable laws. A new estimation procedure is used to obtain the estimates of parameters of the stable laws for 20 randomly selected stocks from the New York Stock Exchange. Estimates of the skewness parameter are explicitly obtained for the first time. The estimates are compared with those obtained under the assumption of symmetry and are also compared with the estimates provided by the method of Fama and Roll [13].

An International Market Model of Security Price Behavior

The Markowitz-Sharpe market model has been extensively applied to the study of price behavior of American common stocks. In this paper an international market model will be used assuming that the return on any security is a linear function of the return on the world market portfolio. A justification for this approach lies in the International Asset Pricing Model (IAPM) proposed by Solnik [14] and [15]. This market model is by no means the only stochastic process of security returns consistent with the IAPM, but it is the most simple and straightforward extension of the traditional approach to domestic markets.

NOTE ON THE VALIDITY OF THE RANDOM WALK FOR EUROPEAN STOCK PRICES

The purpose of this note is to test whether European stock prices follow a random walk. A sample of 234 securities from 8 major European stock markets is used in this study. Some of the standard serial correlation tests which have been traditionally performed on the New York Stock Exchange are being applied to this body of data. The development of the random walk concept originated in some empirical findings that successive price variations were uncorrelated (Kendall [6], Osborne [10], etc.). It is now widely believed that the New York Stock Exchange is an efficient market and that U.S. security price behavior is quite consistent with a random walk concept. The most comprehensive work in this area is the study by Fama [4] on 30 Dow Jones Industrial stocks for a five-year period (1956-1961); for all differentiating intervals (from daily to monthly), the serial correlation coefficients were small and generally not significantly different from zero. However some authors (see Cheng and Deets [1], Jenning [5]) have recently suggested that a rebalancing strategy of portfolio investment will work better than a Buy and Hold strategy because of the existence of negative serial correlation of security prices. While this time dependence is only one of the arguments advanced in favor of the rebalancing strategy, it would certainly work in favor of the strategy. Reviewing the literature, it appears that Cootner [2], Moore [8], and Cheng and Deets [1] found a preponderance of negative signs for weekly changes, as did King [7] for monthly price relatives. Although Fama [4] reached the same conclusions for fourand nine-trading day changes, he found opposite results (i.e., positive serial correlation) for daily or sixteen-day returns. So did Kendall [6] for weekly returns. Few serious tests of the random walk have been performed on European data. This was probably due to the lack of systematic computerized data bases. In 1953 Kendall [6] did not find any evidence of systematic price patterns for British securities. However some evidence of positive serial correlation has been found more recently on the Dutch market (Theil and Leenders [11]) and the British Stock Exchange (e.g., Dryden [3]). The first goal of this note is to study the distribution of serial correlation coefficients of common stocks for each European market and draw comparison with the results found by Fama [4] on a comparable sample of American stocks. No important deviations from the random walk are found. Then the stationarity over time of serial correlation coefficients for individual securities

Accounting Principle Formulation in an Efficient Markets Environment

In this paper we present the results of a study designed to assess the effect on security price behavior of actions taken by the Accounting Principles Board. In the latter part of 1971 the Board took a significant step toward narrowing the accounting alternatives available to the oil and gas industry. The circumstances surrounding this action make it possible to investigate whether the market attaches importance to these accounting alternatives and to the Board's Opinion. We begin by reviewing these accounting alternatives.

RANDOM WALKS AND TECHNICAL THEORIES: SOME ADDITIONAL EVIDENCE

THE RANDOM WALK and martingale efficient market theories of security price behavior imply that stock market trading rules based solely on the past price series cannot earn profits greater than those generated by a simple buy-and-hold policy1. A vast amount of statistical testing of the behavior of security prices indicates very little evidence of any important dependencies in security price changes through time.2 Technical analysts or chartists, however, have insisted that this evidence does not imply their methods are invalid and have argued that the dependencies upon which their rules are based are much too subtle to be captured by simple statistical tests. In an effort to meet these criticisms Alexander (1961, 1964) and later Fama and Blume (1966) have examined the profitability of various filter trading rules based only on the past price series which purportedly capture the essential characteristics of many technical theories. These studies indicate the filter rules do not yield profits net of transactions costs which are higher than those earned by a simple buy-andhold strategy. Similarly, James (1968) and Van Horne and Parker (1967) have found that various trading rules based upon moving averages of past prices do not yield profits greater than those of a buy-and-hold policy.

A Modified Compound Poisson Process with Normal Compounding

The compound Poisson process in which the compounding variables are normally distributed is considered as a special case of a slightly more general process. The model is suggested for studying the behavior of security prices in the stock market. Distributional properties of the process are developed and it is shown that the distribution of the increments is skew-symmetric, peaked, “fat tailed,” and, generally, multimodal. A moment matching method based upon cumulants is suggested for estimating the parameters.

THE TERM STRUCTURE OF INTEREST RATES AND HOLDING‐PERIOD YIELDS ON GOVERNMENT SECURITIES*

The Journal of FinanceVolume 20, Issue 3 p. 444-463 Article THE TERM STRUCTURE OF INTEREST RATES AND HOLDING-PERIOD YIELDS ON GOVERNMENT SECURITIES* Jacob B. Michaelsen, Jacob B. MichaelsenAssistant Professor of Economics, University of California, Santa Cruz.Search for more papers by this author Jacob B. Michaelsen, Jacob B. MichaelsenAssistant Professor of Economics, University of California, Santa Cruz.Search for more papers by this author First published: September 1965 https://doi.org/10.1111/j.1540-6261.1965.tb02908.xCitations: 2 †I am greatly indebted to Arnold Moore and George J. Benston for comments on earlier drafts of this paper. Dawson E. Brewer, David Laidler and Hyman P. Minsky made valuable comments and criticisms, as did other members of the Money and Banking Seminar of the University of California, Berkeley. The research underlying this paper was begun with assistance from the Institute of Business and Economic Research of the University of California, Berkeley, and is now part of a larger project on security price behavior supported by a grant from the National Science Foundation. A preliminary version of this paper was read at the September, 1963, meetings of the Econometric Society in Cleveland. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume20, Issue3September 1965Pages 444-463 RelatedInformation