Explaining Stock Returns Research Articles

Fund Flow Betas and the Cross-Section of Stock Returns

Fund Flow Betas and the Cross-Section of Stock Returns

The Effect Of Insider Ownership, Dept Policy, Divident Payment Policy And Profitability On Stock Return (On The Manufacture Companies Registered in BEI)

This research aimed to find out the effect of insider ownership. debt policy, dividen payment policy and profitability partially and simulianeusly on stock return on the manufacture companies registered in BEI in 2010-2012
 The data of this research was from audited financial report and annualy financial report gained from www.idx.co.id. The sample of this research was the manufacture companies registered in BEI in 2010-2012. The analysis technicue was by double linier regression.
 The result of this research showed that simultaneusly, insider ownership, debt policy and dividend payment policy efectted significantly on stock return. Partially, only 1 independent variable that was profitability that effected positively significant to the stock return, while insider ownership had a negative significant effect, and partially, debt policy and dividen payment did not affect on stock return.
 the researcher suggested that the investor of insider ownership variable and profitability could be applied to explain stock return of the maufacture companies then this ratio could be the investor's consideration in analyzing the company's performance that influance the stock return rise
 
 Keyword : Insider Ownership, Dept Policy, Dividen Payment Policy, Prifitability Stock Return

The Role and Relevance of Option Implied Volatility in Financial Markets

The research paper is an effort to review the relevance of option implied volatility in the modern day financial markets. Volatility indices such as VIX, VFTSE and India VIX act as efficient predictors of market volatility over the near term. The role implied volatility plays in providing a measure of investors fears, explaining stock returns, credit default swap valuation, measuring bank risk, and understanding interest rate models for pricing contingent claims has been emphasized. The cases of Euro dollar option markets, S&P 100 index options, agricultural commodities on New York Board of Trade, sweet crude oil futures on NYMEX have been discussed in particular.This measure of investors fear gauge is found to be superior to logit regression and Altman’s Z. It would have been helpful in predicting the UK Banking Crisis 2008. This important determinant of volatility must be incorporated in risk management strategies to lead to a robust and integrated risk management framework.

Investigating the Impact of Microeconomic Factors on Stock Returns: Evidence from Borsa Istanbul

In this study, we investigate the role of microeconomic factors in explaining stock returns of firms quoted at Borsa Istanbul. We employ a four factor model for the period between July 2005 and June 2013. The factors we employ in the model are, market factor, firm size, book-to-market ratio and momentum factor. Our findings suggest that market factor impacts returns of all shares. Similarly, size factor also impacts most of stock returns. Nevertheless, influence of BE/ME factor appears to be rather limited. Finally, momentum factor has an adverse effect on stock retuns. Only past losers seem to impact stock returns.

FIRM PERFORMANCE AND DIVIDEND-RELATED FACTORS: THE CASE OF MALAYSIA

The theory of dividend and its effect on the value of the firm is perhaps one of the most important yet puzzling theories in finance. The main objective of this study is to examine dividend related factors that can be relied upon when determining the value of the firm. We investigate the relationship between individual stock returns with dividend yield, dividend stability and changes in dividend yield from 1992 to 2000 in the Malaysian Trading/Services and Plantation firms. The statistical result from annually cross-sectional regression show weak evidence to support the significant role of dividend yield and dividend stability in explaining firm stock returns. Changes in dividend yield, on the other hand, have negative and significant coefficients in explaining stock returns in Trading/Services firms throughout 1993-1996 and the average crisis period. For Plantation firms, it is negatively significant only in 1994 and 1997.

The Role of Growth Options in Explaining Stock Returns

AbstractWe extend the Fama-French (1992) model by considering growth option (as well as distress/leverage) variables in explaining the cross section of stock returns. We find that growth option variables, namely growth in capital investment and yet-unexercised growth options (GO), are significantly and negatively related to stock returns. Investors may be willing to accept lower average returns from growth stocks in exchange for a more favorable (positively skewed) risk-return profile. Book-to-market (BM) ratio seems to proxy for omitted distress/leverage variables. When these are explicitly accounted for, BM is not that significant. Our growth options variables have added explanatory power.

Corporate governance, accruals quality and stock returns: evidence from the UK

Purpose – This paper aims to identify the most significant governance provision in enhancing the financial information quality of UK listed firms. In addition, it investigates the influence of this governance provision in explaining stock returns of 20 UK industry portfolios. Design/methodology/approach – To identify the main governance provision in enhancing the accruals quality, the paper runs regressions of accruals quality variable on the total governance variable, on the governance provisions individually, and on the governance provisions taken together with and without integrating control variables. Next, Asset Pricing tests are employed to examine the capacity of the audit provision, as proved the most influential governance provision on accruals quality, to explain stock returns. The quantitative approach used in the paper enables to investigate the relationship between corporate governance, accruals quality, and stock returns. Findings – Results indicate that audit provision is the most important governance mechanism affecting accruals quality. In addition, this mechanism is comparable with the book-to-market factor in explaining the time-series variation in portfolios returns. Furthermore, the introduction of the Audit factor to Fama-French model reduces the significance of the size factor and the book-to-market factor in explaining stock returns. This suggests that size and the book-to-market factors contain information related to the audit provision. Research limitations/implications – The findings of the paper carry implications for investors as they do not need to equally weight all corporate governance provisions in their resource allocation decisions. The significant influence of audit provision on accruals quality needs to be taken into consideration when investment decisions are made. Audit factor is important in predicting future returns. It is also found to be as good as book-to-market factor in explaining portfolios returns. Also, the findings have many implications for regulatory bodies in their efforts to enhance financial information quality. Establishing roles for best governance in reducing information risk should focus, among other things, on the significant elements of corporate governance in improving accruals quality. The main limitation of the study is the restricted variation in the Audit governance factor which comes from the source of corporate governance data, i.e. CGQ. Firms in the sample do not exhibit diversified levels of Audit scores. Accordingly, when constructing audit risk factor it was found that firms could only be split into two portfolios according to their Audit scores instead of five. Originality/value – This study identifies audit provision as the most significant governance mechanism in enhancing the financial information quality of UK listed firms. In addition, a factor representing audit provision is constructed to investigate the influence of this provision on stock returns. To the authors' knowledge, this is the first study that examines the capacity of the audit provision to explain stock returns in an asset pricing framework.

The role of “other information” in analysts’ forecasts in understanding stock return volatility

This study identifies “other information” in analysts’ forecasts as a legitimate proxy for future cash flows and examines its incremental role in explaining stock return volatility. We suggest that “other information” contains information about fundamentals beyond that reflected in current financial statements and reflects firms’ fundamentals on a more timely basis than dividends or earnings. Using standardized regressions, we find volatility increases when current “other information” is more uncertain and increases more in response to unfavorable news compared to favorable news. Variance decomposition analysis shows that the variance contribution of “other information” dominates that of expected-return news. The incremental role of “other information” is at least half of the effect of earnings in explaining future volatility. The results are more pronounced for firms with poor information environments. Overall, our results highlight the importance of including “other information” as an additional cash-flow proxy in future studies of stock prices and volatility.

Explanation of Returns Changes in CAPM, TFPM, FFPM in Tehran Stock Exchange

The Capital Asset Pricing Model (CAPM) has dominated finance theory for over thirty years. Capital Asset Pricing Model is an equilibrium model that explains why rates of return expected on stock is different; it suggests that the market beta alone is sufficient to explain stock returns. However evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Therefore, the idea is to add other factors in order to complete the beta in explaining the price movements in the stock exchange. The main contribution of this research is comparison between the CAPM, the Fama and French asset pricing model (TPFM) and the Four Factor Pricing Model (FFPM) adding the third and fourth moments to explain stock returns changes Tehran Stock Exchange listed firms. Research statistical Society is Companies listed on the Tehran Stock Exchange from 1386 until 1389, a period of 4 years. The sample consisted of 33 companies among the top 100 companies in Tehran Securities and Exchange member firms. In present research survey Addition of skewness and kurtosis on the proxy asset pricing model four factors have a greater ability than other asset pricing models in explaining variations in stock returns are expected on top 100 companies in Tehran Stock Exchange member firms period 2007-2011. The selection of the best model is based on the highest coefficient of determination. The kurtosis-FFPM turned out to be the best model.

Macroeconomic Variables, Firm Characteristics and Stock Returns during Good and Bad Times: Evidence from SEA

This paper investigates the role of macroeconomic factors and firm characteristics in explaining stock return in big four South East Asian (SEA) countries, namely, Malaysia, Indonesia, Singapore and Thailand. The factors model is employed for two time intervals, namely, sub-period A (from July 2003 to June 2007) and sub-period B (from July 2007 to June 2011) to examine the change in relationship between macroeconomic variables and stock returns during pre and post Global Financial Crisis of 2007. Our empirical findings reveal that the significance relationship between macroeconomic variables and portfolio stock returns were not consistent for both sub-periods. The result is highly dependent on portfolio, country and sub-period.

ANALISIS PENGARUH KINERJA PERUSAHAAN TERHADAP RETURN SAHAM LQ 45

The objective of this research is to examine empirically the influence return on Investment and economic value added to stock return. This research using LQ 45 company as sample. By using regression, the result of research show there is not company performance in explaining stock return. There are not return on Investment and economic value added in explaining stock return by partial.

Asset Pricing and Liquidity Risk: China Evidence

This study investigates the role of various asset pricing models in the China stock markets. We test several well-documented asset pricing models and find that the liquidity four-factor is the best model in explaining stock returns in China stock markets. The results are valid on both time-series and cross-sectional tests, additional factors such as portfolio residuals, higher moments, and on monthly seasonality and conditional-market tests. We also compare the liquidity four-factor model with alternative factor models and find that it is the best model in explaining stock returns in China.

The effect of leverage mimicking portfolios in explaining stock returns variations

PurposeThe purpose of this paper is to explore the effect of leverage mimicking factor portfolios in explaining stock return variations. This paper broadens the focus of the current asset pricing literature by forming portfolios mimicking the leverage factor.Design/methodology/approachFollowing Fama and French's and Carhart's procedure in forming size, book‐to‐market and momentum mimicking portfolios, the authors of this paper form leverage mimicking factor portfolios to explain stock returns. A five factor model is constructed that explains the variations in stock returns better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model.FindingsThe findings indicate that the leverage mimicking portfolio helps to explain stock return variations better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model. Results are robust to other risk factors.Research limitations/implicationsThe results lead us to explore further avenues in using other risk factors in asset pricing such as future work to consider other cross‐sectional attributes such as the stochastic behaviour of earnings or profitability that might also produce common variation in stock returns. There may be other risk factors that carry a premium and thus can be used for asset pricing.Practical implicationsThe paper's findings are important in fund management when selecting or evaluating portfolio performance. The authors introduce an additional factor that has a sound theoretical appeal and show that leverage mimicking factor portfolios provide additional information in pricing assets, both in the cross section of all shares and in different sectors.Originality/valueTo the best of the authors' knowledge this is the first study of the effect of leverage mimicking factor portfolios in explaining stock return variations.

Does crude oil price play an important role in explaining stock return behavior?

Employing the MS-ARJI-GJR-GARCH-X model, in which the parameters for the jump process, the asymmetric GARCH effect and the impacts of oil price shocks are regime-dependent, this paper analyzes the impact of crude oil price shock on stock return dynamics. Empirical results reveal three interesting findings. First, incorporating the asymmetric GARCH effect and the oil price shock can substantially improve fitting ability. Second, the GARCH and jump components show very different behaviors during turbulent and stable periods. Third, the effects of current and past oil price shocks differ. The conditional mean, mean of jump size and variance of jump size immediately respond to a current oil price shock. A one-period lagged oil price shock, no matter whether positive or negative, can affect the transition probability that the stock market will remain conditional in the next period. Moreover, the effects of lagged positive and negative shocks on transition probabilities are very different.

New return anomalies and new-Keynesian ICAPM

I propose a new multi-factor asset pricing model with new-Keynesian factors to explain stock return anomalies from 1972Q1 to 2009Q2. This new model explains the average returns across testing portfolios formed on financial distress, momentum, and standardized unexpected earnings with misspecification-robust statistics. Test portfolios formed on net stock issues and total accruals are also partly explained by new-Keynesian factors. Two monetary policy factors play an important role in explaining these new anomalies. The credit aspect of these new anomalies suggests an economic rationale for the model through capital market imperfections and the credit channel of monetary policy mechanism.

Evidence to Support Multifactor Asset Pricing Models: The Case of The Istanbul Stock Exchange

The objective of this study is to test, instead of the single factor CAPM, the power of three factor, four factor and five factor models to explain stock returns for the Istanbul Stock Exchange (ISE). The test results of all models in the ISE indicate that the models are applicable. During the period covering July 1992-June 2011 it is consequently established that, in addition to the market risk, size, book to market ratio, momentum and liquidity factors also constitute significant risk factors that affect the expected stock returns in the ISE and that the risk premiums belonging to these five factors are priced by the market.

Relevant Factors to Explain Cross-Section of Expected Returns of the Firms Listed in the Dhaka Stock Exchange

Using the well-known Fama-MacBeth methodology, this paper investigates the factors that may influence the cross-section of stock returns in the Dhaka Stock Exchange (DSE). Various combinations of factors such as dividend yield, size, price-earnings ratio, market return, spread between large and small firms, lagged values of factors, illiquidity of stocks, and cross-sectional volatility of the market are considered. However, results show that these factors hardly explain the cross-section of stock returns. Only market returns weakly explain stock returns. Interestingly, the relationship between market returns and stock returns has been consistently found to be negative, which contradicts the established notion of positive risk-return relationship. Even after considering for the effects of size, liquidity, and sub-periods, results do not change much.

Liquidity risk premium and asset pricing in US water transportation

The water transportation of freight has been one of the most important sectors in facilitating international trade and contributing to the growth of the world economy. Bearing in mind the importance of the relation between asset returns and liquidity in water transportation, this paper examines this relation within the context of US traded international water freight transportation firms. Using a Fama–MacBeth analysis, it is shown that the illiquidity risk premium is priced in the water transportation sector beyond the Fama and French and market-wide illiquidity risk factors, indicating higher average returns for stocks with greater illiquidity measures. It is also shown that the market-wide illiquidity factor and the Fama–French SMB and HML risk factors are significant in explaining stock returns. In contrast, market risk is found not to be priced in the water transportation sector. The results are also robust to asset pricing tests over two alternative sub-periods.

Commonality in individuals' trading: A systematic path between behavioral bias and expected returns

This paper investigates whether there is commonality in the trading of individual investors. To test for the existence of trading commonality, we apply three different methods employed in assessments of commonality in liquidity. Using actual individual trading in the Korean stock market, we demonstrate the strong commonality in individual trading. Additionally, we find evidence that commonality in individual trading predicts future stock returns, and its' predictability is significant in medium-size stocks. The Korean market also shows strong commonality in liquidity, but it has little relation to commonality in individual trading in explaining stock returns.

Politics, stock markets, and model uncertainty

The available evidence on the effects of political variables on both returns and volatility of aggregate stock indices is scant and mixed. Applying Bayesian Model Averaging to a panel dataset of 17 parliamentary democracies spanning the post-war period until 1995, we test the robustness of political variables in explaining stock returns and stock return volatility. While we find that the influence of political variables on excess returns is weak, there is evidence of some political variables explaining return volatility.