Stock Market Conditions Research Articles

Hot and Cold IPO Markets: Identification Using a Regime Switching Model

The market for unseasoned equity has the unusual and distinguishing feature of periods of concentrated activity in terms of both volume and underpricing. This paper formally documents the existence of such periods using a regime-switching model that dates transitions between hot and cold states. A number of hot periods are identified over a 20-year period using a variety of IPO activity measures that capture different aspects of new issue volume, proceeds and underpricing. The study further documents a leading relationship between underpricing and IPO volume of up to six months. This relationship supports the contention that the decision to issue is a function of current underpricing. Various reasons are hypothesised for this result and the paper finds supportive evidence through a VAR analysis that reveals the influence of stock market and business conditions. The results have implications for the information contained in current market conditions and the role of issuers, underwriters and investors (JEL G12, G14, G32).

The dynamics of the Singapore commercial property market

This paper assesses the cointegration characteristics of commercial property prices, property stock prices, gross domestic product (financial and business services/ commerce), interest rates and supply of commercial space in the Singapore economy over the period 1980–1997. The primary motivation is to provide useful insights into the long-term and short-run dynamics of commercial property market in the presence of stock market conditions and macroeconomic influences. Our evidence suggests that commercial property market is linked to the property stock market and macroeconomic conditions in the long run, and that about 0.10 of the deviations between the actual and the equilibrium value of commercial property price is corrected in each quarter.

Changes in Factor Betas and Risk Premiums Over Varying Market Conditions

AbstractWe show risk exposures and premiums associated with the Chen, Roll, and Ross (1986) risk factors change over time and depend on stock market and business cycle condition. Findings also indicate that factor risk premiums change sign between January and non‐January, especially during bull markets. These findings serve as a caveat for portfolio managers who allocate assets to match desired exposures to key macroeconomic risk factors.

Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States

Multinational firms can enter a foreign market by taking over existing local firms (acquisitions) or by setting up new ventures (greenfield investments). Surprisingly, there has been limited empirical work on this topic. This paper examines the determinants of this choice by looking at Japanese entries into the United States. By focusing on firms of one country entering a single market, we are able to separate the impact of a firm's strategy from that of the characteristics of the target industry or country. This paper tests simultaneously a number of competing hypotheses. The results suggest that acquisitions are used by Japanese investors with weak competitive advantages, while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the U.S. Acquisitions are also chosen to enter industries with either very high or very low growth rates, when entry is at a scale that is large relative to the parent, and when entry is into a different industry. The Japanese investor's previous experience of the U.S. market, its financial situation, and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode. Neither do U.S. stock market conditions.

A proposal for aligning CEO compensation with performance

Stock options have become a popular means to link CEO compensation with performance. However, because stock prices are systematically driven by market movements, CEO compensation resulting from stock options may be more dependent on market conditions rather than the firm's performance. This article offers a proposal for the use of stock options that would provide compensation based on the abnormal performance of the firm, rather than stock market conditions. Since the value of these modified options would be more sensitive to the relative performance of firms, they would more effectively link CEO compensation with performance.

Health giving patterns of philanthropic foundations.

The nine years from 1975 through 1983 were years of pressure, concern, and exploration for philanthropic foundations. Changes in the economy, the tax laws, and the federal government’s spending priorities had a major impact on foundation giving. Steady increases in the inflation rate during the 1970s reduced the real value of foundation grant dollars. At the same time, the depressed stock and bond markets reduced the value of foundation assets from which those grant dollars were drawn. The ability of foundations to recover was greatly hindered by the tax code, which at the time required foundations to pay out in grants virtually all of the earnings on their assets. During the early 1980s, the inflation rate gradually fell, the stock market recovered, and, beginning in 1982, the tax law was changed enough to stop the drain on foundation assets. Alongside these improvements, however, came new demands for foundation funds. Foundations responded to this increased demand in different ways. Some reduced their giving in order to rebuild their assets. Others, though frustrated by the impossibility of filling all gaps left by federal funding reductions, felt challenged to fund more efficient and effective programs, in human as well as in material terms. The fluctuation in dollars given is shown in Exhibit 1. Some of the biggest givers in 1980 were not among the biggest funders three years later. This essay highlights patterns in foundation giving in health. It is based on data from samples of foundations in each of three years–1975, 1980, and 1983. The samples ranged from 304 foundations in 1975 to 528 in 1983, and involved a review of over 7,000 grants each year. Foundations were classified each year as large, medium, small, or very small, based on their total giving in real dollars (adjusted for inflation). Interpretation of these data is influenced by information on foundations’

Increasing Capital Gains from Common Stock Investments

CAPITAL GAINS FROM COMMON STOCK INVESTMENTS are more likely to be achieved if a definite objective for the rate of gain has been established in advance, and transactions are effected only after consideration of the likelihood of that rate being attained. If, for example, the investor establishes a 20% annual rate of increase as a goal, he is then unlikely to invest in a stock which promises some gain (perhaps as much as 20% ) at an indefinite time in the future; nor is he as likely to continue holding a stock in which he already has a satisfactory gain, but whose prospects for further gain are indefinite in time and apparently rather limited in amount. Only stocks affording the likelihood of substantial gains over a definite period of time would be bought or held. Switching would be effected freely, with commission expenses being considered in the same light as would any business expense; the desire to prove that every selection was right and to avoid taking losses would be subdued. Dividend income would be disregarded, except as a factor to be considered in appraising capital gain possibilities. The use of this approach implies that it is possible to ferret out substantially undervalued stocks, which are likely to be accorded a higher market valuation in a limited period of time. When overall stock market conditions are not unfavorable, this does not pose excessive difficulty. There are always some companies of substantial merit which have suffered a setback for one reason or another (perhaps the digestion of new acquisitions); and it can be ascertained that effective remedial actions have been taken on which the payoff will not be long delayed. There are other companies which are effecting cyclical recoveries, in line with improving prospects in their industries. Perhaps an extensive capital improvement program may be reasonably expected to start paying off in the near future. It is in the timing of an increase in market valuation, rather than in the selection of a likely prospect, that the difficulty lies; and it is, of course, the advantage of the predetermined rate approach that it forces attention on timing of transactions. As a means of continually visualizing the progress of actual investments against predetermined goals, the market value of each stock may be plotted weekly against a line representing the desired percentage rate of increase (semi-logarithmic paper may be used, if desired, simplifying plotting of rate lines). If the stock stays on or near the target line, that portion of the total fund is meeting appreciation objectives. If the stock lags, the natural question is, can it get back to the line? If this appears unlikely, the next question is, can it reasonably be expected to move along a rate line drawn from its present position.