Level Of Stock Prices Research Articles

Stock pricing in Latin America: The synchronicity effect

This paper investigated whether the stock price synchronicity level (SPSL) is a pricing factor in the Latin American scenario. To do so, the shares with the highest liquidity level listed in the stock exchange in five Latin American (LA) countries (Argentina, Brazil, Chile, Mexico and Peru) were used. The results indicated that the SPSL is associated with a positive premium. This premium was obtained by the CAPM model and by the Fama-French three- and five-factor models. There was evidence that the average SPSL increases in periods of greater turmoil in the financial markets. Moreover, it was found that the SPSLs are not associated monotonically with the efficiency levels of stock prices. Overall, the use of the SPSL factor in asset pricing models reduced the bias in estimating the stock premiums in LA.

Investor Attention and Expected Return

In this paper, we analyze the effect of investor attention level on expected return in the Korean stock market by investor type. We find that the risk-adjusted excess returns in the next period are significantly higher when the institutional and foreign investor’s attention is high. In other words, investment strategies that buy stocks in higher attention groups and sell those in lower attention groups provide significant excess returns. This result is in contrast to the argument that the market operates more competitively and moves more efficiently as the number of investors increases due to the increased investor attention. Next, we examine how the degree of attention of institutional, individual, and foreign investors affects each other. The analysis reveals that the attention of individual investors affects the attention of institutional investors in the next period, and vice versa. In addition, as a result of group analysis according to the size of company and stock price, we find that the investor's attention affects the market differently depending on the type of investors and stock price level.

Choosing the Precision of Performance Metrics

There is a standard trade-off in compensation contracts between the provision of incentives and insurance. We hypothesize that this trade-off influences the precision with which firm performance is measured. We find that firm outcomes are measured less precisely when chance plays a large role in these outcomes. Further, this precision is determined through the choice of shares outstanding. This has several novel implications. Nominal stock prices can remain constant over time, and firms with unpredictable cash flows should have more shares and lower stock price levels, all else equal. We find evidence consistent with these implications.

Understanding the Evolution of the Share Price Norm

Why do firms manage their stock price levels? 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.

What do stock price levels tell us about the firms?

We hypothesize that high stock price levels impede informed trading on the stocks and reduce price informativeness. This is because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constraints on uninformed investors. Indeed, we find, for high-price firms, (i) options to stock trading volume (O/S), an informed trading measure in options market, is higher, (ii) price informativeness about future earnings is lower, and (iii) investment sensitivity to price is lower. We also find these patterns reverse after stock splits, suggesting that firms can use splits to improve informed trading and enhance price informativeness.

Money Supply and Stock Price in China

To explore the clear relation between capital market and money market. We construct the Chinese Shanghai Composite currency and money supply model. The model analysis found that they are serial correlations. The two time series data are first-order non-stationary series. With the two non-stationary sequence, we established the error correction model, found that the currency circulation and the stock price are with cointegrated. When the stock prices in short-term deviate from the long-run equilibrium, the money supply will have a smaller adjustment of -0.036 to the level of stock prices, and the force of money supply will slightly make the stock price back to long time equilibrium.

Nominal Price Level and Noise Trading

Contributing to the debate on the nominal price puzzle, we show that higher stock price level is associated with lower noise trading level which confirms Black’s (1986) conjectures that noise traders prefer low-priced stocks to high-priced stocks. The result is robust after controlling for institutional ownership, analyst coverage and company size. Given that noise trading level affects liquidity and cost of capital, this finding demonstrates the economic relevance of price level decision.

Capital asset pricing model and subprime crisis: evidence from Indian equity market

The sub-prime crisis of 2008 caused great instability across all the stock markets of the world. Hence, a departure in the equilibrium level of stock prices is expected. This study is an attempt to examine capital asset pricing model (CAPM) empirically in the light of crisis of 2008, in the Indian securities market. The study involves a period sub-prime crisis hence, an attempt has been made to examine the CAPM considering the recessionary period. Additionally, in order to establish robustness of the model, the CAPM has been tested on a rolling sample daily data of one year with a monthly updating scheme. This study suggests that the CAPM is not able to explain the return generating process of stocks in an efficient manner. However, the model without the intercept term cannot be ignored grossly, as it marks its significance around 16% of times.

Did Quantitative Easing Only Inflate Stock Prices? Macroeconomic Evidence from the US and UK

This paper considers the impact of US and UK Quantitative Easing (QE) on their respectiveeconomies with a particular focus on the stock market, production and price levels. We conduct anempirical quantitative exercise based on a novel six-variable VAR model, which combines macroeconomic and forward-looking financial variables and uses a 'pure' measure of QE. The results suggest a positive response of equity prices, and a 'V' shaped reaction of volatility and the bid-ask spread to the monetary stimulus. Output and inflation, in contrast with some previous studies, show an insignificant impact providing evidence of the limitations of the central bank's programmes. We attribute the variation to this difference in our modelling approach, which includes stock market variables, and we conclude that its presence is of critical importance in the assessment of unconventional monetary policy. Economically, we argue that the reason for the negligible economic stimulus of QE is that the money injected funded financial asset price growth more than real projects.

Family Control and Nominal Share Prices

We investigate the impact of family control on both the nominal share price level and the decision to split the firm’s stock. Low stock prices are associated with higher volatility and have been shown to attract more speculative trading, which may force managers to excessively focus on short-term earnings. Moreover, a reduction in the stock price level is often associated with a loss of prestige. We hypothesize that family owners, who are typically long-term investors and are especially concerned about corporate reputation, prefer to set higher stock prices to mitigate short-termism, focus on long-term planning, and reinforce the firm’s prestige. We find a positive correlation between nominal share prices and family control. Our investigations also indicate that family firms are less likely to conduct price reductions through stock splits. These findings suggest that a high stock price is a distinctive feature of family firms and that family owners have a specific norm in mind around nominal prices.

The Real Effects of Short Selling Constraints: Cross-Country Evidence

We investigate the effect of short selling constraints on stock prices and corporate investment. We use as source of identification countries that adopted new regulations to permit short selling for the first time. We find that stock prices drop and price efficiency increases after the rule change. Corporate investment also drops, and capital allocation efficiency increases. Investment drops proportionately to the drop in overvaluation brought about by the rule change. Our results suggest that short selling constraints have a causal effect on the level and efficiency of stock prices and level and efficiency of corporate investment.

Long-Run Effects of Macro Shocks on the Korean Stock Market: A Structural VAR Approach

This paper examines the long-run effect of major macroeconomic shocks, using the structural vector autoregression (SVAR) approach, on stock prices for the Korean stock market, one of the leading emerging markets. Novel features of the modeling is to expand the dimension of the bivariate SVAR model of Blanchard and Quah (1989) and of Hess and Lee (1999) by including stock market shocks in addition to the pre-identified supply and demand shocks. Moreover, our three-variable SVAR model is further generalized to a five-variable SVAR, augmenting interest rate shocks and foreign exchange rate shocks. The model is estimated using monthly Korean market data from January 2003 to September 2015, and further estimated with two sub-samples using the recent global financial crisis period and non-crisis period. The estimation results using a three-variable model show that stock returns have a negative relation with demand shocks and a permanent positive relation with supply shocks. Risk premium shocks show a negative relation with inflation and a positive relation with real output growth. Interestingly, the subsample results indicate that the market fluctuations during the global financial crisis period have relatively little effect on the Korean stock market and its macro variables. With the five-variable model estimation, a ‘price puzzle’ is documented with evidence of a positive correlation between inflation and the interest rate shock. A positive correlation is also observed between inflation and the supply shocks in the long run. Lastly the forecast error variance decomposition indicates that the monetary policy change is the leading determinant of the long-run level of stock prices in the Korean stock market. These findings suggest that the recent expansionary monetary policy should be cautiously implemented in accordance with inflation movement.

Nominal price illusion

We explore the psychology of stock price levels and provide evidence that investors suffer from a nominal price illusion in which they overestimate the room to grow for low-priced stocks relative to high-priced stocks. While it has become increasingly clear that nominal price levels influence investor behavior, why prices matter to investors is a question that as of yet has gone unanswered. We find widespread evidence that investors systematically overestimate the skewness of low-priced stocks. In the broad cross-section of stocks, we find that investors substantially overweight the importance of price when forming skewness expectations. Asset pricing implications of our findings are borne out in the options market. A zero-cost option portfolio strategy that exploits investor overestimation of skewness for low-priced stocks generates significant abnormal returns. Finally, investor expectations of future skewness increase drastically on days that a stock undergoes a split to a lower nominal price. Empirically, however, future physical skewness decreases following splits.

Stock Market Stationarity

Stationarity tests are used to detect mean reversion in a certain dataset. Mean Reversion processes suggest a non-random behavior in a time series (Lo and MacKinley, 1988). Previous research has focused on studying mean reversion at stock price level (Debondt and Thaler, 1985; Lindemann et al., 2004) and considers stationary assumptions to be restrictive for a financial time series (Lo and MacKinley, 1988). The authors look at the concept of stationarity at group specific level as previously defined by the ‘Mean Reversion Framework’. The group approach allows for a different interpretation of stationarity, as it overcomes limitations of stationary tests on time series and the problems regarding trend and difference stationarity when it comes to finite data (Cochrane, 1987). The groups approach to look at stationarity also offers an easy way to prove the co-existence of non-random and random behavior in a group (stock market). The stationarity trends are defined as the percentage number of components that exhibit stationarity at the Value, Core or Growth bin levels in the ‘Framework’. The trends observed were consistent and showcase a duration dependency. More than 50% of all the components in the three bins exhibit stationarity, suggesting that the ‘Framework’ is a good proxy for complex and natural systems, which express both random and non-random behavior. The authors combine the absolute trends of bin transformation with the stationarity trends to draw parallels to understand how reversion and divergence co-exists in the ‘Framework’. Stationarity at a group level strengthens the case of markets as a complex system and ‘Framework’ as a good proxy to understand behavior of such systems.

FAKTOR FUNDAMENTAL YANG MEMPENGARUHI PERUBAHAN HARGA SAHAM (Studi Empiris pada Perusahaan Finansial yang Terdaftar Di BEI Tahun 2009dan 2010)

This study aims to examine the fundamental factors of Current Ratio (CR), Leverage Ratio, Net Profit Margin (NPM), Total Assets Turn Over (TATO), Earnings Per Share(EPS)effect on stock price changes on financial companies in Indonesia . The share price is the value of a stock that reflects the wealth of the company issuing the shares, which change or fluctuation is largely determined by the forces of supply and demand occurred in the stock exchange (secondary market). The influence of these factors on stock prices is tested with regression analysis. Study sample is 40 companies listed on the Indonesian stock exchange are selected by purposive sampling.The results of this study indicate that the partial net profit margin of only variable that significantly influence the stock price, while the variable current ratio, leverage ratio, total assets turnover and earnings per shareno significant effect on stock prices. While simultaneously variable Current Ratio (CR), Leverage Ratio, Net Profit Margin (NPM), Total Assets Turn Over (TATO), Earnings Per Share(EPS)significantly influence the stock price. These results indicate that investors in making investment decisions take into consideration the level of stock prices, returns that would be obtained and also consider the ability of illiquid instruments (funds from third parties, received a loan of more than three months, and core capital) against liabilities (current debt ) company.
 
 Keywords: Stock Price, Current Ratio(CR), LeverageRatio, Net ProfitMargin(NPM), TotalAssetsTurn Over(TATO), Earnings Per Share(EPS)

Managerial actions and nominal stock price levels

We examine nominal and real stock prices and the sequential price pattern of stock dividends and stock splits. We find that the average stock price has been fairly stable over time except for two decades in the beginning and end of the twentieth century. Inclusion of these periods yield a decline over time which is generally consistent with the drop in price levels found by Chittenden et al. [2010. “A Note on Affordability and the Optimal Share Price.” Financial Review 45: 205–216]. In a multivariate setting, the frequency of stock dividends and stock splits is positively related to the frequency for these events the prior year and recent market return. In further tests of the price change we find a positive relationship to the median price change for stock dividends/splits and negatively to labour income growth for stock splits. These findings indicate that stock price reduction via stock dividends and splits attracts individual investors as income grows. One key conclusion is that the primary reason for any stock action, dividend or split, is to fit the ‘norm’ stock price level of the market.

Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment

ABSTRACTUsing a natural experiment (Regulation SHO), we show that short selling pressure and consequent stock price behavior have a causal effect on managers’ voluntary disclosure choices. Specifically, we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular, we find that, in response to increased short selling pressure, managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall, our results suggest that maintaining the current level of stock prices is an important consideration in managers’ strategic disclosure decisions.

Prediction of Stock Price Movement Using Continuous Time Models

Predicting stock price movement is generally accepted to be challenging such that until today it is continuously being attempted. This paper attempts to address the problem of stock price movement using continuous time models. Specifically, the paper provides comparative analysis of continuous time models—General Brownian Motion (GBM) and Variance Gamma (VG) in predicting the direction and accurate stock price levels using Monte Carlo methods—Quasi Monte Carlo (QMC) and Least Squares Monte Carlo (LSMC). The hit ratio and mean-absolute percentage error (MAPE) were used to evaluate the models. The empirical tests suggest that either the GBM model or VG model in any Monte Carlo method can be used to predict the direction of stock price movement. In terms of predicting the stock price values, the empirical findings suggest that the GBM model performs well in the QMC method and the VG model performs well in the LSMC method.

HAS THE 911 INCIDENT INDUCED ANY STRUCTURAL CHANGE IN THE U.S. STOCK MARKET?

This paper employs the structural-change test to predict structural change in the U.S. stock market, associated to the September 11 incident. More than 500 U.S. companies are examined in this study. It provides the first piece of statistical evidence showing that there are insiders who know the attack beforehand and try to profit from the U.S. stock market. Besides, structural change in the stock price level has been detected in only 15 out of those 38 companies with unusual trading activities before the incident, indicating that the impact of the 911 attacks on the American financial system is very limited.

Stock Prices, Investor Short-Termism, and Innovation

Firms can change their outstanding shares to manage their stock price levels. Those with lower stock prices tend to attract more speculative trading, which causes higher price volatility and may force their managers to excessively focus on short-term earnings at the expense of R&D and other long-term projects. Thus, we hypothesize that firms investing more in R&D prefer to set higher stock prices to mitigate investor short-termism and foster innovation. Indeed, we find that firms with more R&D capital tend to keep higher stock prices and are less likely to split their stocks to lower prices. Furthermore, high-priced firms are less likely to cut R&D to reverse an earnings decline, and less likely to fire their CEOs in the presence of poor earnings. More importantly, firms’ R&D productivity — in terms of generating patents and patent citations — tends to increase with their stock prices, even after controlling for firm valuation, stock returns, stock liquidity, and institutional ownership. For robustness checks, we examine stock splits, which allow mangers to re-set their stock price levels, and IPOs in which managers set an offering price range before shares are publicly traded. Consistent with our hypothesis, we find that IPO firms setting higher offering prices have more future innovation and that innovation declines after firms split their stocks. Thus, our results imply that managers of R&D firms actively set high stock prices to foster innovation, and support Warren Buffett’s wisdom that firms can use stock prices to attract preferred clientele.