US Stock Prices Research Articles

When markets blink: US stock price responses to the appointment of minority leaders

This study examines whether the appointment of racial/ethnic minorities into top management positions has a different impact on share price than the appointment of members of the racial/ethnic majority into equivalent positions. Our dependent variable is the degree of change in share price following the announcement of minority and majority men into senior management positions. Market reaction to the naming of minorities into corporate leadership positions is significant and negative while the market's reaction to the naming of members of the racial/ethnic majority is significant and positive. Our findings suggest that racial/ethnic integration of corporate hierarchies may be impeded as investor reaction increasingly drives firm-level governance decisions.

Can macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan

Within the framework of a standard discounted value model, we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long-term relationship between industrial production, the consumer price index, money supply, long-term interest rates and stock prices in the US and Japan. For the US, we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and the long-term interest rate. We also find an insignificant (although positive) relationship between the US stock prices and the money supply. However, for the Japanese data, we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector, we find industrial production to be negatively influenced by the c...

How Did the 2003 Dividend Tax Cut Affect Stock Prices?

We test the hypothesis that the 2003 dividend tax cut boosted US stock prices and thereby lowered the cost of equity capital. Using an event‐study methodology, we attempt to identify an aggregate stock market effect by comparing the behavior of US common stock prices with that of foreign equities and the equities of real estate investment trusts (REITs). We also examine the relative cross‐sectional response of prices of high‐ and low‐dividend‐paying stocks. We do not find any imprint of the dividend tax cut news on the value of the aggregate US stock market. On the other hand, high‐dividend stocks outperformed low‐dividend stocks by a few percentage points over the event windows, suggesting that the tax cut may have induced asset reallocation within equity portfolios. Finally, the positive abnormal return on nondividend paying US stocks in 2003 does not appear to be tied to tax cut news.

Are there threshold effects in the stock price–dividend relation? The case of the US stock market, 1871–2004

We use recent developments on threshold autoregressive models that allow deriving endogenously threshold effects to analyse the evolution of the US stock price–dividend relation over the period 1871 to 2004. More specifically, a mean-reverting dynamic behaviour of the stock price–dividend ratio should be expected once such threshold is reached. Our empirical results showed that significant adjustments would occur when, in a particular year, the stock price–dividend ratio had shown a decrease of more than 8.0% between the previous year and the fourth year before, which implies nonlinearities in the dynamic behaviour of the US stock price–dividend relation.

Predicting the Presidential Election Cycle in US Stock Prices: Guinea Pigs versus the Pros

The notion that US stock prices follow a pattern that is synchronized with the rhythm of presidential elections has been a topic among financial investors for a long time. Academic work exists that supports this idea, quantifies the pattern, and has demonstrated its robustness over several decades and across parties in power. This paper takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when asked to predict stock prices. It considers and contrasts two types of such forecasts: Those made by professionals included in the Livingston survey; and those made by students in a laboratory experiment. One key result is that neither group fares particularly well, though participants in the lab experiment clearly outperformed the professionals.

Predicting the presidential election cycle in US stock prices: guinea pigs versus the pros

The notion that US stock prices follow a pattern that is synchronized with presidential elections has been discussed among financial investors for a long time. Academic work exists that supports this idea, quantifies the pattern and has demonstrated its robustness over several decades and across parties in power. This article takes the existence and robustness of this presidential election cycle for granted and asks whether individuals exploit it when they predict stock prices. It considers and contrasts two types of such forecasts: Those made by professionals included in the Livingston survey and those made by students in a laboratory experiment. A key result is that neither group fares particularly well, though participants in the experiment outperformed the professionals.

Foreign Listings, U.S. Equity Markets, and the Impact of the Sarbanes-Oxley Act

This paper examines the effects of the Sarbanes-Oxley Act (SOX) by studying both foreign firms’ decisions to list in the US and local market stock price reactions to US listing announcements. We have three main findings: First, we estimate that if SOX was a complete surprise to the market, US equity values would increase between six and eleven percent. Second, small firms do not react differently to SOX than large firms. Third, minority investors place greater value on the increased manager accountability imposed by SOX than on the costs associated with the increased accountability. In summary, we find no evidence that SOX impose substantial costs on US listed firms.

Clustering in US Stock Prices after Decimalisation

Abstract Early in 2001, US equity markets transitioned from trading in discrete price fractions to a smoother decimal format with a tick size of one penny. Theory suggests in an unconstrained world, stock prices should be distributed uniformly, particularly if the cost of defeating time priority is low. This regime change provides a natural experiment to test whether investors prefer to trade at particular price points even when their choices are essentially unconstrained by regulation. Instead of uniformity, we find widespread evidence of price clustering at increments of five and ten cents (nickels and dimes); the overall magnitude of clustering is double in scale of what is otherwise expected. Previous studies which documented clustering around even‐eighths argued that these patterns were a rational market response to trading impediments. We report consistent findings, but also find that the overall level of post‐decimalisation clustering is far more extensive than is reasonably explained by prior hypotheses. The evidence instead suggests a more fundamental human bias for prominent numbers as discussed in the psychology literature. Contrary to previous studies, we find no difference in price clustering, ceteris paribus, between the Nasdaq and NYSE after decimalisation. Should regulators choose to revisit the notion of tick size, our evidence suggests that for many stocks there would be only minor impact between the transaction prices that prevail now and those that would occur if the tick size were increased to five cents.

Can Macroeconomic Variables Explain Long Term Stock Market Movements? A Comparison of the US and Japan

Within the framework of a standard discounted value model we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long term relationship between industrial production, the consumer price index, money supply, long term interest rates and stock prices in the US and Japan. For the US we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and a long term interest rate. We also find an insignificant (although positive) relationship between US stock prices and the money supply. However, for the Japanese data we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector we find industrial production to be negatively influenced by the consumer price index and a long term interest rate. These contrasting results may be due to the slump in the Japanese economy during the 1990s and consequent liquidity trap.

Asymmetric adjustment of stock prices to their fundamental value and the predictability of US stock returns

Using momentum threshold autoregressive (MTAR) models, we explore the adjustment mechanism between US stock prices and fundamentals. Next, we derive non-linear error-correction models and examine whether they can improve forecasts of stock returns. Results support MTAR model only for data at annual frequency.

Dynamic analysis between the US stock returns and the macroeconomic variables

This study investigates the long-term and short-term relationships between the US stock price index (S&P 500) and six macroeconomic variables over the period 1975:1–1999:4. We observe that the stock prices negatively relate to the long-term interest rate, but positively relate to the money supply, industrial production, inflation, the exchange rate and the short-term interest rate. In the Granger causality sense, every macroeconomic variable causes the stock prices in the long-run but not in the short-run. Moreover, these results are also supported by the VDC, i.e. the stock prices are relatively exogenous in relation to other variables because almost 87% of its own variance is explained by its own stock even after 24 months.

Behavioral heterogeneity in stock prices

We estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents. The fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark. An evolutionary selection mechanism based on relative past profits governs the dynamics of the fractions and switching of agents between different beliefs or forecasting strategies. A strategy attracts more agents if it performed relatively well in the recent past compared to other strategies. We estimate the model to annual US stock price data from 1871 until 2003. The estimation results support the existence of two expectation regimes, and a bootstrap F-test rejects linearity in favor of our nonlinear two-type heterogeneous agent model. One regime can be characterized as a fundamentalists regime, because agents believe in mean-reversion of stock prices toward the benchmark fundamental value. The second regime can be characterized as a chartist, trend following regime because agents expect the deviations from the fundamental to trend. The fractions of agents using the fundamentalists and trend following forecasting rules show substantial time variation and switching between predictors. The model offers an explanation for the recent stock prices run-up. Before the 1990s the trend following regime was active only occasionally. However, in the late 1990s the trend following regime persisted and reenforced an extraordinary deviation of stock prices from the fundamentals. Recently, the activation of the mean-reversion regime has contributed to drive stock prices back closer to their fundamental valuation.

A 10-year retrospective on the determinants of Russian stock returns

We study factors influencing returns at the Russian stock market from 1995 to 2004, putting emphasis on how these evolved over time. We find that the relationship is highly unstable and this instability is not confined to financial crises alone. Most computed statistics exhibit constant ups and downs, but there has been recently a sharp rise in explainability of stock returns. Domestic factors have been playing a gradually diminishing role, while the importance of international factors has been increasing. In recent years, the effect of oil prices and foreign exchange rates has diminished, the impact of US stock prices and international and domestic interest rates has increased, while the influence of monetary aggregates such as gold reserves and credit balances has fallen to practically zero.

The Correlation between US Stock Prices and Cross-Listing Premia: A Challenge to Law-Based Theories of Cross-Listing

The Correlation between US Stock Prices and Cross-Listing Premia: A Challenge to Law-Based Theories of Cross-Listing

An empirical model of daily highs and lows

AbstractWe construct an empirical model for daily highs and daily lows of US stock indexes based on the intuition that highs and lows do not drift apart over time. Our empirical results show that daily highs and lows of three main US stock price indexes are cointegrated. Data on openings, closings, and trading volume are found to offer incremental explanatory power for variations in highs and lows within the VECM framework. With all these variables, the augmented VECM models explain 40–50% of variations in daily highs and lows. The generalized impulse response analysis shows that the responses of daily highs and daily lows to the shocks depend on whether data on openings, closings, and trading volume are included in the analysis. Copyright © 2007 John Wiley & Sons, Ltd.

Effects of size and international exposure of the US firms on the relationship between stock prices and exchange rates

This paper investigates relationship between US stock prices and exchange rates controlling for the firm size over a period 1987–2005 using Granger causality methodology. We find Grainger causality from large-cap stocks to the exchange rate, but no causality for the small-cap stocks. This supports previous findings that global integration might be confined to large multinational corporations. Our analysis suggests that nature of the relation changes over time. The points of reversion correspond to the periods of major changes in US Federal Reserve Policy. Results for the sub-periods identified support the hypothesis of changing causality between exchange rate and stock prices.

Recent stock price relationships between Japanese and US stock markets

PurposeThis paper, using daily data, sets out to present an empirical analysis of the relationship between recent Japanese stock prices and macroeconomic variables under the quantitative easing policy in Japan.Design/methodology/approachThe theoretical framework of the analysis is provided followed by application of the empirical method and analysis of the deterministic elements of stock prices in Japan. Vector error correction method is applied.FindingsThe results indicate that interest rates, especially the domestic interest rate, have not impacted Japanese stock prices. Exchange rates also have not been a significant determinant of Japanese stock prices. US stock prices have significantly influenced Japanese stock prices. Moreover, there exists a long‐term stable relationship between Japanese and US stock market prices.Originality/valueThe Bank of Japan's monetary policy, especially quantitative monetary easing, has not yet been fully determined. The effect of the policy on stock prices has not been discussed at all. Analyzing this effect is important because of its impact on the Japanese economic recovery, which has prevailed for more than ten years. Moreover, little research exists on the effect of the exchange rate on stock prices. This paper uses daily data. Some past studies on this topic have used quarterly or monthly data.

Macroeconomic News and Stock Returns in the United States and Germany

Abstract Using daily data for the January 1997 to June 2002 period, we analyze similarities and differences in the impact of macroeconomic news on stock returns in the United States and Germany. We consider 27 different types of news for the United States and 12 different types of news for Germany. For the United States, we present evidence for asymmetric reactions of stock prices to news. In a boom (recession) period, bad (good) news on GDP growth and unemployment or lower (higher) than expected interest rates may be good news for stock prices. In the period under consideration there is little evidence for asymmetric effects in Germany. However, in the case of Germany, international news appears at least as important as domestic news. There is no evidence that US stock prices are influenced by German news. The analysis of bi-hourly data for Germany confirms these results.

Explosive bubbles in the cointegrated VAR model

The vector-autoregressive framework with explosive processes developed by Nielsen [2005. Working Paper. Nuffield College, Oxford University] is used to analyze US stock prices and dividends. In contrast to earlier studies, this framework makes it possible to model explosive behavior in stock prices while at the same time allowing stock prices and dividends to have a common I ( 1 ) trend. Over the period 1871–2000, US stock prices are found to contain both an explosive root and a unit root, and the unit root is shared with the unit root in dividends. These results are consistent with a simple present value model with explosive bubbles.

The behaviour of US stock prices: Evidence from a threshold autoregressive model

This paper investigates the behaviour of US stock prices using an unrestricted two-regime threshold autoregressive (TAR) model with an autoregressive unit root. The TAR model is applied to monthly stock price (NYSE Common Stocks) data for the US for the period 1964:06 to 2003:04. Amongst our main results, we find that the US stock price is a nonlinear series that is characterized by a unit root process, consistent with the efficient market hypothesis.