Weak Stock Market Research Articles

Barnes & Noble, Inc.: charting the growth strategy

Research methodology The case is written based on publicly available data from primary sources like the company’s annual reports and presentations and from secondary sources, as indicated in the references. Case overview/synopsis Barnes & Noble Inc. (B&N), one of the oldest and largest American retail booksellers founded in 1917, was facing a grim business situation underpinned by a fall in demand, a change in consumer preference and stiff competition. After almost a century of being in the business, B&N was experiencing a fall in market share and weak stock market performance. In 2019, the company was sold to Elliot Advisors – a hedge fund – for US$638m. With the appointment of new chief executive officer (CEO) James Daunt in August 2019, a man known for the turnaround of similar businesses, B&N expected its business’s revival and reorganization strategy to turn profitable. Its long-term strategy of beating competitors with its offerings’ sheer volume and low prices was no longer viable. The turmoil was compounded by top management crises with the repeated changes and ousting of several CEOs in a short span, alongside the COVID-19 pandemic and subsequent lockdowns in 2020 and 2021. Daunt was considering how to overcome the crisis and act fast to reposition the company and regain the loyalty of its customers. Was there more that the company could do to improve the company’s position and restore profitability? Complexity academic level The case can be used in strategic management and entrepreneurship classes at undergraduate and postgraduate levels. The case can be used in an investment analysis and management course to teach students the industry analysis technique using Porter’s five forces model.

Same bed different dream composition of IPO shares and withdrawal decisions in weak market conditions

The aim of this paper is to investigate the relationship between the IPO withdrawal decision and the number of secondary shares during the weak stock market conditions. Our results suggest that the withdrawal decision is determined by who plans to sell their shares at the IPO. The findings are as follows. The secondary shares of VCs are positively correlated with an IPO withdrawal decision. The secondary shares of CEOs are only correlated when the CEOs retained ownership is low, and not when CEOs retained ownership is high. These results imply that the VC profit maximization behavior is a key variable in determining IPO withdrawal.

Livent’s shares slip after IPO

Livent, the lithium chemical spin-off of FMC, closed its initial public offering on the New York Stock Exchange on Thursday, Oct. 11, selling 20 million shares at $17.00 apiece, below its intended range of $18.00 to $20.00. In a weak stock market overall, Livent shares declined after their first day of trading and closed their first week at $16.25. The firm had $210 million in sales during the first six months of the year. FMC, which is focusing on agricultural chemicals, retains an 85% stake that it ultimately intends to distribute to shareholders.

Reconsidering the role of Tobin’s Q

Purpose – The purpose of this study is to investigate nonlinearities in the behavior of investment expenditure. Conventional wisdom suggests that Tobin’s Q criterion is an important explanation of investment behaviour that bridges the financial and real sides of the economy. However, the empirical evidence in support of Q as a means of explaining aggregate business investment is rather weak. We answer a number of questions about the relationship between investment expenditure and Q. In particular, is the relationship governed by non-linearities? If so, what is the nature of the non-linearities present? Design/methodology/approach – The rationale for paying closer attention to non-linearities is based on the presence of information asymmetries and possible dependence of adjustments on non-linearities with respect to factors such as fixed costs, threshold effects and irreversibility, which are entertained in the investment literature. Using the non-linear vector error-correction model procedure advocated by Hansen and Seo, we show that in the context of the US economy, investment has a long-run relationship with Q that is based on threshold error correction. Findings – There are asymmetries present with respect to error correction or the speed of adjustment towards long-run equilibrium. We find that investment expenditure only responds significantly to long-run disequilibrium from Q during a particular regime. Such a regime is characterised by long-run disequilibrium based on high or rising investment expenditure compared with a relatively weak stock market. Originality/value – The authors provide new insights into the relationship between Tobin’s Q and real investment. In contrast to previous work, they find that error correction based on the adjustment of real investment is regime-specific and function of the size of departures from long-run equilibrium. The tests also allow for the identification of periods when error correction has occurred. Not only are these insights significant for future research on financial crises, market volatility and the impact of debt, but for policymaking purposes as well.

Are bad times good news for the Securities and Exchange Commission?

There exists a considerable debate in the literature investigating how stock market upswings or downswings impact financial market regulation. The present paper contributes to this literature and investigates whether financial market regulation follows a regulative cycle: does regulation, and consequently investor protection, increase as a result of a stock market downturn [as argued by, e.g., Zingales (J Account Res 47(2): 391–425, 2009)] or—contrary to the regulative cycle hypothesis—as a result of an upswing [as claimed by Povel et al. (Rev Financ Stud 20(4): 1219–1254, 2007), or Hertzberg 2003] Following Jackson and Roe (J Financ Econ 93(2): 207–238, 2009), we use funding data on the world’s most important financial market regulator, the U.S. Securities and Exchange Commission (SEC), as a proxy for the politically desired degree of regulation. We apply time series analysis. Using more than 60 years of data, we show that the SEC’s funding follows a regulative cycle: A weak stock market results in increased resources for the SEC. A strong stock market results in reduced resources. Our findings underline the downside of regulation as the regulative cycle amplifies the technical procyclicality inherent in regulation.

The Persistence of Employee 401(K) Contributions Over a Major Stock Market Cycle: Evidence on the Limited Power of Inertia on Savings Behavior

Many middle-income workers save for retirement through 401(k) plans. This study addresses the concern that low account balances of older workers may indicate that these vehicles are not sufficient to insure adequate retirement savings. In particular, the study shows that workers are not persistent (continuing once a worker has started) in contributing, and a weak stock market exacerbates the problem. The study suggests that the concept of inertia, which is in vogue in behavioral economics, does not seem to hold for 401(k) saving behavior. Furthermore, the investment strategy of dollar cost averaging does not seem to hold, either. Using panel data (Panel Study of Income Dynamics) covering a six-year time span from 1999 to 2005, the study presents descriptive and econometric evidence about the persistence behavior of individuals with 401(k) accounts. In particular, the PSID data that were analyzed come from four biannual waves in 1999, 2001, 2003, and 2005. Descriptive data show that of the sample of household heads aged 21-65 in 2005 who were employed in every time period, only about one-third (35 percent) contributed to their plan in all four waves. Job changing had an impact. However, even for individuals in the sample who did not change jobs, less than half (46 percent) contributed in all four years of the survey. An equation modeling 401(k) contribution behavior was estimated using logit regression analysis. When this model was estimated with the sample of individuals who were employed in each panel and with the sample of individuals who were employed in each panel and never changed jobs, the coefficient on the Dow Jones Industrial Average was positive and significant. Workers contributed to their plans when the market was up. This investment error is called herd investing, where individuals get into the market when it is high and not when it is low. The study concludes that the findings have important implications for the pension system and adequacy of retirement income. Projects of future retirement income readiness that assume that workers persistently contribute over their working lives greatly exaggerate the future levels of pension assets workers will have accumulated.

State Control and the Weak Stock Market in China

The on-going debate on the role of common-law versus civil-law system in the capital market may have ignored the state involvement. The paper aims to explore how the undue state control leads to the weak stock market in China. It analyzes how the undue state control is exerted in some key areas in the Chinese stock market. This paper intends to expand the existing literature in the relationships among law, politics, and economy. This paper not only offers an answer to concerns on the various misconducts in the inefficient Chinese stock market and helps to realize the possible ways out of such dilemma, but also it offers implications for other emerging economies. It indicates that it is the undue state control rather than the legal system that leads to the weak stock market in China. The paper suggests that to create a strong stock market and facilitate the development of the listed companies and the whole economy, the state should first release its excessive control on the stock market.

State control and the weak stock market in China

PurposeThe paper aims to explore how the undue state control leads to the weak stock market in China. It analyzes how the undue state control is exerted in some key areas in the Chinese stock market. This paper intends to expand the existing literature in the relationships among law, politics, and economy.Design/methodology/approachThis paper mainly adopts the exploratory method to analyze the undue state influences. Under some circumstances, comparative study and historical explanation are also adopted.FindingsThe paper suggests that to create a strong stock market and facilitate the development of the listed companies and the whole economy, the state should first release its control on the stock market.Research limitations/implicationsVarious fields are contained in a stock market, in most of which the undue state control can be observed. In this paper, only some key ones are explored. Further research on other fields and if possible more first‐hand data are necessary.Practical implicationsThis paper not only offers an answer to concerns on the various misconducts in the inefficient Chinese stock market and helps to realize the possible ways out of such dilemma, but also it offers implications for other emerging economies.Originality/valueThe on‐going debate on the role of common‐law versus civil‐law system in the capital market may have ignored the state involvement. This paper indicates that it is the undue state control rather than the legal system that leads to the weak stock market in China.

The Interaction Between the Stock Market and Business Sector Investments and the Economy

The growth recession that started in mid of 2000 lasted almost 3 years is a subject that got a lot of media attention but much lesser academic search interest. The fact that the stock market, inflated as it was prior to its prolonged collapse after March 2000, lost an equivalent of 30% of the USA GNP was frequently explained away with an assortment of explanations that really provided little true insight for such wealth loss. This was accompanied by a relatively modest unemployment of less than 6% (compared with previous recessions), robust real estate market, fairly resilient consumer spending, very accommodating monetary policy, tax cuts and deficit increasing fiscal policy, and yet a very weak Business sector investment spending. This study examines the interaction of the stock market and business investments. It shows that business investment reacts sooner than consumers to changes in the stock market. Gross Domestic Investments are found to be non-reactive at the first 5 months (with a small positive immediate response in the first 3 months), and rise (fall) after 6 more months or more of a strong (weak) stock market change which is sustained long enough to prompt new investments. There is faster response of business investments to a strong or weak stock market relative to consumers' response. This may indicate that businesses are more opportunistic than consumes, trying to capitalize on a strong stock market in raising capital and financing new capital outlays. In a break with previous thinking, the key to a business sector recovery seems to be more dependent on the strength of the stock market than previously acknowledged, as traditional thinking has focused on the relationship between business investments and consumer spending.

Evidence of fueling of the 2000 new economy bubble by foreign capital inflow: implications for the future of the US economy and its stock market

Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a LPPL signature in the foreign capital inflow during the bubble on the US markets culminating in March 2000. We detect a weak synchronization and lag with the NASDAQ LPPL pattern. We propose to rationalize these observations by the existence of positive feedback loops between market-appreciation/increased-spending/increased-deficit-of-balance-of-payment/larger-foreign-surplus/increased-foreign-capital-inflows and so on. Our analysis suggests that foreign capital inflow has been following rather than causing the bubble. We then combine a macroeconomic analysis of feedback processes occurring between the economy and the stock market with a technical analysis of more than 200 years of the DJIA to investigate possible scenarios for the future, three years after the end of the bubble and deep into a bearish regime. We conclude that the low interest rates and depreciating dollar are the indispensable ingredients for a lower sustainable burden of the global US debt structure and for allowing the slow rebuilding of an internationally competitive economy. This will probably be accompanied by a weak stock market on the medium term as the growing Federal deficit is consuming a large part of the foreign surplus dollars and the stock market is remaining a very risky and unattractive investment. Notwithstanding strong surge of liquidity in recent months orchestrated by the Federal Reserve, this macroeconomic analysis which incorporates an element of collective behavior is in line with our recent analyses of the bearish market that started in 2000 in terms of a LPPL “anti-bubble”. We project this LPPL anti-bubble to continue at least for another year. On the short term, increased availability of liquidity (M1) and self-fulfilling bullish anticipations may hold the stock market for a while.

Managing Core-Plus Portfolios

Investors began to adopt core-plus management several years ago because of its return potential, which was a departure from the traditional view of fixed income as a source of stability. Recent conditions (weak nominal U.S. economic growth, low yields and high credit spreads, a convexity panic, and a weak stock market) have increased the difficulty of managing core-plus portfolios and cast doubt on future investor demand for core-plus management. Critical issues for core-plus managers to consider for the future are benchmark evolution, investment guidelines, credit exposure, mortgage convexity, Treasury inflation-indexed securities, and critical core-plus components.

Evidence of Fueling of the 2000 New Economy Bubble by Foreign Capital Inflow: Implications for the Future of the US Economy and its Stock Market

Previous analyses of a large ensemble of stock markets have demonstrated that a log-periodic power law (LPPL) behavior of the prices constitutes a qualifying signature of speculative bubbles that often land with a crash. We detect such a LPPL signature in the foreign capital inflow during the bubble on the US markets culminating in March 2000. We detect a weak synchronization and lag with the NASDAQ 100 LPPL pattern. We propose to rationalize these observations by the existence of positive feedback loops between market-appreciation / increased-spending / increased-deficit-of-balance-of-payment / larger-foreign-surplus / increased-foreign-capital-inflows and so on. Our analysis suggests that foreign capital inflow have been following rather than causing the bubble. We then combine a macroeconomic analysis of feedback processes occurring between the economy and the stock market with a technical analysis of more than two hundred years of the DJIA to investigate possible scenarios for the future, three years after the end of the bubble and deep into a bearish regime. We conclude that the low interest rates and depreciating dollar are the indispensable ingredients for a lower sustainable burden of the global US debt structure and for allowing the slow rebuilding of an internationally competitive economy. This will probably be accompanied by a weak stock market on the medium term as the growing Federal deficit is consuming a large part of the foreign surplus dollars and the stock market is remaining a very risky and unattractive investment. Notwithstanding strong surge of liquidity in recent months orchestrated by the Federal Reserve, this macroeconomic analysis which incorporates an element of collective behavior is in line with our recent analyses of the bearish market that started in 2000 in terms of a LPPL anti-bubble. We project this LPPL anti-bubble to continue at least for another year. On the short term, increased availability of liquidity (M1) and self-fulfilling bullish anticipations may hold the stock market for a while.