Journal of Finance
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On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks
Journal of Finance - Tập 48 Số 5 - Trang 1779 - 1993
Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data ABSTRACT This paper explores the empirical relevance of banking market structure on growth. There is substantial evidence of a positive relationship between the level of development of the banking sector of an economy and its long‐run output growth. Little is known, however, about the role played by the market structure of the banking sector on the dynamics of capital accumulation. This paper provides evidence that bank concentration promotes the growth of those industrial sectors that are more in need of external finance by facilitating credit access to younger firms. However, we also find evidence of a general depressing effect on growth associated with a concentrated banking industry, which impacts all sectors and all firms indiscriminately.
Journal of Finance - Tập 56 Số 2 - Trang 617-648 - 2001
Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices A stock market liberalization is a decision by a country's government to allow foreigners to purchase shares in that country's stock market. On average, a country's aggregate equity price index experiences abnormal returns of 3.3 percent per month in real dollar terms during an eight‐month window leading up to the implementation of its initial stock market liberalization. This result is consistent with the prediction of standard international asset pricing models that stock market liberalization may reduce the liberalizing country's cost of equity capital by allowing for risk sharing between domestic and foreign agents.
Journal of Finance - Tập 55 Số 2 - Trang 529-564 - 2000
Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets ABSTRACT The returns earned by U.S. equities since 1926 exceed estimates derived from theory, from other periods and markets, and from surveys of institutional investors. Rather than examine historic experience, we estimate the equity premium from the discount rate that equates market valuations with prevailing expectations of future flows. The accounting flows we project are isomorphic to projected dividends but use more available information and narrow the range of reasonable growth rates. For each year between 1985 and 1998, we find that the equity premium is around three percent (or less) in the United States and five other markets.
Journal of Finance - Tập 56 Số 5 - Trang 1629-1666 - 2001
Risk Sharing and Asset Prices: Evidence from a Natural Experiment ABSTRACT When countries liberalize their stock markets, firms that become eligible for foreign purchase (investible), experience an average stock price revaluation of 15.1%. Since the historical covariance of the average investible firm's stock return with the local market is roughly 200 times larger than its historical covariance with the world market, liberalization reduces the systematic risk associated with holding investible securities. Consistent with this fact: (1) the average effect of the reduction in systematic risk is 6.8 percentage points, or roughly two fifths of the total revaluation; and (2) the firm‐specific revaluations are directly proportional to the firm‐specific changes in systematic risk.
Journal of Finance - Tập 59 Số 3 - Trang 1295-1324 - 2004
Foreign Speculators and Emerging Equity Markets We propose a cross‐sectional time‐series model to assess the impact of market liberalizations in emerging equity markets on the cost of capital, volatility, beta, and correlation with world market returns. Liberalizations are defined by regulatory changes, the introduction of depositary receipts and country funds, and structural breaks in equity capital flows to the emerging markets. We control for other economic events that might confound the impact of foreign speculators on local equity markets. Across a range of specifications, the cost of capital always decreases after a capital market liberalization with the effect varying between 5 and 75 basis points.
Journal of Finance - Tập 55 Số 2 - Trang 565-613 - 2000
The Equity Premium ABSTRACT We estimate the equity premium using dividend and earnings growth rates to measure the expected rate of capital gain. Our estimates for 1951 to 2000, 2.55 percent and 4.32 percent, are much lower than the equity premium produced by the average stock return, 7.43 percent. Our evidence suggests that the high average return for 1951 to 2000 is due to a decline in discount rates that produces a large unexpected capital gain. Our main conclusion is that the average stock return of the last half‐century is a lot higher than expected.
Journal of Finance - Tập 57 Số 2 - Trang 637-659 - 2002
Does Option Compensation Increase Managerial Risk Appetite? This paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls. Under the manager's optimal policy, the option ends up either deep in or deep out of the money. As the asset value goes to zero, volatility goes to infinity. However, the option compensation does not strictly lead to greater risk seeking. Sometimes, the manager's optimal volatility is less with the option than it would be if he were trading his own account. Furthermore, giving the manager more options causes him to reduce volatility.
Journal of Finance - Tập 55 Số 5 - Trang 2311-2331 - 2000
Equilibrium Analysis of Portfolio Insurance ABSTRACT A martingale approach is used to characterize general equilibrium in the presence of portfolio insurance. Insurers sell to noninsurers in bad states, and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings. We show that portfolio insurance increases price volatility, causes mean reversion in asset returns, raises the Sharpe ratio and volatility in bad states, and causes volatility to be correlated with volume. We also explain why out‐of‐the‐money S&P 500 put options trade at a higher volatility than do in‐the‐money puts.
Journal of Finance - Tập 51 Số 4 - Trang 1379-1403 - 1996
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