More powerful portfolio approaches to regressing abnormal returns on firm-specific variables for cross-sectional studies

Article Abstract:

OLS regression ignores both heteroscedasticity and cross-correlations of abnormal returns; therefore tests of regression coefficients are weak and biased. A Portfolio OLS (POLS) regression accounts for correlations and ensures unbiasedness of tests, but does not improve their power. We propose Portfolio Weighted Least Squares (PWLS) and Portfolio Constant Correlation Model (PCCM) regressions to improve the power. Both utilize the heteroscedasticity of abnormal returns in estimating the coefficients; PWLS ignores the correlations, while PCCM uses intra- and inter-industry correlations. Simulation results show that both lead to more powerful tests of regression coefficients than POLS. (Reprinted by permission of the publisher.)

Research, Models, Portfolio management, Regression analysis, Heteroscedasticity

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After-hours stock prices and post-crash hangovers

Article Abstract:

After-hours pricing in foreign equity markets of multiple-listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in after-hours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in cross-market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time-varying share price volatility. (Reprinted by permission of the publisher.)

Methods, Analysis, Prices and rates, International aspects, Stock-exchange, Stock exchanges, Securities, Securities prices, Economic forecasting, Stock Market Crash, 1987, After-hours trading (Securities), After hours trading (Securities)

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