Earnings yields, market values, and stock returns

Article Abstract:

Earlier evidence concerning the relation between stock returns and the effects of size and earnings to price ratio (E-P) is not clear-cut. This paper re-examines these two effects with (a) a substantially longer sample period, 1951 - 1986, (b) data that are reasonably free of survivor biases, (c) both portfolio and seemingly unrelated regression tests, and (d) an emphasis on the important differences between January and other months. Over the entire period, the earnings yield effect is significant in both January and the other eleven moths. Conversely, the size effect is significantly negative only in January. We also find evidence of consistently high returns for firms of all sizes with negative earnings. (Reprinted by permission of the publisher.)

Valuation

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Inferring the components of the bid-ask spread: theory and empirical tests

Article Abstract:

The relation between the square of a quoted bid-ask spread and two serial covariances - the serial covariance of transaction returns and the serial covariance of quoted returns - is modeled as a function of the probability of a price reversal, pi, and the magnitude of a price change, delta, where delta is stated as a fraction of the quoted spread. Different models of the spread are contrasted in terms of parameters pi and delta. Using data on the transaction prices and price quotations for NASDAQ-NMS stocks, pi and delta are estimated and the relative importance of the components of the quoted spread - adverse information costs, order processing costs, and inventory holding costs - is determined. (Reprinted by permission of the publisher.)

Block trading

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Information effects associated with debt-for-equity and equity-for-debt exchange offers

Article Abstract:

This study investigates the information effect caused by a firm's change in capital structure via debt-for-equity and equity-for-debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross-sectional regressions do not lend support to the wealth-transfer- and tax-effect hypotheses, but they are consistent with the information-effect hypothesis. (Reprinted by permission of the publisher.)

Management, Capital formation, Debt financing (Corporations), Debt financing

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