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Abstract:
This study investigates the long-run equity return performance of non-U.S. firms that raise capital in U.S. markets. Unlike domestic capital raising studies by Ritter (1991), Speiss & Affleck-Graves (1995) and Loughran & Ritter (1995) which uncover a long-run underperformance for initial public (IPO) and seasoned equity offerings (SEO) of 18 to 26 percent over three years, our study of global offerings finds three-year cumulative abnormal returns overall are only -1.7 percent. We also find that capital raising with public, exchange-listed ADR programs yields higher cumulative abnormal returns than "Rule 144A" private placements available only to qualified institutional buyers (QIBs). We examine a number of factors and uncover significant regional differences and inferior returns performance by emerging market ADR programs and by SEO DR offerings. While performance is also related to firm size, book-to-market ratios and the amount of capital raised and the total trading volume in home and U.S. markets, our cross-sectional tests show that the post-issuance abnormal return performance is most significantly positively related to the ability of the firm to capture a greater share of U.S. trading volume.

Abstract:
new abstract and new pdf file Diane 10/22/98 Diane
Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton?s (1987) investor recognition hypothesis.

Abstract:
Writing good business case studies can be learned but doing so is never simple. So where should one begin with the seemingly daunting task of becoming a case writer? Our aim in this note is to offer a brief overview that can help to jump-start one's case writing efforts. We offer some thoughts on the ingredients of a great case and how you can create one. Our hope is to stimulate more case teachers to embark on the case writing adventure.

Abstract:
Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton?s (1987) investor recognition hypothesis.

Abstract:
Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time oflisting. Our tests provide support for the market segmentation hypothesis and Merton?s (1987) investor recognition hypothesis.

Abstract:

Grading class participation is hard. What gets graded is fleeting, has many dimensions, is sensitive to the context, and is benchmarked against one's experience or expectations (i.e., not a grading outline). The instructor cannot revisit the discussion as one might re-read an exam book or term paper. Content (what one says) and form of participation (how one says it) can interact in unanticipated ways. The daily change in teaching materials presents a moving target. What the instructor thinks about the case problem (or even feels) can raise or lower the bar from day to day.

The editors of FEN Educator sought a discussion of "best practice" in the area of grading class participation, and solicited the views of six seasoned case discussion leaders. Seeking helpful insights, we posed five general questions. What is your system for grading classroom discussion participation by students? How much grading weight do you give to participation? What do you look for? How do you keep records? How do you extract a grade from those records at the end of the course? The replies offer various insights about grading participation. Here is a sampling:

1. Record keeping. All the replies emphasized the importance of careful daily notes on student participation. This is not an exercise in distant recall at the end of the course. Rather, the instructor should sit down each day and note the positive (and negative) contributions.

2. Not by frequency alone... Steve Foerster, Lin Klein, and Larry Pettit emphasize that quality of contribution should be an important dimension of the evaluation. Simply noting the volume of participation misses the value of what and when the student contributed. Larry Pettit offers a number of comments on the various kinds of participation, and how they might be weighted in grading.

3. Shape student expectations of the participating grading. Andy Boynton, Steve Foerster, and Lin Klein note how important it is to explain to students what the instructor looks for, and where weight is given.

4. Weights given to class participation vary widely. Stu Gilson notes a 50% weight at Harvard, as does Larry Pettit at Virginia; Steve Foerster reports 25% at UWO; Michael Moffett notes 20% at Thunderbird; Lin Klein indicates 10-15% at UConn.

5. Grading of participation is, broadly, relative rather than absolute. Lin Klein normalizes grading; Steve Foerster notes that grades tend to be normally distributed with very small tails.

6. Student diversity: Michael Moffett notes that 62% of his students are from outside of the U.S., and that "additional sensitivity on my part is necessary regarding comfort with the English language in a technical setting and in cultural habits of open discussion." Stu Gilson mentions the "difficult balance" in drawing contributions from students with different levels of comfort with technical material.

These six points are merely an appetizer to the comments offered in the roundtable discussion. To see the entire discussion, please download document below.

Abstract:
We use transaction data for Toronto Stock Exchange (TSE) listed stocks to examine the impact on trading costs of the decision to interlist on a U.S. exchange. We measure trading costs using both ?posted? bid-ask spreads and ?effective? bid-ask spreads that measure actual transaction prices relative to standing bid-ask quotes. After controlling for price level, trade size and trading volume effects, we find that overall ?posted? and ?effective? spreads in the domestic (TSE) market decrease subsequent to the interlisting. However, the decrease in trading costs is concentrated in those TSE stocks that experience a significant shift of total trading volume (TSE and U.S.) to the U.S. exchange after listing. We interpret this result in the context of theories of multi-market trading as a competitive response by TSE market makers to the additional presence of U.S. market makers.

Abstract:
SUBJECT AREAS: Finance, Financial Analysis, Investment Analysis, Securities, Stock Market, Security and Commodity Brokers, Dealers

CASE SETTINGS: United States; large organization; 2006

An investment advisor at a major brokerage is considering whether she should recommend Wal-Mart stock to her clients who do not currently have this stock in their portfolios. Students will be presented with basic valuation concepts including the dividend discount model, price-earnings model and applications of the capital asset pricing model.

Abstract:
This study investigates the long-run return performance of non-U.S. firms that raise equity capital in U.S. markets. Overall, our sample of 333 global equity offerings with U.S. depositary receipt (ADR) tranches between 1982 and 1996 from 35 countries in Asia, Latin America, and Europe under-perform local market benchmarks of comparable firms by 8% to 15% over the three years following issuance. We show that differences in long-run returns are related to the scope and magnitude of investment barriers that induce segmentation of capital markets around the world. While companies from markets with significant investment barriers for foreigners that issue equity on major U.S. exchanges outperform their benchmarks, those from segmented markets that issue equity in the U.S. by way of Rule 144A private placements significantly underperform. We also show that inter-market competition for order flow in the post-issuance period affects the long-run return performance. Post-issuance buy-and-hold abnormal returns are most significantly and positively related to the ability of the offering to generate a larger share of U.S. trading volume.

Abstract:
This study investigates the long-run return performance of non-U.S. firms that raise equity capital in U.S. markets. Overall, our sample of 333 global equity offerings with U.S. depositary receipt (ADR) tranches from 35 countries in Asia, Latin America, and Europe under-perform local and global benchmarks by 8% to 39% over the three years following issuance. We show that differences in long-run returns are related to the scope and magnitude of investment barriers that induce segmentation of capital markets around the world. Specifically, companies from emerging markets and those that issue equity by way of Rule 144A private placements significantly underperform publicly-listed issues and those of companies in developed markets. We also show that inter-market competition for order flow in the post-issuance period affects their long-run return performance. Post-issuance cumulative abnormal returns are most significantly and positively related to the ability of the offering to generate a larger share of U.S. trading volume.

Abstract:
The purpose of this study is to better understand stock market trading volume liquidity, measured at the individual stock level, and its relationship with and potential impact on stock performance for a variety of well-known investment styles. We focus on two universes of generally liquid stocks (chosen because they are a primary focus of U.S. institutional investors such as mutual fund managers and pension fund managers), the stocks that make up the Standard & Poor's (S&P) 500 Index, and a broader index of the top 1,000 stocks measured by market capitalization (closely mimicking the Russell 1000 Index stocks). We show that three liquidity-related measures - trailing 3-month trading volume (i.e., shares), dollar value of trading volume, and turnover - are monotonically related to price-to-book (PB) and market capitalization (MKT), and momentum strategies based on both past 6-month "winners" and "losers" (MOM) tend to experience higher liquidity. When we sort stocks based on each of these liquidity measures we find that the more liquid stocks based on trading volume and turnover tend to have higher subsequent returns (1 through 12-month holding periods) than the less liquid stocks, although the reverse is true based on dollar volume. We then focus on the trading volume measure (which produces the greatest dispersion of returns) and run CAPM and Fama-French (3-factor and 4-factor) model regressions that show that the most heavily traded quintile of stocks experiences significant superior performance. We create a new measure that we call the trading volume factor, in the spirit of the Fama-French factors, and investigate its properties. We find that its beta is generally significant when added to the Fama-French 4-factor model, regressed against portfolio quintile returns based on PB, MKT and MOM sorts.

Trading Volume, Liquidity, Investment Styles, Factors, Asset Pricing

Abstract:
The events of September 11 provided an extraordinary teaching experience for schools and educators. Schools cancelled classes, organized prayer services, made grief counselors available, heightened security, organized ways for members of the community to help, assisted alumni to establish roll-calls to check for the missing, and encouraged tolerance. For those of us in the classroom, the response was somewhat more intimate. Many students looked to faculty in new ways - not simply as experts who helped them learn Finance, but also as sources of direction in troubled times. We asked the members of the Advisory Board about their teaching experiences in this time and how they and their schools reacted to the events. We are grateful to those educators who choose to share their reflections with us and we hope you find them interesting. If you would like to share your thoughts, please send them in an email to Roundtable@SSRN.Com, let us know whether you want to be identified by name. We will post the follow up as an addendum to this feature.

Abstract:
We investigate issuers withdrawing an IPO (after security regulation filings) that return later for a successful offering. Venture capital backing and reputation of the lead underwriter are key factors in predicting successful return. The possibility of returning has a significant impact on the choice to withdraw and the pricing of offerings that succeed. Our sample of returning IPOs also provides a unique setting to investigate underwriter switching after a withdrawal but before a successful IPO. We find that switching occurs in response to poor bank performance and when switching firms "graduate" to banks that have high industry market shares.

IPOs, withdrawals, return performance, investment bank reputation, switching

Abstract:
Using a comprehensive database of monthly U.S. economic and price-based factors from 1871 to 2005, we investigate the relationship between the actual values and our estimated intrinsic values of the S&P Composite Index. We estimate the intrinsic value using the most fundamental valuation technique, the dividend discount model based on an estimated 30-year rolling equity premium and corresponding cost of equity combined with perfect foresight of dividends. We find that stocks were undervalued, on average, by approximately 26% over the entire sample. Prior to 1945, stocks were consistently undervalued and displayed more bond-like characteristics. Since 1945, stocks were, on average, fairly valued but with long periods of under- and over-valuation. We show that across both periods well-known economic and price-based factors can explain much of the levels and changes in "pricing errors". Over this period the Fed Model also finds equities were under-valued, but its predictive ability decreases when one considers other factors. Because of the concerns surrounding the choice of discount rate in asset pricing research, we compare our estimated cost of equity (using the CAPM) with implied measures from the actual price and dividend series and observe that many of the differences are related to economic conditions.

Asset pricing, valuation, dividend discount model, multi-factor models

Abstract:
Finance professionals frequently value assets using fundamental valuation methods which discount the expected cash flows received by investors. Using information on the share price, dividend payments and earnings for a single firm over a period of more than 120 years, we compare the actual share price to the expected price - calculated using several of the most commonly used fundamental valuation methods. Since these methods depend on the estimation of inputs - such as the discount rate and growth rate - we discuss the sensitivity of the expected prices to different estimation techniques and the relevant assumptions across various economic conditions. Over our entire sample period, we find that dividend-based models perform well at explaining actual prices; they perform better than commonly used earnings-based models (such as the Fed Model).

Dividend Discount Model, Valuation

Abstract:
We investigate the changes in dividend policy for one of North America's oldest banks (and Canada's first bank), Bank of Montreal, over time by considering the relationships between dividends, prices and earnings for this prominent firm. In the early part of the sample we find that annual dividend and earnings changes are highly variable, with dividend changes following changes in earnings and a larger portion of investors' returns coming from dividends. Since World War II dividend policy has been characterized by more stable and gradual increases in dividends, with more of investors' returns coming from capital gains. Overall, our results suggest that investors' perception of dividends has changed over time, allowing management to pay smaller dividends and reinvest funds in the firm.

Abstract:
Previous studies suggest that trading-volume measures may proxy for a number of factors, including liquidity, momentum, and information. For relatively illiquid (typically smaller) stocks, investors may demand a liquidity premium, which can result in a negative relationship between trading volume (as a proxy for liquidity) and stock returns. For relatively liquid (typically larger) stocks-the focus of this article-momentum and information effects may dominate and result in a positive relationship between trading volume and stock returns. Portfolios of S&P 500 Index and large-capitalization stocks sorted on higher trading volume and turnover tend to have higher subsequent returns (holding periods of 1-12 months) than those with lower trading volume.

Equity Investments, Other, Financial Markets, Market Microstructure, Performance Measurement and Evaluation, Performance Attribution, Portfolio Management, Equity Strategies

Abstract:
This paper documents the frequency of non-trading for NYSE and Amex stocks based on information in the CRSP monthly and daily data files. We find a declining pattern of non-trading over the 1926 to 1990 period: 23.4 percent of NYSE stocks do not trade on an average (end of the month) day during the 1926 to 1945 period, compared with 1.29 percent on average over all days during the 1973-1990 period. In the 1973-1990 period, non-trading averaged more than 15 percent for Amex firms. We find that the average amount of non-trading is larger for smaller stocks, is lowest at the end of the year. We also find substantial heterogeneity in the amount of non- trading across the stocks within each size decile. For example, while 10 percent of the stocks in the smallest decile trade virtually every trade day, 10 percent of the stocks in that decile do not trade on 51 percent of the trade days during the year, and one percent do not trade on 76 percent of the trade days during the year. Finally, we briefly discuss some implications of our non-trading evidence for measured autocorrelations.

Abstract:
We use transaction data for Toronto Stock Exchange (TSE) listed stocks to examine the impact on trading costs of the decision to interlist on a U.S. exchange. We measure trading costs using both ?posted? bid-ask spreads and ?effective? bid-ask spreads that measure actual transaction prices relative to standing bid-ask quotes. After controlling for price level, trade size and trading volume effects, we find that overall ?posted? and ?effective? spreads in the domestic (TSE) market decrease subsequent to the interlisting. However, the decrease in trading costs is concentrated in those TSE stocks that experience a significant shift of total trading volume (TSE and U.S.) to the U.S. exchange after listing. We interpret this result in the context of theories of multi-market trading as a competitive response by TSE market makers to the additional presence of U.S. market makers.

Abstract:

SUBJECT AREAS: Risk Management, Risk Analysis, Pensions, Investments.
CASE SETTING: 1996, Canada, Pension Fund.

REQUEST FOR COPIES: To receive a copy of this case, please contact Steve Foerster, E-Mail: MAILTO:sfoerste@ivey.uwo.ca


The Ontario Teachers' Pension Plan Board, Canada's largest pension fund with over $40 billion in assets, had just listened to a presentation addressing a method for identifying and controlling the pension fund's exposure to market risks known as Value At Risk (or VAR). The Board needed to understand what VAR represented, what assumptions went into the risk management systems and how it might impact on policy decisions. This case introduces students to the risk management of investment portfolios, highlighting benefits and limitations. A teaching note is also available.


"Ontario Teachers' Pension Plan Board" Trilogy (Ivey Management Services, Inc.)

"Ontario Teachers' Pension Plan Board: The Asset Allocation Decision"

"Ontario Teachers' Pension Plan Board: Hedging Foreign Currency Exposure"

Abstract:


SUBJECT AREAS: International Finance, Foreign Exchange.
CASE SETTING: 1996, Canada, Pension FUND.

REQUEST FOR COPIES: To receive a copy of this case, please contact Andrew Karolyi, E-Mail: MAILTO:akarolyi@ivey.uwo.ca


The international investments program initiated in 1990 by the Ontario Teachers' Pension Plan, Canada's largest public pension fund, had created a large exposure to currency risk. Some successful tactical currency hedging activities in 1995 prompted management to pursue the possibility of a structured foreign currency hedging program. The issue before management was whether such a hedging program should be undertaken and what form it should take.

"Ontario Teachers' Pension Plan Board" Trilogy (Ivey Management Services, Inc.)


"Ontario Teachers' Pension Plan Board: The Asset Allocation Decision"


"Ontario Teachers' Pension Plan Board: Value At Risk"

Abstract:

SUBJECT AREAS: Portfolio Management, Investment Analysis, Pensions, Assets.
CASE SETTING: 1994, Canada, Pension Fund

REQUEST FOR COPIES: To receive a copy of this case, please contact Steve Foerster, E-Mail: MAILTO:sfoerste@ivey.uwo.ca


In 1994, William Booth, a member of the management team of the Ontario Teachers' Pension Plan Board (OTPPB), was asked to re-examine the diversification strategy that the $30 billion fund had been pursuing since its inception and to determine an optimal long-term asset allocation policy for the fund. After inheriting a portfolio that consisted entirely of fixed-income securities in 1990, by the end of 1993, the allocation to equity was only 20% short of a 1995 interim policy target of 66%. Booth's primary task was to determine whether the shift in asset mix should stop at 66% equity in 1995, which was above the allocation to equities for the average pension plan, or whether it should continue to some higher amount (an independent consultant recommended an 80% allocation to equity). Booth knew that a higher allocation to equities would likely increase total returns over the long-term, thereby reducing the cost of funding the plan. However, equities exhibited greater volatility than bonds and a higher allocation to equities therefore created some risk that future funding costs might rise above current levels. A teaching note is also available.


"Ontario Teachers' Pension Plan Board" Trilogy (Ivey Management Services, Inc.)


"Ontario Teachers' Pension Plan Board: Hedging Foreign Currency Exposure"


"Ontario Teachers' Pension Plan Board: Value At Risk"

Abstract:

Background:

This trilogy of cases is based on Ontario Teachers' Pension Plan Board, Canada's largest public pension plan (assets of $US 30 billion). The fund is only 7 years old and started with 100% of its assets in non-marketable Ontario debentures. In a short period, it faced a number of interesting issues, three of which are captured in the cases described below: 1) how to determine an appropriate asset mix, 2) whether or not to hedge foreign exposure, and 3) whether to institute a Value at Risk system.


"Ontario Teachers' Pension Plan Board: The Asset Allocation Decision"


"Ontario Teachers' Pension Plan Board: Hedging Foreign Currency Exposure"


"Ontario Teachers' Pension Plan Board: Value At Risk"

Abstract:
Why are many investors often disappointed by investments in stocks, particularly those with attractive track records of increasing stock prices, and to what extent is individual stock return predictability overlooked when investors make their investment decisions? We compare two groups of investors solely on the basis of the types of stocks in which they invest: we assume rational investors or "fundamentalists," are not concerned with recent stock price history while irrational investors or "noise investors" rely solely on whether a stock's price has recently doubled, e.g., within the past four years. We show that, over the subsequent four years, only the irrational noise investors are disappointed with their investments, with a cumulative excess return of -28% versus near-zero for the fundamentalists. Much of the cross-sectional variation in investment period returns can be explained not only by investment period market returns (a positive relationship) but also past stock performance (negative), past earnings (positive), and various valuation-related metrics measured at the start of the investment period. A probit model identifies ex ante variables that are able to predict whether or not a stock will at least double in value over the investment period. Investing in stocks with a high (ex ante) probability of doubling leads to annualized excess returns of 11%-20% greater than investing in stocks with a low probability of doubling. Finally, we show that a "doubling" portfolio (made up of stocks that have recently doubled in price) is quite different from the seminal DeBondt and Thaler (1985) "winner" portfolio and yet displays just as strong a reversal effect.

behavioral finance, overreaction, predictability, valuation, stock investments, survivorship bias