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Abstract:
The response of nineteen national stock market indexes to large movements in a world index is tested separately from a local investor and a U.S. perspective. There is substantial evidence that some countries overreact while others underreact. To the extent that the over- and underreactions can be anticipated, the subsequent market corrections may be anticipated as well. Applying a filter rule out-of-sample over a one-day period following the point in time of perceived under- or overreaction, significant gains are documented, which are especially pronounced on the day following a large world index movement. Consequently, the results documented here should enable investors to capitalize on mispriced country indexes.

To determine whether the corrections to the degree of under- or overreaction can be attributed to economic and market-related factors, a cross-sectional analysis is applied. This analysis determines that the correction to under- or overreaction is conditioned on the potential size of the market's speculative bubble, the economic growth surrounding the particular market, and the exchange rate volatility of the local currency at the time the under- or overreaction occurred.

Abstract:
While existing literature reports a positive market reaction to parent companies conducting carve-outs, we find that the response to carve-outs that are ultimately reacquired is negative or insignificant. Reacquired units perform considerably worse than those that are not reacquired. Thus, parents may perceive that the market does not recognize the potential of these poorly performing units, and reacquires them to capitalize on the parents' private information. The reacquisition announcement results in a favorable market reaction for the parents and the units. However, parents experience negative long-term buy-and-hold abnormal returns when they reacquire less than 100% of units' shares.

Abstract:
We investigate the price performance of closed-end funds that announce share-repurchase programs. Closed-end funds experience positive average stock-price reactions to the announcements. The long-run buy-and-hold abnormal returns of repurchasing funds over the subsequent three years are significantly higher than a nonrepurchasing control sample matched by size, type, investment style and geographic diversification. Funds with larger discounts, international funds, equity funds, and funds that announce larger repurchases or frequently announce repurchases, experience more positive stock-price reactions. Except for larger repurchases, the same characteristics are associated with more positive long-run buy-and-hold returns.

Abstract:
The Sarbanes-Oxley Act (SOX) imposes new requirements for firms going public. Many provisions of SOX should improve the transparency of U.S. firms going public and therefore reduce the uncertainty surrounding their valuation. We find that initial returns of initial public offerings (IPOs) in the United States have declined since SOX. Furthermore, the aftermarket performance of IPOs since SOX is significantly higher. While the expense of public reporting has increased in the United States because of SOX, the valuations of newly public firms at the time of the IPO are subject to less uncertainty and smaller aftermarket corrections.

Abstract:
The Sarbanes-Oxley Act (SOX) imposes new requirements for firms going public. Many provisions of SOX should improve the transparency of U.S. firms going public and therefore reduce the uncertainty surrounding their valuation. We find that initial returns of initial public offerings (IPOs) in the U.S. have declined since SOX. Furthermore, the aftermarket performance of IPOs since SOX is significantly higher. While the expense of public reporting has increased in the U.S. because of SOX, the valuations of newly public firms at the time of the IPO are subject to less uncertainty and smaller aftermarket corrections.

Initial public offering, IPO, Sarbanes-Oxley, price discovery, valuation, regulation

Abstract:
This study finds that downward earnings restatements are associated with negative industry valuation effects. These effects are more pronounced when the valuation effects and the change in earnings of the firm restating its earnings are worse, when the restatement is initiated for reasons other than fraud, when the bubble was bursting and when the restatement is subsequent to the publicity regarding Enron's fraud. The negative industry effects are more pronounced in industries that have a higher level of accruals and intangible assets, weaker sales growth, and a higher degree of stock volatility.

earnings restatements, industry effects, contagion effects

Abstract:
While previous literature reports a positive market reaction to parent companies conducting carve-outs, we find that the response to carve-outs that are ultimately reacquired is negative or insignificant. Reacquired units perform considerably worse than those that are not reacquired. Thus, parents may perceive that the market does not recognize the potential of these poorly performing units, and reacquires them to capitalize on the parents' private information. The reacquisition announcement results in a favorable market reaction for the parents and the units. However, parents experience negative long-term buy-and-hold abnormal returns when they reacquire less than 100% of units' shares.

Equity carve-out, reacquisition, blockholder, initial public offering, parent-subsidiary merger

Abstract:
Night trading provides an ideal laboratory to assess the behavior of stock markets when institutional liquidity providers are less active. The evidence indicates that extreme positive (winner) and negative (loser) stock price movements during night sessions are followed by reversals the next day. The reversals are more pronounced following extreme stock price movements that are associated with less trading volume and lower liquidity. Within-the-night sample reversals are less pronounced for stocks of companies issuing earnings announcements.

Market efficiency, liquidity, night trading, night session, overreaction, extreme price movements, winners, losers

Abstract:
This study investigates the motives for open-ending closed-end funds, and performance of closed-end funds following open-ending announcements. We find that the propensity to open end is higher for funds that are larger, have high expense ratios, exhibit high volatility, and whose prices reflect large discounts from net asset value. The total wealth effects of open-ending announcements are stronger for smaller closed-end funds, and in periods when market conditions are relatively weak. There is no observable evidence that the governance-related factors found to predict future open ending are being successfully used to extract higher gains.

Closed-end funds, open-end funds, open

Abstract:
We examine the industry valuation effects of analyst stock revisions and identify the variables that influence these effects. Our results show that industry rivals experience significant abnormal returns in response to revision announcements. Although the mean stock price response suggests contagion effects, there is also evidence of significant competitive effects. The valuation effects are influenced by the magnitude of the rated firm's announcement return, along with analyst-specific and industry-specific characteristics. However, the sensitivity of the valuation effects to these characteristics is conditioned on whether the industry effects are contagious or competitive.

Analyst forecasts, contagion

Abstract:
We design an empirical model to determine the prior probability of a bank becoming an acquisition target. We find that the probability of a bank being acquired is higher for banks that are larger, have a lower return on assets, a higher capital level, more non-performing loans, higher run-up in price, a lower market-to-book multiple, a higher core deposit ratio, and a higher loan concentration. The probability is also higher since the passage of the Riegle-Neal Act of 1994. We also examine whether the full gains to target banks are conditioned on the probability of being acquired. We find that the gains to target banks in the one-year pre-announcement period are more pronounced for banks that exhibit high-logit probability characteristics. The gains are large and significant in the short-term announcement period, but not significantly related to the logit probabilities among banks. Our results suggest that the share price adjustment for the characteristics that make some banks more appealing targets appears to be completed in the pre-announcement period. Thus, studies that estimate the gains to targets using only the announcement period are underestimating the gains.

Bank acquisitions, partial anticipation, merger gains, probability of acquisition

Abstract:
We find that profit-warning announcements elicit a strong negative market response that is not sensitive to timing of the warning in advance of the earnings announcement. Share prices begin to adjust about five days before a profit warning, and the market response is not complete until about five days after the warning. The accumulated response over the 11-day period ending five days after the announcement is -21.7%. The profit warning effect over the two-day announcement period is 32 times the valuation effect upon subsequent release of the actual earnings. There is no evidence of a reversal after this period, and therefore no sign that the market response is excessive.

Abstract:
Previous studies have found significant but time-varying valuation effects associated with REIT IPOs. Because REIT IPOs may disclose relevant information about real estate market conditions, they may serve to revalue existing real estate securities. To determine whether REIT IPOs signal information that is impounded into the share prices of other real estate securities, we assess the returns on "rival" portfolios of existing real estate securities upon the issuance of the IPO. On average, the "rival" portfolios experience insignificant effects on the REIT IPO filing date, but negative and significant abnormal returns around the issue date. A cross-sectional analysis of combined effects at the time of the filing date and issue date shows that the negative effects on the "rival" portfolios are more pronounced when (1) the size of the REIT IPO is larger, (2) market conditions are relatively weak, (3) more REIT IPOs come to market, and (4) the IPO is not associated with an umbrella partnership REIT.

REITs, IPOs, performance signaling

Abstract:
Tracking stock for a unit of a firm presumably allows the market to value and monitor that unit independently of the rest of the firm. Announcement of the creation of tracking stock elicits an abnormal share price response of 2.17% on average over a two-day period. The share price response at the time of the announcement is more favorable: when the voting rights of the tracking stock are based on a market valuation; when the parent company's debt ratio is relatively low; when the parent's previous stock performance is relatively poor; and when the parent is not engaging in an acquisition. These results are consistent with reduction of agency problems. At the same time, firms that create tracking stock do not experience higher long-term valuations, suggesting that agency problems are not resolved with the creation of tracking stock.

Abstract:
We examine the motivation and performance of closed-end funds that engage in seasoned public or rights offerings. We find that closed-end funds are more motivated to engage in seasoned offerings when their shares exhibit a relatively high premium (compared to their corresponding NAV) and have a high degree of liquidity. We also find a significant negative valuation effect on average in response to seasoned offerings by closed-end funds. Our cross-sectional analysis reveals that the valuation effect at the time of the seasoned offering is more unfavorable for funds that have relatively high expense ratios and are relatively large. Furthermore, we find that the closed-end funds experience significant negative valuation effects over the three-year period subsequent to the seasoned offering, implying poor post-offering performance.

Abstract:
We identify samples of losers and winners by selecting daily stock price returns in excess of ten percent (sign ignored) and determine whether these samples over- or underreact. We then identify "informed" events, which correspond to announcements in the Wall Street Journal (WSJ), and "uninformed" events, which are not explained in the WSJ. For winners, there is overreaction in response to uninformed events but no overreaction on average in response to informed events. This finding suggests the degree of overreaction to new information depends on whether the cause of the extreme stock price change is publicly released.

Abstract:
The purpose of this study is to extend the research on mutual fund performance persistence to net asset value and market price performance of domestic closed-end funds. While research has assessed the performance persistence of open-end mutual funds, it has not assessed the performance persistence of closed-end funds. Yet, the unique characteristics of closed-end funds allow stronger arguments for their persistence than the arguments previously submitted for open-end mutual funds. The results show evidence for risk-adjusted performance persistence.

Abstract:
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 was intended to enhance the safety of savings institutions. We develop and test a model showing how institution-specific characteristics modify the overall effect of FIRREA on the risk of savings institutions. Our model incorporates market risk, interest rate risk, and exposure to real estate conditions. We find that risk shifts vary across savings institutions. Larger institutions exhibit no obvious shift in risk, while smaller institutions show reduced risk since FIRREA. Moreover, the effects are more favorable for institutions that maintained higher capital levels in response to FIRREA's provisions.

Abstract:
Previous research on the returns to real estate investment trusts (REITs) has considered whether or not REITs are systematically exposed to general stock market risk and interest rate risk. This study examines how the sensitivity of REIT returns to these factors may be influenced by various REIT characteristics. Using a sample of publicly-traded REITs, we estimate the sensitivity of REIT returns to stock market and interest rate changes. We then propose and implement a model for testing whether or not differences in asset structure, financial leverage, management strategy, and degree of specialization in the REITs' portfolios are related to their sensitivity to interest rate and market risk. Our results permit us to offer some inferences about how REITs can alter their risk exposure by managing these characteristics.

Real estate investment trusts, return sensitivity

Abstract:
It is well documented that financing decisions by firms can signal valuable information about that firm. Our goal is to determine whether financing decisions by firms can signal valuable information about large stakeholders who have a substantial investment in those firms. In particular, we focus on financing decisions by firms after they had been partially acquired to determine whether these decisions signaled information that affected the values of their corresponding partial acquirers. We find that some financing policies by partially acquired firms may not only signal valuable information about themselves, but may also signal valuable information about their corresponding partial acquirers. We also find that the magnitude of the signal for the partially acquired firm that enacts a financing policy is dependent on the degree of monitoring imposed by the respective partial acquirer.

Abstract:
Our objective is to investigate the short-term over- or underreaction of six U.S. stock market indexes. We find evidence of a one-day underreaction for winners (days on which an index experiences abnormally high returns) and losers (days on which an index experiences abnormally poor performance). We also find strong evidence of a sixty-day underreaction for winners. For losers, abnormal returns turn from negative to positive as the period is extended, resulting in significant reversals over the sixty-day period. Results are generally consistent for each of the six indexes. Overall, these results provide strong support for the Uncertain Information Hypothesis.

Abstract:
We investigate the reaction of bank equity returns to changes in the relevant Federal Reserve (Fed) policy tool, which is the federal funds rate during periods of interest rate targeting and the discount rate during periods of reserves targeting. Three distinct policy periods from 1974 to 1996 are investigated. We find that bank equity returns are inversely related to changes in the relevant Fed policy tool and that the degree of sensitivity of bank equity returns is conditioned on the direction of the change in the Fed policy tool. Also, we find that values of larger banks and commercial banks with low capital ratios are more exposed to changes in the relevant Fed policy tool.

Abstract:
This study focuses on the economic exchange rate exposure of 168 U.S.-based multinational corporations (MNCs) with foreign operations primarily in Europe. The sampling plan and other refinements may improve the estimation of exposure and detection of relevant determinants. Operating characteristics that represent economic exposure are evaluated for their ability to explain cross-sectional differences in exposure. More specifically, the degree of imbalance, which is a proxy for matching cash inflows and outflows, and proportion of export sales are able to explain differential exposure. Furthermore, shifts in the degree of imbalance and proportion of export sales are found to significantly explain shifts in exposure.

Abstract:
Finance journal quality is a critical issue for faculty annual evaluations, for the tenure and promotion process, and for the administration of faculty workload plans. Unlike other studies that use objective measures(such as citation frequencies) to rate journals, this study focuses on the opinions of chairpersons about the relative quality of 55 finance, insurance, and real estate journals. A sample of 218 finance department chairpersons at AACSB accredited business schools were surveyed, and 125 responses were received (57.34% response rate). Besides overall aggregate scores, responses are segregated and tested for differences across several dimensions. The results offer interesting and current insight on general perceptions of journal quality.

Abstract:
The purpose of this study is to determine what firm-specific factors affect the risk of insurance companies. Traditional methods used to identify potential failures have been severely criticized. Thus, alternative approaches to risk assessment should be of interst to investors and managers of these companies. Models for measuring the impact of factors on risk are developed and empirically tested. The models employed expain a high proportion of variation in risk levels across companies. The sensitivity of insurance company risk to financial characteristics vary with the variable used as a proxy for risk and the type of insurance company assessed. Given the strong relationships between firm-specific characteristics and company risk, it appears that the risk of insurance companies can be effectively controlled with proper management.

Abstract:
Insurance company risk is assessed after their acquisitions. An acquisition may increase risk if it is a strategic mismatch, or an acquisition may reduce risk through cash flow diversification. Over thirty-six month periods surrounding insurance company acquisitions, systematic risk changes are examined. Results of this study suggest that no significant shifts in risk are likely to occur, which implies that acquisitions ought not to be pursued for the sole purpose of risk reduction. Instead, acquisitions should be driven by other potential benefits.

Abstract:
This study examines the market's reaction to foreign divestitures and explains why reactions vary across firms. A significant positive reaction is observed, which is similar in magniture to that observed for a matched control sample of domestic divestitures. The size of the reaction is positively realated to the relative size of the divested unit, and a more favorable reaction is observed when the divestiture is for strategic reorganization, to raise cash, and when the foreign unit is in an industralized host country. The results of this study hold important managerial implications.

Abstract:
Given their unique characteristics, insurers that adjust their dividends may create a unique signal. An event study methodology is used to measure the share price response of insurers to dividend increases, and matched control samples of banks and industrial firms are similarly assessed. The share price response for insurers is positive and significant. The magnitude of the response for life insurers is smaller than that of other types of insurers or industrial companies but is greater than that of banks. This result may be due to the relativly low level of capital maintained by life insurers. A cross-sectional analysis suggests that the share price responses across insurers are not related to firm-specific characteristics other than firms' main line of insurance business.

Abstract:
Valuation effects of insurers' security offerings are examined by measuring the share price response to announcements of impending security issues. Insurers exhibit unique characteristics that can cause the signal emitted by their security offerings to differ from that of other firms. An event methodology is used. Results of this analysis confirm that insurance company share prices react uniquely when compared to security offerings in other industries. For the entire sample, the market reaction in response to equity offerings or to debt offerings is more favorable than what has been found for industrial firms. Cross-sectional analyses suggest that abnormal returns associated with equity offerings are negatively related to the relative size of the offering and change in leverage and are positively related to growth in sales. Abnormal returns associated with debt offerings are positively related to the relative size of the offering and negatively related to growth in sales.