Conditional Skewness of Aggregate Market Returns

WP 2009-22 June 2009JEL Classification Codes: G12; C1The skewness of the conditional return distribution plays a significant role in financial theory and practice. This paper examines whether conditional skewness of daily aggregate market returns is predictable and investigates the economic mechanisms underlying this predictability. In both developed and emerging markets, there is strong evidence that lagged returns predict skewness; returns are more negatively skewed following an increase in stock prices and returns are more positively skewed following a decrease in stock prices. The empirical evidence shows that the traditional explanations such as the leverage effect, the volatility feedback effect, the stock bubble model (Blanchard and Watson, 1982), and the fluctuating uncertainty theory (Veronesi, 1999) are not driving the predictability of conditional skewness at the market level. The relation between skewness and lagged returns is more consistent with the Cao, Coval, and Hirshleifer (2002) model. Our findings have implications for future theoretical and empirical models of time-varying market return distributions, optimal asset allocation, and risk management

Essays on pricing models in economics and finance.

This dissertation is a collection of two essays on pricing models in the following markets: the securities market and the consumer-good market. The first essay is 'The role of capital structure in tests of asset pricing models.' This essay examines the effect of capital structure of firms in the cross-sectional tests of average equity returns and the time-series tests of the predictability of equity returns. The analysis shows that the capital structure effect may be the source of the relation between average equity returns, size, and book-to-market value. The capital structure effect may also be the cause of continuation in the medium horizon and reversal in the long horizon of equity returns. The empirical test results reveal that 50% of the relation between size, book-to-market value, and average equity returns is explained by the capital structure effect. The results also show that 80% of reversal in the long horizon and 30% of continuation in the medium horizon of equity returns are due to the capital structure effect. There remains, however, economically significant equity return continuation in the medium horizon unexplained. The second essay is 'The preference of the rich and famous: a theory of conspicuous consumption.' This essay explains why some goods are purchased for conspicuous consumption at prices significantly above producer's marginal costs even with no barriers to entry into the market. Our explanation relies on modeling conspicuous consumption as a signaling game in which wealthy individuals consume conspicuously as a way to signal their wealth to society in order to obtain higher social status. This essay addresses the fact that signaling-motivated consumption must be conspicuous and the very act of consuming these goods has a discrete cost attached to it. It is showed that a signaling equilibrium with price can arise in a utility-maximizing framework in which the single-crossing-property condition holds. Results show that the higher the cost of display, the more likely is the consumer to signal by purchasing high-price conspicuous goods. The lower the free display units available, the higher the equilibrium prices of the conspicuous good. This essay also examines characteristics that determine which goods qualify for signaling-motivated conspicuous consumption. It is shown that goods with higher variability of consumption utility in the cross-section of consumers are accepted as conspicuous goods at higher prices that those with lower variability when their cross-sectional mean utilities are equal.Ph.D.EconomicsFinanceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/132542/2/9977131.pd

Market-Wide Short-Selling Restrictions *

Abstract In this paper, we examine the effect of market-wide short-sale restrictions on skewness, volatility, probability of market crashes, liquidity, and expected market returns or the cost of capital. We report new data on the history of short-selling and put option trading regulations and practices from the 111 countries that have a stock exchange, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that short-sale restrictions do not affect either the level of skewness of returns or the probability of a market crash. When short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. Expected returns are lower when short-selling is possible, and when countries start allowing short-selling, aggregate stock price increases. This result differs from the effect of short-selling constraints of individual stocks on stock returns reported in existing studies. At the market level, the lower expected return investors require due to lower volatility and increase liquidity dominates the Miller (1977)' over pricing effect, which appears to dominate at the firm level. Collectively, our empirical evidence suggests that allowing short sales enhances market quality. JEL classification code: G15, G12 Keywords: Short-sale constraints; Stock returns; Cost of capital; International finance * This research would not have been possible without the information we received from representatives of the 111 stock markets and foreign nationals in the finance industry whom we contacted. We are deeply indebted to them. We would also like to thank Alex Butler, Carole Market-Wide Short-Selling Restrictions Abstract In this paper, we examine the effect of market-wide short-sale restrictions on skewness, volatility, probability of market crashes, liquidity, and expected market returns or the cost of capital. We report new data on the history of short-selling and put option trading regulations and practices from the 111 countries that have a stock exchange, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that short-sale restrictions do not affect either the level of skewness of returns or the probability of a market crash. When short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. Expected returns are lower when short-selling is possible, and when countries start allowing short-selling, aggregate stock price increases. This result differs from the effect of short-selling constraints of individual stocks on stock returns reported in existing studies. At the market level, the lower expected return investors require due to lower volatility and increase liquidity dominates the Miller (1977)' over pricing effect, which appears to dominate at the firm level. Collectively, our empirical evidence suggests that allowing short sales enhances market quality.

A Study of Market-Wide Short-Selling Restrictions

WP 2009-21 June 2009JEL Classification Codes: G15; G12This paper contributes empirical evidence to the on-going debate on short sales. Our examination of how market-wide short-sale restrictions affect aggregate market returns focuses on two main questions: What is the effect of short-sale restrictions on skewness, volatility, the probability of market crashes, and liquidity? What is the effect on the market expected return or cost of capital? We report new data on the history of short-selling and put option trading regulations and practices from 111 countries, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that when short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. When countries start to permit short-selling, aggregate stock price increases, implying lower a cost of capital. There is no evidence that short-sale restrictions affect either the level of skewness of returns or the probability of a market crash. Collectively, our empirical evidence suggests that allowing short-selling enhances market quality

A Study of Market-Wide Short-Selling Restrictions

This paper contributes empirical evidence to the on-going debate on short sales. Our examination of how market-wide short-sale restrictions affect aggregate market returns focuses on two main questions: What is the effect of short-sale restrictions on skewness, volatility, the probability of market crashes, and liquidity? What is the effect on the market expected return or cost of capital? We report new data on the history of short-selling and put option trading regulations and practices from 111 countries, and create a short-selling feasibility indicator for the analysis of stock market indices around the world. We find that when short-selling is possible, aggregate stock returns are less volatile and there is greater liquidity. When countries start to permit short-selling, aggregate stock price increases, implying lower a cost of capital. There is no evidence that short-sale restrictions affect either the level of skewness of returns or the probability of a market crash. Collectively, our empirical evidence suggests that allowing short-selling enhances market quality

Conditional Skewness of Aggregate Market Returns

The skewness of the conditional return distribution plays a significant role in financial theory and practice. This paper examines whether conditional skewness of daily aggregate market returns is predictable and investigates the economic mechanisms underlying this predictability. In both developed and emerging markets, there is strong evidence that lagged returns predict skewness; returns are more negatively skewed following an increase in stock prices and returns are more positively skewed following a decrease in stock prices. The empirical evidence shows that the traditional explanations such as the leverage effect, the volatility feedback effect, the stock bubble model (Blanchard and Watson, 1982), and the fluctuating uncertainty theory (Veronesi, 1999) are not driving the predictability of conditional skewness at the market level. The relation between skewness and lagged returns is more consistent with the Cao, Coval, and Hirshleifer (2002) model. Our findings have implications for future theoretical and empirical models of time-varying market return distributions, optimal asset allocation, and risk management

Conditional Skewness of Aggregate Market Returns

The skewness of the conditional return distribution plays a significant role in financial theory and practice. This paper examines whether conditional skewness of daily aggregate market returns is predictable and investigates the economic mechanisms underlying this predictability. In both developed and emerging markets, there is strong evidence that lagged returns predict skewness; returns are more negatively skewed following an increase in stock prices and returns are more positively skewed following a decrease in stock prices. The empirical evidence shows that the traditional explanations such as the leverage effect, the volatility feedback effect, the stock bubble model (Blanchard and Watson, 1982), and the fluctuating uncertainty theory (Veronesi, 1999) are not driving the predictability of conditional skewness at the market level. The relation between skewness and lagged returns is more consistent with the Cao, Coval, and Hirshleifer (2002) model. Our findings have implications for future theoretical and empirical models of time-varying market return distributions, optimal asset allocation, and risk management.Conditional skewness, Conditional Volatility, Predicting Skewness, Aggregate market returns, International finance, Financial Economics, Marketing, Research Methods/ Statistical Methods, G12, C1,

Information, Selective Disclosure, and Analyst Behavior

"This paper examines whether the prohibition of selective disclosures to equity research analysts mandated by Regulation FD alters the amount of information and the manner in which it is revealed to the market. We demonstrate that equity research analysts are more responsive to information contained in company-initiated disclosures after Reg FD, suggesting that regulation has affected the importance of various channels of communication. We also present evidence consistent with the notion that managers use earnings guidance as a substitute for selective disclosure following the passage of Reg FD." Copyright (c) 2009 Financial Management Association International..

Resultados clínicos de queratoprótesis con tejido autólogo

Objetivos: Estudiar la supervivencia en el ojo y el resultado visual de la queratoprótesis con tejido autólogo, tanto de un diente canino como de una pieza de tibia, así como el impacto del diagnóstico primario pre-operatorio, de la edad y de las complicaciones post-operatorias sobre estos resultados. Comparar la supervivencia en el ojo y el resultado visual entre las queratoprótesis que se utilizó diente (osteo-odonto-queratoprótesis) y aquellas que se utilizó una pieza de tibia (osteo-queratoprótesis tibial), así como la diferencia de incidencia de complicaciones post-operatorias entre ambos tipos de queratoprótesis. Métodos: Se ha realizado un estudio retrospectivo de 258 ojos en 258 pacientes que fueron implantados de queratoprótesis con tejido autólogo, sea diente o tibia, entre los años 1974 y 2013. Se implantaron osteo-odonto-queratoprótesis en 145 ojos y osteo-queratoprótesis tibial en 113. La supervivencia anatómica es el tiempo en el que la queratoprótesis permanece en el ojo mientras que la supervivencia funcional es el tiempo en el que el ojo implantado de queratoprótesis mantiene una agudeza visual igual o superior a 0,05 en la escala decimal. Resultados: La supervivencia anatómica de la queratoprótesis con tejido autólogo es de 72%, 62% y 55% a los 5, 10 y 15 años después de la cirugía respectivamente, mientras que la supervivencia funcional es de 43%, 32% y 26% a los 5,10 y 15 años post-operatorio respectivamente. En las enfermedades autoinmunes, la queratoprótesis con tejido autólogo tiene tendencia a tener peor supervivencia anatómica, mientras que la quemadura térmica tiene un impacto negativo en la agudeza visual de los pacientes con este tipo de queratoprótesis. El impacto de la edad sobre la retención de la queratoprótesis con tejido autólogo en el ojo no es significativo, mientras que aquellos pacientes jóvenes de entre 10 y 29 años tienen menos riesgo de tener una agudeza visual inferior a 0,05 en la escala decimal. Los pacientes que tras ser implantados de queratoprótesis con tejido autólogo tuvieron necrosis de la mucosa bucal, tienen peor supervivencia anatómica mientras que aquellos que tuvieron múltiples complicaciones o desprendimiento de retina son los que tienen peor supervivencia funcional. La supervivencia anatómica entre la osteo-odonto-queratoprótesis y la osteo-queratoprótesis tibial no es significativamente diferente mientras que la supervivencia funcional es mejor en aquellas queratoprótesis que se utilizó diente que en las que se utilizó una pieza de tibia. Este último resultado puede estar influenciado por un mejor potencial visual en los pacientes con osteo-odonto-queratoprótesis. Conclusión: Los resultados anatómicos y funcionales de la implantación de queratoprótesis con tejido autólogo pueden depender del tipo de tejido que se utiliza, del diagnóstico primario pre-operatorio, de la edad y de las complicaciones post-operatorias. Los conocimientos del impacto de estos factores en esta cirugía pueden servir para evaluar el pronóstico y decidir el tratamiento en cada caso adecuadamente.Purposes: To report the results of keratoprosthesis retention rate and its visual outcome when using autologous tissue, both tooth and tibial bone, and to analyze the impact of primary pre-operative diagnosis, patient’s age and post-operative complications on these results. To compare the results of keratoprosthesis retention rate and its visual outcome between those using tooth (osteo-odonto-keratoprosthesis) and those using tibial bone (tibial bone osteo-keratoprosthesis) and to compare the incidence rate of post-operative complications between the two types of keratoprosthesis. Methods: A retrospective study has been done in 258 eyes from 258 patients to whom keratoprosthesis using autologous tissue, either tooth or tibial bone, was implanted between 1974 and 2013. Osteo-odonto-keratoprosthesis was implanted in 145 eyes while tibial bone osteo-keratoprosthesis was implanted in 113. Anatomical survival rate is defined as retention of the keratoprosthesis lamina in the eye while functional survival rate is the time during which the best corrected visual acuity is better than or equal to 0.05 in decimal scale. Results: The anatomical survival rate of keratoprosthesis using autologous tissue is 72%, 62% and 55% at 5, 10 and 15 years after surgery respectively, while the functional survival rate is 43%, 32% and 26% at 5, 10 and 15 years post-op respectively. The keratoprosthesis using autologous tissue in patients with autoimmune diseases has a tendency to have worse anatomical survival rate while thermal burn has a negative impact on visual outcomes. The impact of age on the anatomical survival rate is not significant while those young patients aged between 10 and 29 years have less risk to have a visual acuity worse than 0.05 in decimal scale. Patients that had post-op buccal mucosa necrosis have the worst anatomical survival rate while those who had multiple complications or retinal detachment have the worst functional survival rate. The anatomical survival rate between osteo-odonto-keratoprosthesis and tibial bone osteo-keratoprosthesis is not significantly different while functional rate of those keratoprosthesis using tooth is better than those using tibial bone. This last result may be influenced by a better visual potential in patients with osteo-odonto-keratoprosthesis. Conclusion: The anatomical and functional results of keratoprosthesis using autologous tissue may depend on the type of tissue used, primary pre-operative diagnosis, patient’s age and post-operative complications. Knowledge about the impact of these factors on this surgery can help the surgeon to evaluate the prognosis and to decide for the adequate treatment