Index tracking in Australian equities

The growth in passive investment management has been significant over the last decade. Total assets benchmarked to the S&P SOO index exceed US$I trillion, and a similar experience of investors embracing indexing have been recorded across other Western countries, including the UK, Canada and Australia

A Fundamental Problem with Single Measure Event Studies and the Case of Qualified Audit Reports

This study draws on the case of event studies of qualified audit reports to illustrate that despite numerous improvements in research design, findings do not converge over time. The conflicting evidence is attributed to the nature of the market for a company\u27s shares, and the fact that past studies rely only on one measure of information content, namely, price change or volume change measures. After construction of a simple micromarket structure of a company\u27s shares by drawing on traditional microeconomics, qualitative comparative statics are used to identify the circumstances in which either the volume or the price change caused by a revision of investor expectations, is relatively reduced. Insights are also provided into the question of post-event volume of trading

An Empirical Study of the Effect of Short Selling on the Bid Ask Spread

Soon selling was legally and uniformly reintroduced in Australia in 1986. This presented the opportunity to study the effects of permitting soon selling on stock market trading. The following study aims to determine the impact of short selling on the bid ask spread and thus transaction costs. The evidence presented in this paper supports the notion that soon selling acts to reduce the size of the bid ask spread. The public policy implication is that soon selling is desirable as it acts to reduce the size of transactions costs on the stock exchange

Earnings as an Explanatory Variable for Returns: A Note

Easton and Harris (1991) [herein EH], in a recent article, investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings/returns associations [p 19]. As stated by EH, the contribution of their study stems from their variable of interest, which is not the earnings-to-price ratio based on contemporaneous (past) earnings and contemporaneous (past) price which has dominated earlier studies. Despite their excellent empirical work, unfortunately, their theorising is somewhat ad hoc and they admit that for certain aspects of their theorising we provide a more heuristic analysis [footnote, p. 8]. It is the purpose of this paper to provide a derivation of the relationship between the level of earnings divided by the beginning of period stock price and stock returns, using the well known and widely accepted Gordon growth model of stock valuation originally attributed to Gordon and Shapiro (1956), and the behavioural dividend model originally developed and tested by Lintner (1959). The model derived provides alternative interpretations of the parameters of the empirical model estimated by EH, and suggests that one of the variables and the fundamental model estimated by EH is mis-specified