Productivity and Stock Returns: 1951 - 2002

There is considerable concern whether the decline in stock market returns will eventually exert negative changes in the productivity data. This paper examines the long run, or the equilibrium, relationship between productivity and stock returns for the 1951-2002 period. It introduces the notion of equilibrium as represented by the co-movements of economic variables in the long run. This notion is viewed to be broader than the economic theory definition of equilibrium that usually means market clearance. Acknowledging that structural changes in economic time series are hard to detect, an alternative approach employing pair-wise and multifactor cointegration along with VAR modeling is employed. Within this framework, the relationships among productivity, stock prices (returns), investment, and corporate cash flows are pair-wise and jointly investigated. The results indicate that productivity and stock prices share a common trend; so do the stock prices and corporate net cash flows. The long-run common trend between investment and stock prices on the other hand is not so clear. The implications of these results for investors and policy-makers are discussed

ADRs under momentum and contrarian strategies

Given the recent growth in the American Depositary Receipts (ADRs) and the current general climate of globalization in world equity exchanges, this paper investigates the ADRs as a distinct group of stocks within the framework of momentum and contrarian strategies. It considers the entire body of the level III ADRs from January 1982 to December 2005 and provides an analysis of their performance under various momentum and contrarian strategies. The methodology that is employed draws upon and is an extension of Lo and Mackinlay [Lo, Andrew W. and A. Craig MacKinlay, 1990. When are contrarian profits due to stock market overreaction? Review of Financial Studies, v3 (2), 175-206.] and Jegadeesh and Titman [Jegadeesh, Narasimhan and Sheridan Titman, 2001. Profitability of momentum strategies: An evaluation of alternative explanations, Journal of Finance, v56 (2, Apr), 699-720.]. The results indicate considerable support for the presence of the momentum and contrarian strategies in the ADRs market. The profitability of such strategies obviously runs counter to the efficient market hypothesis. These issues are elaborated upon and suggestions for further research are offered.American Depositary Receipts (ADRs) Global investment Global stock portfolio