The friday the thirteenth effect in stock prices: international evidence using panel data

This examination of the Friday the 13th effect, in 62 international stock indices for the period 2000 to 2008, characterises the degree that the effect is influenced by: (i) the GDP of the economy and (ii) the sign of the return on the prior day. These effects are assessed by the use of an EGLS panel regression model incorporating panel corrected standard errors. The turn of the month effect on Fridays is also examined. Three important results relating to the Friday the 13th effect are observed. First, the depressed Friday the 13th effect is present when the return on the prior day is negative. Second, when the return on the prior day is positive, the depressed Friday the 13th effect is absent. Third, the depressed Friday the 13th effect is independent of the GDP of the country when the returns on control Fridays are used as the yardstick

Tests for weak form market efficiency in stock prices: Monte Carlo evidence

Efficiency in financial markets is tested by applying variance ratio (VR)tests, but unit root tests are also used by many, sometimes in addition to the VR tests. There is a lack of clarity in the literature about the implication of these test results when they seem to disagree. We distinguish between two different types of predictability, called "structural predictability" and "error predictability". Standard unit root tests pick up structural predictability. VR tests pick up both structural and error predictability

A note resolving the debate on “The weighted average cost of capital is not quite right”

Miller (2009a) derives a weighted average cost of capital for the special case where the cash flows to equity and the cashflows to debt are annuities. The paper attracts debate. We show that the weighted average cost of capital is redundant in a world where interest paid is not tax deductible. The required rate of return on unlevered equity will consistently and reliably estimate the net present value of any project no matter the idiocyncratic beliefs of the analyst as to the year-by-year leverage of the project, or of the firm. We recommend that the weighted average cost of capital method is discarded. Our recommendation also applies to a world where interest paid is tax deductible

Miller's (2009) WACC model: An extension

Miller (2009a) presents an analysis of the weighted average cost of capital WACC model. The paper attracts debate which uses a variety of repayment schedules to support the arguments raised. We present an extension of Miller's (2009a) WACC model in a world where interest is tax deductible and debt principal is paid at maturity. We also present the corresponding model for the required rate of return on levered equity which is a vital input to the WACC model. Since these models are unwieldy, we explore an alternative definition of the WACC. These models provide insights into the debate on Miller's (2009a) paper

Are economic profit and the internal rate of return merely accounting measures?

This paper explores the proposition that economic profit and the internal rate of return are merely accounting concepts. They share a number of common aspects. These include an allocation of capital that is unrelated to market forces and a treatment in the literature that focuses on the mathematics rather than the economics. We show that the two measures have limited, if any, economic content. Therefore we conclude that they are devoid of compelling theoretical interest in the domain of wealth maximization.peer-reviewe

Equity rights issues: theory and practice

Two primary issues are examined ln this study. Firstly, which financial variables are associated with the success of a rights issue. The results suggested that the market capitalisation, rela­tive size of the issue and the return on capital employed were of importance. The statistical significance of the discount, measured as the difference between the current market price and the subscrip­ tion price and the importance of the pre-issue share price was difficult to explain. Secondly, a postal questionnaire (n = 110) was used to determine private shareholders' knowledge of rights issues with particular reference to the importance of the issue price. The respondents were randomly chosen from two public companies and the data did not exhibit a statistically significant difference between the two groups Over half of the respondents showed an ill-informed view and were classed as naive. The naive view was independent of the shareholders' characteristics. We have strong evidence to argue that the sample is representative of private shareholders as a population. The respondents' attitude towards the new issue was in accord with the perfect market model. Three supplementary topics were examined. A superior method to measure the discount offered in a rights issue showed that the subscription price chosen by a sample of the rights issues in 1976 was not inconsistent with that expected from perfect market theory. Theoretical evaluation of The Stock Exchange's procedure to adjust traded call option contracts when the underlying security is subject to a rights issue argued that an inconsistent method was used. The examination of the equilibrium between the direct and indirect routes of equity purchase during the subscription period of a rights issue produced re ults that were not inconsistent with the mooted option characteristic of a right

Tests for weak form market efficiency in stock prices: Monte Carlo evidence

Efficiency in financial markets is tested by applying variance ratio (VR)tests, but unit root tests are also used by many, sometimes in addition to the VR tests. There is a lack of clarity in the literature about the implication of these test results when they seem to disagree. We distinguish between two different types of predictability, called "structural predictability" and "error predictability". Standard unit root tests pick up structural predictability. VR tests pick up both structural and error predictability.Unit Root, Weak Form Efficiency, Random Walk, Autocorrelation, Variance Ratio,

A meta-analysis of the international evidence of cloud cover on stock returns

Purpose – This paper provides a meta-analysis of the Hirshleifer and Shumway's results on the casual influence of daily cloud cover on stock index returns for 26 international stock exchanges. It aims to test whether these results are influenced by the location of the stock exchange and the development of the economy. Design/methodology/approach – A conventional meta-analytic procedure is used to synthesise the data. The effect size, of the influence of cloud cover on stock returns, is measured by the Fisher Z correlation coefficient. This is obtained from the t-statistic of the slope coefficient reported in the regression for each country. Two study characteristics are used to differentiate between the 26 stock exchanges. These are the latitude of the city and the per capita Gross Domestic Product of the country. Findings – The influence of cloud cover on stock returns becomes more negative as latitude increases and more negative as per capita Gross Domestic Product increases. A cloud cover effect does not exist at the equator. Practical implications – The implication is that trading rules based on cloud cover will be more profitable at higher latitudes. Originality/value – Meta-analyses are infrequently used in the Finance literature. This paper illustrates their utility.Climatic zones, Clouds, International financial institutions, Stock exchanges, Stock markets, Stock prices