Stock market patterns around directors’ trades: effects of director category and gender on market timing

Working paper; first version September 2007; this version July 2009We examine whether directors of UK companies can time the market when they trade in their own-company stock, using a comprehensive dataset on all directors’ trades from 1994-2006 for FTSE All Share companies and AIM-listed companies. We find that in the 20 days before a director’s buy (sell) trade prices fall (rise) such that abnormal returns are -2.48% (+2.17%); in the 20 days after a directors’ buy (sell) trade, abnormal returns are 1.55% (-1.19%). We go on to examine whether the category (executive or non-executive) and the gender (male or female) of the director differ in the information they posses about their own firms, how they trade on this information and how markets respond to their trades. We test both the information hierarchy hypothesis, that more senior corporate insiders have access to better information, and also a characteristics-based trading hypothesis, that the director’s trading pattern depends on the gender of the director. We find some support for the information hierarchy hypothesis, but no difference in the trading patterns and stock market response to directors’ gender differences, after conditioning on the category of director

Corporate social responsibility and firm value: disaggregating the effects on cash flow, risk and growth

The final publication is available at Springer via http://dx.doi.org/10.1007/s10551-013-1898-5This paper examines how the stock market values corporate social responsibility (CSR). We consider the multidimensionality of CSR and make a distinction between strengths and concerns. We disaggregate the effect on value by considering differences between forecasted profitability, long term growth and the cost of capital. For individual dimensions, in general strengths are valued positively, but weaknesses do not always detract from value. However, when an overall measure of CSR performance is employed, the result is a significant negative valuation of CSR concerns. These valuation effects are principally driven by CSR performance associated with better long run growth prospects, with a minor contribution made by a lower cost of equity capital

The Fama-French and momentum portfolios and factors in the UK

Working paperThe primary aim of this paper is to make available the Fama-French and Momentum portfolios and factors for the UK market to the wide community of UK academic and post-graduate researchers. As Michou, Mouselli and Stark (2007) note, there is no freely downloadable equivalent to the data on Ken French’s US website, and this paper is directed at remedying this situation. We depart from the majority of previous UK studies (with the exception of Agarwal and Taffler, 2008) by forming portfolios on 30th September each year, which we argue is more appropriate for the UK. Although we construct factors and portfolios for the UK, by extending tests to portfolios formed on differing bases, we add to the caution expressed in Michou, Mouselli and Stark (2007) on whether such factor models completely capture risk in the UK. Our recommendation is that any tests of long run abnormal returns in UK be based on characteristic-matched portfolios. The data underlying this paper can be downloaded from: http://xfi.exeter.ac.uk/researchandpublications/portfoliosandfactors

In search of beta

Despite the arguments that can be made against using the CAPM, it is very widely used in regulation. In particular, it is relied upon in setting utility prices in each of Australia, New Zealand and the United Kingdom, and also features in this context in Germany. In addition, UK competition authorities make use the CAPM to assess profitability in the case of “market investigations”. All of these applications require beta as an input into the CAPM, but the beta estimates typically vary depending on frequency of the returns data used. However, there is little evidence on how estimates of beta depend on the return frequency used in their estimation and in particular, their relationship to any firm characteristics. This study examines the evidence for Australia, Germany and the UK and broadly shows that longer frequency betas have superior characteristics for regulatory purposes in these countries. We find that differences in beta can be explained by size and liquidity factors. Our conclusions are unequivocal and have important policy implications for regulatory use of the CAPM, as they imply that low frequency beta estimates should always be preferred to high frequency beta estimates

Constructing and testing alternative versions of the Fama-French and Carhart models in the UK

Pre-print draft dated October 2011 issued as working paper by University of Exeter Business School.This paper constructs and tests alternative versions of the Fama-French and Carhart models for the UK market with the purpose of providing guidance for researchers interested in asset pricing and event studies. We conduct a comprehensive analysis of such models, forming risk factors using approaches advanced in the recent literature including value weighted factor components and various decompositions of the risk factors. We also test whether such factor models can at least explain the returns of large firms. We find that versions of the four-factor model using decomposed and value-weighted factor components are able to explain the cross-section of returns in large firms or in portfolios without extreme momentum exposures. However, we do not find that risk factors are consistently and reliably priced

Experience Teaches Slowly: Non‐linear Effects of Top Management Teams’ International Experience on Post‐acquisition Performance

Executives’ international experience is commonly considered a critical asset for multinational companies. The underlying presumption is that individuals learn from international experience. We revisit this presumption and propose a conceptualization of learning from international experience that accounts for the process and challenges of such learning. We use this conceptualization to examine how the international experience of top management team (TMT) members affects firm performance following cross-border acquisition decisions of these TMTs. Empirical analyses addressing potential endogeneity concerns show that high, but not low, levels of TMT international experience have a positive impact, and that these effects are moderated by TMT nationality diversity

GRSTEST: Stata module to implement the Gibbons et al. (1989) test in a single-factor or multi-factor setting

grstest implements the grs test proposed in Gibbons, M.R., Ross, S.A. & Shanken, J., 1989. A test of the efficiency of a given portfolio. Econometrica, 57(5), 1121-1152. grstest can implement this in a single or a multifactor setting automatically depending on the number of factors supplied to it.Gibbons, Ross, Shanken, portfolio return, factor model

HISTORAJ: Stata module to produce histogram with descriptive statistics

Historaj produces a histogram that also displays some descriptive statistics in a table within the plot region of the histogram. It displays the mean and points -1sd, -2sd, -3sd, +1sd, +2sd, +3sd away from the mean.The maximum and minimum points are also displayed on the histogram. Other descriptive statistics of the sample like median, skewness, kurtosis, p1, P99, P5, P95, P10, P90, P25 and P75 are also displayed. The program allows the user to specify whether the histogram is to be scaled to density units, fractional units, frequencies, or percentages.Even where the user selects a subsample by specifying if or in, the descriptive statistics of the whole sample are displayed in the results window. The user can also input a custom title and notes if required.Historaj produces a Histogram, with normal overlay, which is very similar to the example histogram in the help file for histogram see this here: histogram).which displays the histogram of the volume of S&P 500 from January 2001 - December 2001, sourced from Yahoo!Finance and Commodity Systems, Inc.histogram, normal distribution, descriptive statistics, graphics

HALLT-SKEWT: Stata module to compute skewness-adjusted bootstrap t-statistics

hallt implements a skewness adjusted bootstrapped t-statistic procedure. This is implemented in Eventus software for event studies as the skewness adjusted transformed normal test. skewt implements the skewness adjusted bootstrapped t-statistic procedure as in Lyon, John D., Brad M. Barber, and Chih-Ling Tsai, 1999, "Improved Methods for Tests of Long-Run Abnormal Stock Returns" The Journal of Finance 54, no. 1:165-201. Users can save the skewness adjusted bootstrapped t-statistics and also specify the proportion of the sample to use for the bootstrap.t-statistic, bootstrap, skewness, event studies