Chunchi Wu

Dynamic Relations among International Stock Markets

Abstract In this paper, we employ a multiple hypotheses testing method to examine the short-term dynamic relations among international stock markets. The test procedure systematically examines all relevant hypotheses for the relations between markets. The test procedure also allows us to isolate the effect of a third market in determining the short-term dynamic relations between two specific markets. The results show that significant dynamic relations exist among four major international stock markets and these relations appear to have been strengthened considerably after 1987. Our analysis shows that the return correlation among markets is much higher in more recent years. We also find an asymmetry of cross autocorrelation among international market returns in that the returns of large markets lead the returns of small markets. Furthermore, the results show that the Japanese market has a fairly strong influence on other markets after the impact of the U.S. market is isolated.

The Analytical Foundations of Adjustment Grid Methods

Within the market data approach to real estate appraisal, two basic types of analysis generally are used: (1) regression analysis; and (2) adjustment grid methods. The focus of this paper is on the adjustment grid methods. Three such methods are identified in the appraisal literature, but their analytical foundations are not clearly presented. The primary objective of this paper is to clarify the analytical foundations of each method. In addition, various ways to estimate the adjustment factors needed to apply the grid methods and a weighting scheme for reconciliation of indicated values are presented. Also, the possible advantage of grid-based over purely regression-based predictions is identified. Copyright American Real Estate and Urban Economics Association.

Daily Return Volatility, Bid-Ask Spreads, and Information Flow: Analyzing the Information Content of Volume

This paper examines the relationship among daily information flow, return volatility, and bid-ask spreads based on the framework of the mixture of distribution hypothesis (MDH). The MDH model is modified to permit separate effects of informed and liquidity trading volume on return volatility. The results show that the positive relationship between volatility and volume is primarily driven by the informed component of trading. When we control for the information flow, volatility is negatively related to trading volume. Furthermore, bid-ask spreads are positively related to the intensity of information flow.

Equilibrium of Housing and Real Estate Brokerage Markets Under Uncertainty

The purpose of this paper is to develop a model of the real estate brokerage and housing markets with imperfect information. The paper considers general equilibrium in these markets with and without a multiple listing service. Input prices are found to affect the equilibrium housing price, brokerage commission, and split factor. The introduction of a multiple listing service is found to have several important effects. The MLS causes housing value to increase, but its effect on the commission rate is indeterminate. Contrary to the results of another paper, MLS brokers, on average, will likely undertake more search for both buyers and listings than will a non-MLS broker. The primary reasons are related to the greater efficiency of search in the MLS context. Copyright American Real Estate and Urban Economics Association.

Two-step estimation of linear models with ordinal unobserved variables: The case of corporate bonds

This article proposes a two-step method for estimating the impact of bond indenture provisions and other financial variables on the risk and yields of investment-grade and speculative corporate bonds. In the first step, the default risk of bonds is estimated as a function of indenture provisions and the characteristics of bonds and the issuing firms by an ordered probit. In the second step, the effects of default risk and bond characteristics on yields are estimated after a measure of bond default risk is obtained by a conditional-mean method.

A Further Empirical Investigation of the Dividend Adjustment Process

Abstract This paper analyzes the dividend adjustment process in the presence of cost of adjustment and information uncertainty. It proposes an integrated model consistent with the practical decision process to characterize the dividend adjustment process. It is analytically demonstrated that the residual theory, partial adjustment and adaptive expectations models are all special cases of the integrated model specified in this paper. Marquardts non-linear regression method is adopted to estimate the parameters of the integrated model, using both quarterly and annual data of earnings and dividends from a randomly selected sample. Empirical results show that the integrated model better explains the firms dividend decision process.

Return Volatility, Trading Imbalance and the Information Content of Volume

In this paper, we examine the relationship between volume and return volatility using the transaction data. We introduce transaction and volume imbalance measures to capture the information content of trades. These two information measures are shown to have a strong explanatory power for return volatility and contain incremental information about the asset values over and above that conveyed by the size and frequency of trades. Also, return volatility is significantly correlated with the percentage of trading volume taking place at NYSE. This result suggests that NYSE trades are more informative and contribute more to price discovery. There is evidence that price discovery concentrates in more heavily traded stocks, particularly the Dow Jones Stocks. Finally, return volatility is found to be persistent at the intraday level. The persistence level is higher for less frequently traded stocks. Return volatility also exhibits temporal variations. In particular, return volatility is significantly higher in the opening half-hour for less frequently traded stocks. Thus, stocks with different frequencies of trades may follow different volatility processes.

Personal Taxes, Endogenous Default, and Corporate Bond Yield Spreads

Term structure models have often been criticized for failing to explain satisfactorily the yield spread between corporate and Treasury bonds. A potential problem is that the personal tax effect is ignored in these models. In this paper, we employ a structural model to investigate the role of personal taxes on both debt and equity returns in capital structure decisions and assess their impact on corporate bond yield spreads. It is shown that personal taxes affect the firms optimal capital structure, and the tax premium explains a substantial portion of yield spreads, especially for high-grade bonds. The predictive ability of the model for yield spreads is much improved when personal tax effects are accounted for. In controlling for the liquidity effect, we obtain implied personal income tax rates closely in line with Grahams (1999) estimates.

The Heterogeneous Investment Horizon and the Capital Asset Pricing Model: Theory and Implications

This paper generalizes the risk-return relationship implied by the traditional capital asset pricing model with finite investment horizons. It examines the effect of heterogeneous investment horizons on the functional form of capital asset pricing and proposes a translog model for estimating the risk-return relationship. In addition, this paper contends that some empirical findings that are inconsistent with the traditional CAPM have resulted from misspecification of the CAPM by ignoring the discrepancy between the observed data periods and the true investment horizons. Finally, the paper shows that under various conditions, the translog model is a suitable function for estimating the relationship between risk and expected returns.

Economic Sources of Asymmetric Cross-Correlation among Stock Returns

Abstract We suggest an alternative framework to explain the asymmetric return cross (serial)-correlation. We identify two major sources of the asymmetric cross-correlation: (1) the difference in the sensitivity of stock returns to economic factors, and (2) the differential quality of information between large and small firms. We find that the difference in the response of stock prices to economic factors is an important determinant of the first-order cross-correlation relative to firm-specific factors. Further evidence suggests that the asymmetric cross-correlation is mainly attributed to differences in the sensitivity of stock prices to market-wide information and the differential quality of cash flows information between large and small firms.