Donald B. Keim

Size-related anomalies and stock return seasonality : Further empirical evidence

This study examines, month-by-month, the empirical relation between abnormal returns and market value of NYSE and AMEX common stocks. Evidence is provided that daily abnormal return distributions in January have large means relative to the remaining eleven months, and that the relation between abnormal returns and size is always negative and more pronounced in January than in any other month - even in years when, on average, large firms earn larger risk-adjusted returns than small firms. In particular. nearly fifty percent of the average magnitude of the ‘size effect’ over the period 1963-1979 is due to January abnormal returns. Further, more than lifty percent of the January premium is attributable to large abnormal returns during the first week of trading in the year, particularly on the first trading day.

Predicting returns in the stock and bond markets

Abstract Several predetermined variables that reflect levels of bond and stock prices appear to predict returns on common stocks of firms of various sizes, long-term bonds of various default risks, and default-free bonds of various maturities. The returns on small-firm stocks and low-grade bonds are more highly correlated in January than in the rest of the year with previous levels of asset prices, especially prices of small-firm stocks. Seasonality is found in several conditional risk measures, but such seasonality is unlikely to explain, and in some cases is opposite to, the seasonal found in mean returns.

Transactions costs and investment style: an inter-exchange analysis of institutional equity trades

This paper examines the magnitude and determinants of transactions costs for a sample of institutional traders with different investment styles. Using order-level data for recent equity transactions totaling

Anatomy of the Trading Process: Empirical Evidence on the Behavior of Institutional Traders

83 billion, we find that trading costs are economically significant and increase with trade difficulty. In addition, costs vary with traderspecific factors such as investment style and order submission strategy, as well as stock-specific factors such as exchange listing. We find evidence that institutional trades in exchange-listed stocks have lower costs than in comparable Nasdaq stocks.

What Does the Stock Market Tell Us About Real Estate Returns

This paper examines the behavior of institutional traders using unique data on the equity transactions of 21 institutions of differing investment styles during 1991-1993. The data provide a detailed account of the anatomy of the trading process, and include information on the number of days needed to fill an order and types of order placement strategies employed. We analyze the motivations for trade, the determinants of trade duration, and the choice of order type. The analysis provides some support for the predictions made by theoretical models, but suggests that these models fail to capture important dimensions of trading behavior.

Trading patterns, bid-ask spreads, and estimated security returns: The case of common stocks at calendar turning points

This paper analyzes the risks and returns of different types of real estate-related firms traded on the New York and American stock exchanges (NYSE and AMEX). We examine the relation between real estate stock portfolio returns and returns on a standard appraisal-based index, and find that lagged values of traded real estate portfolio returns can predict returns on the appraisal-based index after controlling for persistence in the appraisal series. The stock market reflects information about real estate markets that is later imbedded in infrequent property appraisals. Additional analysis suggests that the differences in the return and risk characteristics across different types of traded real estate firms can be explained in part by appealing to real estate market fundamentals relating to the degree of dependence of the real estate firm upon rental cash flows from existing buildings. These findings highlight the heterogeneity of securitized real estate-related firms. Copyright American Real Estate and Urban Economics Association.

Dividend yields and stock returns: Implications of abnormal January returns

Abstract Returns computed with closing bid or ask prices that may not represent ‘true’ prices introduce measurement error into portfolio returns if investor buying and selling display systematic patterns. This paper finds systematic tendencies for closing prices to be recorded at the bid in December and at the ask in early January. After changing bid and ask prices are controlled for. this pattern results in large portfolio returns on the two trading days surrounding the end of the year, especially for low-price stocks. Other temporal return patterns (e.g. weekend and holiday effects) are also related to systematic trading patterns.

Institutional Investors and Stock Market Liquidity: Trends and Relationships

Abstract This study examines the empirical relation between stock returns and (long-run) dividend yields. The findings show that much of the phenomenon is due to a nonlinear relation between dividend yields and returns in January. Regression coefficients on dividend yields, which some models predict should be non-zero due to differential taxation of dividends and capital gains, exhibit a significant January seasonal, even when controlling for size. This finding is significant since there are no provisions in the after-tax asset pricing models that predict the tax differential is more important in January than in other months.

Packaging Liquidity: Blind Auctions and Transaction Efficiencies

In this paper we show that institutional participation in the U.S. stock market in recent decades has played an ever increasing role in explaining cross-sectional variation in stock market illiquidity. We first document trends in the growth of institutional stock ownership using the 13F holdings, extending the evidence by thirteen years to the end of 2010. In contrast to previous research, we find that institutions, and particularly hedge funds, have increased their holdings of smaller stocks and decreased their holdings of larger stocks over this period. Institutions currently underweight the largest stocks and overweight the smallest stocks relative to market weights. We then examine the relation between illiquidity and two measures of institutional stock ownership – the percentage of a stock owned by institutions and the number of institutions that own the stock – both in the cross section and through time. We find that: (1) the number of institutions that own and trade a stock is more important than the percentage of institutional ownership in explaining the cross-sectional variability of illiquidity; and (2) the power of the number of institutional owners in explaining illiquidity is significantly stronger in the second half of our sample period.

Daily returns and size-related premiums: One more time

The costs of implementing investment strategies represent a significant drag on the performance of mutual funds and other institutional investors. It is the responsibility of institutional investors, and in the interests of the individual investors they represent, to seek market mechanisms that mitigate trading costs. We investigate an example of one such liquidity provision mechanism whereby liquidity demanders auction a set of trades as a package directly to potential liquidity providers. A critical feature of the auction is that the identities of the securities in the package are not revealed to the bidder. We demonstrate that this mechanism provides a transactions cost savings relative to more traditional trading mechanisms for the liquidity demander as well as an efficient way for liquidity suppliers to obtain order flow. We argue that the cost savings afforded this new mechanism are due to the potential for low cost crosses with the bidders existing inventory positions and through the longer trading horizon, and superior trading ability, of the bidders. This research suggests that the ability to innovate via new liquidity provision mechanisms can provide market participants with transaction cost savings that cannot be easily duplicated on more traditional exchanges.