J. Michael Pinegar

International evidence on the robustness of the day-of-the-week effect

Consistent with Connollys (1989), (1991) evidence, this study finds that sample size and/or error term adjustments render U.S. day-of-the-week effects statistically insignificant. In contrast, day-of-the-week effects in seven European countries and in Canada and Hong Kong are robust to individual sample size or error term adjustments, and day-of-the-week effects in five European countries survive the simultaneous imposition of both types of adjustments. In most countries where day-of-the-week effects are robust, however, the effects are statistically significant in not more than two weeks out of the month. These findings are inconsistent with explanations of the day-of-the-week effect based on institutional differences or on the arrival of new information. Thus, in the absence of other potential explanations already dismissed by Jaffe and Westerfield (1985), evidence in this study further complicates the international day-of-the-week effect puzzle.

Does futures trading increase stock market volatility? The case of the Nikkei stock index futures markets

Abstract We propose new tests to examine whether stock index futures affect stock market volatility. These tests decompose spot portfolio volatility into the cross-sectional dispersion and the average volatility of returns on the portfolios constituent securities. Our tests show that for Nikkei stocks spot portfolio volatility increased and cross-sectional dispersion decreased compared with average volatility when Nikkei futures began trading on the Osaka Securities Exchange, but not on the Singapore International Monetary Exchange. For non-Nikkei stocks, no shift occurred when futures trading began on either exchange. These findings are consistent with the hypotheses that futures trading increases spot portfolio volatility but that there is no volatility “spillover” to stocks against which futures are not traded. However, the increase in volatility attributable to futures trading is small compared with volatility shifts induced by changes in broad economic factors.

The effect of issuing preferred stock on common and preferred stockholder wealth

Abstract Generally, utilities issue straight fixed-rate preferreds, industrials issue convertible fixed-rate preferreds, and financials issue adjustable-rate preferreds. The corresponding announcement-period common stock abnormal returns are economically insignificant for utilities, negative and significant at the 0.05 level for industrials, and positive and significant at the 0.10 level for financials. Information effects explain the cross-sectional results for industrial firms, but tax benefits and/or regulatory conditions are more likely explanations of the results documented for financial corporations and utilities. Returns to preferred stockholders support neither the wealth redistribution- hypothesis nor the price-pressure hypothesis.

Cross-autocorrelation in Asian stock markets

Five Asian stock markets (Hong Kong, Japan, South Korea, Taiwan, and Thailand) and the U.S. stock market are evaluated for evidence of cross-autocorrelation. We find evidence of Lo and MacKinlays (1990a) cross-autocorrelation in each of the five Asian markets. Specifically, within each country, monthly returns on a portfolio of small stocks are correlated with the lagged returns on a portfolio of large stocks. We also find weak evidence of across-ocean and inter-Asian cross-autocorrelation; in several countries, monthly returns on portfolios of small Asian stocks are correlated with the lagged return on a portfolio of large U.S. stocks and large stocks in other Asian countries. We also confirm McQueen, Pinegar, and Thorleys (1996) finding of directional asymmetry in the U.S., with small stocks responding to lagged good, but not bad, news. However, the directional asymmetry is not universal and is significant only in the U.S. and Taiwan. Similarly, after correcting for small stock autocorrelation, large stocks retain their predictive power in some, but not all, of the markets. We also find that the degree of cross-autocorrelation has not weakened since the market correction of 1987. Our findings help shed light on existing explanations of the cross-autocorrelation puzzle and give direction for further research.

Interday variations in volume, variance and participation of large speculators

Abstract We use data uniquely available from the Commodity Futures Trading Commission (CFTC) to document the intraweek trading patterns of large speculators in five futures markets. These markets include futures traded against the Standard and Poors 500 stock index, Treasury Bonds, gold, corn, and soybeans. We also examine the influence of large speculator trades on the patterns of volume and volatility for the contracts in our sample. Though we detect the familiar U-shaped and inverted U-shaped patterns across weekdays for volatility and aggregate volume, the association between volume and volatility becomes stronger when we separate large speculator volume from volume associated with other traders. The coefficient on large speculator volume is much larger than the coefficient on other volume in these regressions. Compared with total volume, large speculator volume is greater on Mondays than on the other days of the week in all five markets.

Stock Market Seasonals and Prespecified Multifactor Pricing Relations

Despite nonstationarities in the factor betas and factor prices of the Chen, Roll, Ross (1986) multifactor model, investors are rewarded for bearing risks associated with the change in expected inflation and industrial production in non-January months; however, variations in these factors have opposite influences on stock prices. These findings may partially explain why several recent studies fail to detect a significant non-January risk premium in the stock market, but this evidence is only suggestive since theoretical and statistical difficulties prevent precise interpretations of specific pricing relations in the Chen, Roll, Ross model.

U. S. Investors' Perceptions of Corporate Control in Mexico: Evidence from Sibling ADRs

We examine the relative prices of sibling American Depositary Receipts (ADRs). These ADRs are issued against classes of shares with different voting rights that are issued by the same foreign firm. Though superior and inferior voting siblings begin trading in the U. S. at nearly equal values, prices quickly separate. For non-Mexican issues, superior voting ADRs command a premium. For Mexican issues, superior voting shares trade at a discount. The Mexican discount is inconsistent with the benefits of U. S. listing discussed in other recent studies and cannot be explained by differences in cash flow rights, systematic risk, liquidity, voting control of major blockholders, or ownership restrictions. Our analysis suggests, however, that control for our Mexican firms has shifted to creditors and competitors, thus, eroding equity voting premiums.

Risk and Inflation

This paper examines the effect of risk differences on the oft-documented negative rela? tionship between stock returns and inflation. We find risk-related patterns of coefficients on our estimates of the level and change in expected inflation and on unexpected inflation. These patterns are consistent with the hypothesis developed in Fama [2] and in Geske and Roll [7] that future real output growth simultaneously helps to determine current stock returns and various measures of inflation.

The predictive power of January returns in foreign and domestic markets

Abstract In the post World War II era, cumulative returns from February through December in the US and in other large equity markets relate positively to the preceding Januarys returns in those markets. However, in the US, the January return in the pre-War era is negatively related to the cumulative February-December return over the same period. Thus, although risk premia vary over time in a manner that can be predicted ex ante, exogenous shocks to the economy (e.g., war) can disrupt the relation one is accustomed to observing.

The wealth effects of non-equity alliances The U.S.-Japanese licensing experience

Abstract Most licensing agreements in our sample transfer technology into, rather than away from, Japan. Japanese licensees frequently belong to keiretsus and are larger but less research intensive than U.S. licensors. If bargaining power relates positively to keiretsu membership or firm size, such alliances could transfer wealth from US to Japanese firms. However, mean abnormal returns of U.S. licensors are larger than mean abnormal returns of Japanese licensees. Thus, wealth transfers are not the primary determinants of stock price responses to the U.S.-Japanese licensing agreements we study. Instead, cross-sectional tests show that US licensors benefit from their own research intensity and from maintaining an equity buffer that provides financial flexibility.