John D. Schatzberg

Day of the week effects, information seasonality, and higher moments of security returns

Abstract This paper documents significant day of the week variations in equity return means, standard deviations, skewness, and kurtosis which are stronger for smaller firms. Although day of the week variations in earnings and dividend announcements seem to be only a limited explanation of the day of the week effects in security returns, the day of the week differences in equity return kurtosis documented here, consistent with investor aversion for even moments, do seem to be a partial explanation for the observed day of the week differences in equity returns. Thus, future studies of the size and day of the week effects in asset returns should account for higher moments such as kurtosis to avoid mis-specification of risk.

Advertising Agency Terminations and Reviews: Stock Returns and Firm Performance

Abstract A key element in generating firm cash flows is the marketing strategy developed by a firms advertising agency. This study examines both the stock market reaction and selected firm performance measures associated with Wall Street Journal announcements of advertising agency terminations and accounts placed in review (potential terminations). Besides finding a negative investor response to each event type, we report a significant decline in stock market values before such announcements. An examination of time series accounting data reveals a deterioration in firm sales growth before and after the announcement. Declines also occur in both liquidity and operating income. Our evidence is mixed regarding whether industry trends are responsible for these changes in financial position. We do not find an improvement in firm performance following the agency termination or potential termination. Strategic implications and directions for future research are discussed.

A Nonparametric Distribution-Free Test for Serial Independence in Stock Returns: A Correction

A fundamental statistical test of serial independence developed by Ashley and Patterson (1986) to examine a possible form of serial dependence in daily stock returns is shown to be improperly constructed. As a consequence, the significance probabilities that they ob? tain are overstated. This paper presents a corrected version of their test. The test statistic obtained after correction is shown to possess the same limiting distribution as the Kolmogorov-Smirnov test statistic. Applying the corrected test procedure to data identical to that used by Ashley and Patterson, we find that their original null hypothesis can no longer be rejected at conventional significance levels.

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

The long-run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis” which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long-run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long-run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements: INSIDER TRADING AND FIRM PERFORMANCE FOLLOWING OMR ANNOUNCEMENTS

The long�?run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis�? which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long�?run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long�?run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.