Melvin Roush

Day-of-the-week effects in the pre-holiday returns of the Standard & Poor's 500 stock index

This study investigates the day-of-the-week effects in the pre-holiday returns of the Standard & Poors 500 stock index. The period investigated is 1930–1999. The analysis is based on within-day contrasts and between-day contrasts. There are three major findings. First, the results are consistent with prior research in that there is a strong pre-holiday effect up to 1987, but the pre-holiday effect is greatly diminished after 1987. Second, contrary to that frequently observed in the literature for typical days, there is no evidence of a weekend effect in pre-holiday returns. Third, a Labor Day effect is observed in the pre-1987 era. The return on the day before Labor Day is significantly greater than the return before other holidays that fall on a Monday. However, this effect is not observed after 1987. A number of other findings are discussed.

Daily weather effects on the returns of Australian stock indices

The effects of the weather in Sydney on the daily returns of two stock indices of the Australian stock exchange are investigated. Three factors capture the essence of daily variations in temperature, cloud cover and wind speed. Two steps are taken to increase the efficiency of the statistical tests. First, control variables are incorporated in the regression models to abstract systematic variance from the error terms. Second, a repeated measures design is used to estimate the standard errors of the slope coefficients. The returns of the stock indices are uninfluenced by wind speed and cloud cover. However, the returns of the two stock indices are negatively influenced by the temperature in Sydney. There is evidence that deseasonalized temperature has a stronger negative influence than the level of temperature.

Performance Measures and Short-Termism: An Exploratory Study

Abstract We examine the relationship between performance measurement systems and short‐termism. Hypotheses are tested on a sample of senior managers drawn from a major telecommunications company to determine the extent to which the diagnostic and interactive uses of financial and non‐financial measures give rise to short‐termism. We find no evidence to suggest that the use of financial measures, either diagnostically or interactively, leads to short‐term behaviour. In contrast, we find a significant association between the use of non‐financial measures and short‐termism. Results suggest that the diagnostic use of non‐financial measures leads managers to make inter‐temporal trade‐off choices that prioritise the short term to the detriment of the long term, while we find interactive use is negatively associated with short‐termism. We find an imbalance in favour of the diagnostic use over the interactive use of non‐financial performance measures is associated with short‐termism. Overall, findings highlight the importance of considering the specific use of performance measures in determining the causes of short‐termism.

A meta‐analysis of the international evidence of cloud cover on stock returns

Purpose - This paper provides a meta-analysis of the Hirshleifer and Shumways results on the casual influence of daily cloud cover on stock index returns for 26 international stock exchanges. It aims to test whether these results are influenced by the location of the stock exchange and the development of the economy. Design/methodology/approach - A conventional meta-analytic procedure is used to synthesise the data. The effect size, of the influence of cloud cover on stock returns, is measured by the Fisher Z correlation coefficient. This is obtained from the Findings - The influence of cloud cover on stock returns becomes more negative as latitude increases and more negative as per capita Gross Domestic Product increases. A cloud cover effect does not exist at the equator. Practical implications - The implication is that trading rules based on cloud cover will be more profitable at higher latitudes. Originality/value - Meta-analyses are infrequently used in the Finance literature. This paper illustrates their utility.

Discounted cash flow methods and the fallacious reinvestment assumption: a review of recent texts

Differences in the assumptions relating to the reinvestment of intermediate cash flows have been offered as the explanation for the conflict that can arise between the net present value method and the internal rate of return method in the ranking of two projects. A review of the literature argues that this assumption is incorrect and thus cannot be an explanation for the conflict. This paper briefly discusses the conflict and presents the results of a survey into the incidence of the assumption in a sample of recent management accounting and finance texts. Seven-tenths of the texts we sampled relied on the fallacious assumption. We offer tentative explanations as to why the fallacious reinvestment assumption is invoked.

Day-of-the-week effects: New Zealand bank bills, 1985-2000

This study examines day-of-the-week effects in short term New Zealand bank bills with maturities of 30, 60 and 90 days. The analysis is based on a within-subject design. The spot interest rates within a week are treated as repeated measures on the same subject. These interest rates are transformed into orthogonal contrasts which can be analysed separately as dependent variables. Two analyses are conducted. The full data does not exhibit significant day-of-the-week effects. When the data is trimmed, to ameliorate the presence of fat tails, a Wednesday effect is observed for the three series. The ubiquitous weekend effect is observed for one series of interest rates. However, the reverse of the weekend effect is present for the two other series. The practical importance of the results is discussed.

Political administration effects and day-of-the-week effects in New Zealand's foreign exchange rate

This study investigates the presence of political administration effects and day-of-the-week effects with New Zealands trade-weighted foreign exchange index. The data covers six administrations during the period March 1985 to November 2000. The analysis, based on an orthogonal design, shows that changes in the index did not differ between Labour Party administrations and National Party (Conservative) administrations. One day-of-the-week effect, consistent with the settlement regime hypothesis, is observed. This effect, which differs between the two political administrations, disappears when the data is trimmed to ameliorate the impact of fat tails. The implication is that the effect is merely a reflection of the extreme cases.

Analysis of Change in Present Value Measurements

In recent years, the leading standard setters for financial reporting have shown an increasing preference for fair value measurement. However, present value is often the only acceptable method of estimating fair value and therefore the actual result of the swing to fair value is likely to be increased use of present value in financial reporting. This paper addresses the issue of interpretation of a change in present value between successive reporting dates and shows that the change can be analyzed by use of the familiar variance analysis framework widely used in management accounting.

The Pure Rate Variance

The direct material cost variance can be subdivided into a price variance, a quantity variance and a price-quantity interaction variance. The price-quantity interaction variance is rarely mentioned in the literature because the traditional price variance does not acknowledge an interaction variance. For a number of pragmatic reasons, this approach may be justified for the direct material price variance. The direct labor cost variance is conceptually similar to the direct material cost variance. Accordingly, the traditional direct labor rate variance also includes a rate-efficiency interaction variance. However, the justifications for incorporating the interaction variance into the direct material price variance do not apply to the direct labor rate variance. This paper explores the possibility of separating the rate-efficiency interaction variance from the direct labor rate variance. This approach may be more aligned with the concept of responsibility accounting than the traditional method of calculating the direct labor rate variance. Thus, it may provide more reliable information feedback for decision-making purposes.

The Effect of Board Changes on Writedowns of Non-current Assets: Evidence From New Zealand

This study reports the results of an empirical study that examined the impact of changes in the board of directors on writedowns of non-current assets. Using 337 annual reports of the firms listed on the New Zealand Stock Exchange for 7 years from 1993 to 1999, the results show that changes in the board of directors is a statistically significant determinant of both writedown decision and the dollar amount of writedowns. The results also show that the regression coefficient and the significance level of board restructure are materially higher when changes in chief executive officer are incorporated in the model estimation. Corporate firm size, as measured by total assets at balance date, is found to be another significant determinant. Other corporate attributes such as leverage, operating performance and term borrowings in the subsequent years are not significant factors. However, a firms growth opportunities provide some support in explaining the dollar amount of writedowns. The results are robust to alternative proxies and the time effect is not evident over the 7-year period. Copyright Blackwell Publishers Ltd 2002.