Michael Smirlock

Day-of-the-week and intraday effects in stock returns☆

Abstract This study examines day-of-the-week effects using hourly values of the Dow Jones Industrial Average. We find that over the 1963–1983 period the weekend effect has sifted from characterizing active trading on Monday to characterizing the non-trading weekend. Over the early part of our sample period negative returns characterize each hour of trading on Monday, while the return from Friday close to Monday open is positive. In the most recent subperiod, Monday average hourly returns after noon are all positive and the weekend effect is due to negative average returns from Friday close to Monday open.

Scale and scope economies in the multi-product banking firm

Abstract The multi-product nature of the banking firm is examined utilizing the translog cost function. This analysis indicates that, contrary to conventional wisdom, natural monopoly, scale economies and product-specific decreasing costs are not robust characterizations of the banking industry. There is, however, evidence that the cost function is characterized by economies of scope. The implications of these results are discussed and extensions of this approach suggested.

An empirical analysis of the stock price-volume relationship

Abstract This paper investigates the empirical relationship between absolute stock price changes and trading volume in the stock market. Using Granger causality tests we find that there is a significant causal relationship between absolute price changes and volume at the firm level and that this relationship is stronger in periods surrounding earnings announcements. We view this as suggesting that information arrival follows a sequential rather than a simultaneous process, although the results do not support an extreme version of either information arrival model.

Bank foreign lending, mandatory disclosure rules and the reaction of bank stock prices to the Mexican debt crisis

This paper examines the effects of the Mexican debt mora torium in August 1982 on bank valuation. The Mexican default resulted in the passage of regulations requiring public disclosure of bank fo reign-lending exposure. The authors find that, even in the absence of public disclosure regulations, investors were able to discriminate a mong banks with different levels of exposure. Copyright 1987 by the University of Chicago.

An empirical study of joint production and scale economies in commercial banking

This paper utilizes the translog cost function to test the proposition that the bank productionfunction is characterized by jointness. The cross-section analysis for the years 1973 through 1978 indicates that bank production is, in fact, characterized by jointness. This result calls into question the findings and implications of studies that utilize the assumption of non-jointness in production. Since virtually all of the major bank cost studies employ the assumption of nonjointness, the second part of our analysis examines scale economies for the banking firm while allowing for jointness in production. Our estimates indicate that scale economies characterize bank production at only small bank sizes and that the cost structure of large banks is characterized by diseconomies of scale.

Monopoly Power and Expense-Preference Behavior: Theory and Evidence to the Contrary

The expense-preference theory of the firm implies that in noncompetitive product markets, managers hire labor beyond the profit-maximizing level. This theory has recently received empirical support from Edwards (1977) and Hannan and Mavinga (1980). In this article it is shown that for expense-preference behavior to exist, the effectiveness of the technology for conflict control between shareholders and managers must be related to market structure, which is a tenuous proposition. Further, once differences in monitoring costs due to variation in firm size are controlled for, the empirical evidence supports managerial profit-maximizing rather than expense-preference behavior.

Seasonality and bond market returns

Ln 42 7 J I n an important study, Rozeff and Kinney [7] 2 presented evidence that stock returns are, on average, higher in January than in other months. Further, Keim [6] has recently demonstrated that this seasonal effect is more pronounced for small firms than for large firms. The implication is that portfolio managers can use this knowledge to improve portfolio performance by timing transactions to take advantage of the January ”seasonal.” Given this, the potentiality of seasonal returns in the bond market has received surprisingly little attention.’ If the returns on these securities follow a seasonal pattern, then, by appropriately timed trades, a portfolio manager of fixed-income securities may be able to achieve improved performance. Similarly, such a seasonal may suggest a strategy of varying the proportions of portfolio value invested in stocks or bonds, depending on the seasonal pattern in returns. On the other hand, a January bond market seasonal may indicate that switching from bonds to equity in this month to take advantage of the stock seasonal will do no better than if the portfolio had been left intact. Clearly, seasonal movements in fixed-income securities can play a crucial role in portfolio management. % characterized by seasonality. Since factors tlhat give rise to seasonality may or may not affect securities of different risk in the same fashion, I use a spectrum of debt instruments specifically, long-term Treasury bonds, long-term high-grade corporate bonds, and long-term low-grade (Baa) corporate bonds over the 1953-1981 period. I find no evidence of any seasonal effect by month of the year for government or high-gr, <I d e corporate debt instruments. In contrast, the low-grade corporate bonds are characterized by significantly higher returns in January than in any other month. Kaplan and Urwitz [5] and others have reported evidence of a positive relationship between firm size and bond rating. Accordingly, it is likely that these lowgrade bonds are primarily issued by ”small” (relative to government and high-grade issuers) firms. Such a finding mirrors the results reported by Keim [6] that the January seasonal effect in the stock market is concentrated in small firms. Hence, portfolio managers may be able to improve their performance by accounting for seasonal patterns in the debt and equity markets.

An analysis of bank risk and deposit rate ceilings : Evidence from the capital markets

Abstract The effect of deposit rate regulation on bank solvency is an important and unresolved issue that has received only limited attention. In this paper, capital market data is used to assess changes in both systematic and non-systematic risk of a portfolio of bank stocks at the time of deposit rate deregulation. The evidence indicates that neither measure of capital market risk is significantly affected, leading to the conclusion that bank solvency risk will not be increased by the deregulation of interest rates on deposits.

A note on REIT bankruptcy and intraindustry information transfers: An empirical analysis

Abstract This paper examines the capital market response to the bankruptcy of Residential Resources (Res Res), a Real Estate Investment Trust (REIT). We find a significant event day value decline for a broad portfolio of REITs. REITs whose portfolios are most similar to Res Res experienced both a significant value decline and an increase in bankruptcy risk on the event day. REITs with dissimilar portfolios experienced neither of these effects. Among the REITs with similar portfolios to Res Res, leverage ratios explain 84% of the event day value declines. Our findings suggest that ignoring intraindustry firm differences can lead to spurious conclusions.

The impact of credit risk on the pricing and duration of floating-rate notes

Abstract This paper describes the pricing and duration of floating-rate instruments when the borrowers credit risk has changed since the note was issued. In these cases, the value of the note on repricing dates equals par plus the present value of the basis point change in credit risk. As a result, the duration of a floater for which credit risk has increased (fallen) is less than (greater than) the time to reset, and may even be negative. Positive correlation between credit risk and interest rates will, ceteris paribus, increase the duration of the floater.