Neal Galpin

The Global Rise of the Value-Weighted Portfolio

We do three things in this paper. We first develop a metric to measure the popularity of the value-weighted portfolio in a stock market. We use our metric to document that, though the value-weighted portfolio is less popular in emerging markets than in developed markets, its popularity is increasing everywhere. In the United States, for example, trading in the value-weighted portfolio could only explain 32% of trading volume in the 1920s, but can explain 68% in the 2000s. Finally, as we have better data for the United States, we explore why the value-weighted portfolio is becoming more popular.

The Role of the Media in the Launch of Internet IPOs

We document that there was media hype about internet stocks during the bubble. However, the media hype about internet stocks during the bubble was discounted: though the media coverage positively affected pre-IPO value revisions, it affected internet IPOs more than non-internet IPOs only after the bubble burst. Further, though the pre-IPO media coverage positively affected first-day returns only after the bubble burst, the effect on the internet IPOs was the same as the effect on the non-internet IPOs. This suggests that the media affect prices more in primary markets than in secondary markets. In both cases, the impact of the media is higher during bust times than during boom times.

The Timing of Investment and Stock Returns

In a neoclassical investment model, returns and investment are linked. We show that the timing of investment and returns are also linked. Conditional on total investment, firms investing earlier in the year have lower returns than firms investing later in the year. We show empirical evidence consistent with this prediction. Our model further predicts that the effects are strongest when the firm has cash flows early in the year. We confirm this prediction, as well. Moreover, regressing returns on annual investment year produces a much weaker relationship between returns and investment than regressing returns on semi-annual investment.