Prem C. Jain

The Dependence between Hourly Prices and Trading Volume

This study provides evidence on joint characteristics of hourly common stock trading volume and returns on the New York Stock Exchange. Average volume traded shows significant differences across trading hours of the day and across days of the week. Average returns differ across hours of the day, and, to some extent, across days of the week. There is a strong contemporaneous relation between trading volume and returns and also a relation between trading volume and returns lagged up to four hours. Furthermore, the trading volume-returns relation is steeper for positive returns than for nonpositive returns.

Firm performance and focus: long-run stock market performance following spinoffs

Abstract We examine whether an increase in focus is an explanation for the stock market gains associated with spinoffs. For a sample of 155 spinoffs between the years 1975 and 1991, we find that the announcement period as well the long-run abnormal returns for the focus-increasing spinoffs are significantly larger than the corresponding abnormal returns for the non-focus-increasing spinoffs. The results for the change in operating performance are consistent with those for the stock market performance. Cross-sectionally, the stock market performance as well as the operating performance are positively associated with change in focus. An analysis of the non-focus-increasing spinoffs shows that the firms are likely to undertake these spinoffs to separate underperforming subsidiaries from the parents.

Long-Run Common Stock Returns following Stock Splits and Reverse Splits

The authors examine one-three-year performance of common stocks following 5,596 stock split and 76 reverse split announcements made during the period 1976-91. For stock splits, on average, the one- and three-year buy-and-hold abnormal returns after the announcement month are 7.05 percent and 11.87 percent, respectively. For reverse splits, the corresponding abnormal returns are -10.76 percent and -33.90 percent. The results suggest that the market underreacts to both the stock split and the reverse split announcements. The authors also find that the announcement period and the long-run abnormal returns are both positively associated with an increase in dividends. Copyright 1997 by University of Chicago Press.

The behavior of daily stock market trading volume

Abstract This paper documents the empirical distributions of daily trading volume prediction errors for several commonly used volume measures and expectation models for individual firms and for portfolios. The prediction errors for raw volume measures are significantly positively skewed, with thin left tails and fat right tails. However, natural log transformations of the volume measures are approximately normally distributed. For longer than one-day prediction intervals, recognition of autocorrelation in daily trading volume is advantageous for detecting abnormal trading. Results of analysis for clustering of events and for different size firms are also presented.

Financial Leverage Changes Associated with Corporate Mergers

The financial motivation theory on mergers hypothesizes that mergers can create value by increasing debt capacity. Consistent with the increased debt capacity hypothesis, our results show that the average financial leverage (debtdivided by debt plus equity) increases significantly from 32.1% one year before mergers to 38.4% one year after mergers. In a direct test of the hypothesis, cross- sectional regression analysis shows that the change in financial leverage is significantly positively correlated with announcement period abnormal returns. The analysis controls for other tax and operating performance related benefits. We conclude that the stock market incorporates benefits from anticipated financial leverage increases at the time of the merger announcement.

Response of Hourly Stock Prices and Trading Volume to Economic News

This paper examines hourly stock returns and trading volume response to announcements about the money supply, consumer price index (CPI), producer price index, industrial production, and the unemployment rate. The empirical results indicate that surprises in announcements about money supply and CPI are significantly associated with stock price changes. The announcements of the other three variables do not affect stock prices significantly. Trading volume is not affected by any of the five economic variable announcements, indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements. The spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so. Copyright 1988 by the University of Chicago.

Earnings and risk changes around stock repurchase tender offers

Abstract This paper provides evidence that repurchase tender offer announcements convey favorable information about the level and riskiness of future earnings. We show that analysts revise their forecasts of earnings per share upward following repurchase announcements. Repurchase announcement stock price reactions are positively correlated with revisions in short-term forecasts, but not correlated with revisions in long-term forecasts. Thus, the information is primarily about transitory changes in earnings. We also provide evidence that equity betas decline after repurchases. Our findings indicate that the equity beta decreases are due to decreases in the underlying riskiness of the firms assets.

The Tylenol Incident, Ensuing Regulation, and Stock Prices

The much publicized Tylenol incident in 1982 led to stringent packaging regulations for over-the-counter pharmaceutical drugs. The sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations. The market value of common stock of Johnson & Johnson, makers of Tylenol, declined by approximately 29 percent, amounting to

Analyses Of The Distribution Of Security Market Model Prediction Errors For Daily Returns Data

2.31 billion. Although other firms in the industry also suffered significantly, their share price decline did not occur around the Tylenol incident but occurred around the subsequent packaging regulation proceedings. On average, 28 other pharmaceutical firms analyzed in this study experienced a decline of

The Value-Relevance of Changes in Financial Leverage Beyond Growth in Assets and GAAP Earnings:

310 million per firm, or a total of about