VOLATILITY BEHAVIOR OF INDUSTRIAL STOCK PRICE INDICES

THE EXTENT TO WHICH STOCK PRICE INDICES IN DEVELOPED COUNTRIES MOVE TOGETHER IS IMPORTANT TO THE INDIVIDUAL INVESTOR, THE POLICYMAKER AND FORECASTER, AND THE RESEARCHER. IT CAN BE MEASURED THROUGH THE APPLICATION OF FACTOR ANALYSIS. THE ESTIMATES OF COVARIATION ARE SENSITIVE TO THE FORM IN WHICH THE STOCK PRICE INDICES ARE EXPRESSED. THE TRANSFORMATION OF INDICES TO CHANGES IN LOGARITHMS HAS THE ADVANTAGE THAT IT ELIMINATES MOST FIRST-ORDER SERIAL CORRELATION AND PRODUCES SERIES THAT ARE OF GREATER THEORETICAL INTEREST. SPECIAL LINKAGES BROUGHT ABOUT BY FINANCIAL TIES, FREE CAPITAL MOVEMENTS AND TRADE STRENGTHEN THE COMMON MOVEMENT OF STOCK PRICES. THE MOST APPARENT RELATIONSHIP RESULTING IN A STRONG BOND BETWEEN EQUITY PRICES IS BETWEEN THE UNITED STATES AND CANADA.

Full text: The Review of Economics and Statistics, AUG 1973

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100 PERCENT MARGINS – COMBATING SPECULATION IN INDIVIDUAL SECURITY ISSUE

ECONOMISTS HAVE LONG BEEN AWARE OF THE DESTABILIZING PROPERTY OF THE CAPITAL GAINS TAX, COMMONLY REFERRED TO AS THE LOCKED-IN EFFECT. SINCE POSTPONING THE SALE OF AN ISSUE ALSO POSTPONES THE PAYMENT OF THE TAX ON THE GAIN, THE TAX ACTS TO REDUCE THE SUPPLY OF ISSUES WHICH HAVE APPRECIATED IN PRICE. IN THE SAME SENSE, SINCE A LOSS IS DEDUCTIBLE ONLY UPON REALIZATION THROUGH SALE, INVESTORS ARE ENCOURAGED TO DISPOSE OF SECURITIES WHICH HAVE DEPRECIATED IN VALUE. THUS, THE TAX ACTS TO INCREASE THE SUPPLY OF SECURITIES IN A FALLING MARKET AND REDUCE THE SUPPLY OF SECURITIES IN A RISING MARKET, INCREASING THE MAGNITUDE OF THE FLUCTUATION IN BOTH DIRECTIONS. THERE IS ALSO A SECOND, A STABILIZING PROPERTY OF THE TAX WHICH ACTS TO DAMPEN THE RESPONSE OF PRICE TO CHANGES IN INVESTOR EXPECTATIONS. THE RELATIVE STRENGTH OF THE TWO PROPERTIES IS SUCH THAT UNDER IDEALIZED CONDITIONS THE CAPITAL GAINS TAX CAN BE SAID TO BE STABILIZING.

Full text: The Journal of Finance, SEPT 1973

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THE DAY OF RECKONING HAS ARRIVED FOR PROPERTY-LIABILITY COMPANIES

THE OUTLOOK FOR RAISING CAPITAL IN THE COMPUTER INDUSTRY WILL BE BRIGHTER IN 1976. THERE ARE 4 PRIMARY WAYS TO RAISE THIS CAPITAL. THE FIRST IS THROUGH THE SALE OF COMMON-STOCK. THE INDUSTRY’S DEPRESSED STOCK PRICES MAKE THIS ALTERNATIVE UNLIKELY EXCEPT FOR THOSE COMPANIES WITH HIGH PRICE-EARNINGS RATIOS. THE SECOND ALTERNATIVE, THE SALE OF DEBENTURES OR LONG-TERM DEBT, WILL BE LIMITED BY THE HIGH DEBT-TO-TOTAL-CAPITALIZATION RATIOS THAT MOST COMPANIES IN THE INDUSTRY HAVE. BANK BORROWING, OR SHORT-TERM DEBT, WILL BE THE MOST COMMON MEANS OF OBTAINING FUNDS IN 1976. INTEREST-RATES WILL MAKE LOANS TO CORPORATIONS MORE PROMISING. INTERNAL CASH-FLOW, OR EARNINGS AND DEPRECIATION, IS THE FOURTH AND BEST ALTERNATIVE FOR MOST DATA-PROCESSING COMPANIES. EARNINGS ARE EXPECTED TO RISE WHILE THE TAX SITUATION IS STILL UNCLEAR.

Full text: Computer Decisions, JAN. 1976

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The World at Work

THERES BEEN A LOT OF TALK ABOUT RANDOM WALK IN RECENT YEARS, MOSTLY IN THE BUSINESS SCHOOLS. ITS A SOPHISTICATED WAY OF SAYING THAT A PROCESS OF EVENTS IS GOVERNED BY PURE CHANCE-LIKE TOSSING A COIN. RANDOM WALK IN THE STOCK MARKET APPLIES TO PRICES. IT SAYS PRICES HAVE NO MEMORY, THAT ANY ONE PARTICULAR PRICE IS WHOLLY UNRELATED TO ANY OTHER PARTICULAR PRICE, THAT PRICES CANT PREDICT FUTURE PRICES. WHAT DOES THIS MEAN FOR INVESTORS–A SIMPLE POLICY OF BUYING AND HOLDING THE SECURITY WILL BE AS GOOD AS ANY MORE COMPLICATED MECHANICAL PRODEDURE FOR TIMING PURCHASES AND SALES.

Full text: Financial World, JUL 11, 1973

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CATTLE FEEDING – LAST ROUNDUP

IMAGINE YOURSELF IN ONE OF THE COUNTRIES FAMOUS FOR ITS OUTDOOR BAZAARS. YOU HAVE PLENTY OF MONEY IN YOUR POCKETS FOR BARGAIN HUNTING. YOU SUDDENLY REALIZE THAT YOU HAVEN’T THE VAGUEST IDEA ABOUT THE REAL VALUE OF THE MERCHANDISE. WHAT WOULD YOU DO – YOU’D PROBABLY BUY SOMETHING THAT SEEMED PRETTY CHEAP, JUST FOR A SOUVENIR, AND DECIDE TO WAIT WITH THE REST OF YOUR MONEY UNTIL YOU GOT BACK HOME WHERE YOU KNEW WHAT THINGS WERE WORTH. IN SHORT, YOU’D PASS UP POSSIBLE BARGAINS TO AVOID THE HUMILIATION OF BEING TAKEN. THAT’S REALLY WHAT’S HAPPENING IN THE STOCK-MARKET TODAY. THERE ARE A LOT OF BARGAINS AROUND AND PLENTY OF MONEY, BUT NO ONE SEEMS TO KNOW WHAT STOCKS ARE WORTH. THE REASON WHY QUALIFIED WALL STREETERS CAN LOOK AT THE SAME ECONOMIC FORECASTS, AND ONE PREDICT A BULL-MARKET AND THE OTHER A CRASH – EVERYBODY IS DISORIENTED.

Full text: Forbes, MAY 1, 1974

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PRICE BEHAVIOR ASSOCIATED WITH TENDER-OFFERS TO REPURCHASE COMMON-STOCK

IN THE CASE OF FIRMS ADOPTING LIFO, NO ABNORMAL MANAGEMENT CHANGES ARE EVIDENT IN THE YEAR OF, PRECEDING OR SUCCEEDING, THE LIFO CHANGE. IN THE CASE OF FIRMS ABANDONING LIFO, ABNORMAL MANAGEMENT CHANGES ARE EVIDENT IN THE YEAR OF THE LIFO CHANGE, WHICH APPEAR TO BE ASSOCIATED WITH OPERATING PERSONNEL. THE PROBABILITY OF A FIRM HAVING A LIFO CHANGE IS NOT UNIFORMLY DISTRIBUTED ACROSS INDUSTRY CLASSES, WITH THE HIGHEST PROBABILITY BEING IN THE STEEL INDUSTRY. THE PROBABILITY OF CLIENTS OF AUDITORS MAKING A LIFO CHANGE IS NOT UNIFORMLY DISTRIBUTED ACROSS AUDITORS. THUS THERE IS AN INDUSTRY AND AUDITOR EFFECT IN THE CASE OF THE LIFO DECISION, AN ABSENCE OF ABNORMAL MANAGEMENT CHANGES IN THE CASE OF THE ADOPTION OF LIFO, AND THE PRESENCE OF ABNORMAL MANAGEMENT CHANGES IN THE CASE OF THE ABANDONMENT OF LIFO AS A BASIS FOR INVENTORY VALUATION. TABLES. REFERENCES.

Full text: Journal of Accounting Research, SPRING 1976

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