Does cash flow predict returns?

In this paper, we propose the hypothesis that cash flow and cash flow volatility predict returns. We categorize firms listed on the New York Stock Exchange into sectors, and apply tests for both in-sample and out-of-sample predictability. While we find strong evidence that cash flow volatility predicts returns for all sectors, the evidence obtained when using cash flow as a predictor is relatively weak. Estimated profits and utility gains also suggest that it is cash flow volatility that is more relevant as a source of information than cash flow.

Non-tradable share reform, liquidity, and stock returns in China

This article studies the influence of the non-tradable share reform in the cross-section of stock returns in China. Prior research has generally neglected this important development in the Chinese stock market. We find that the firm-specific illiquidity measures that reflect direct transaction costs, price impact and difficulties in trading immediacy, exhibit a positive and significant relationship with stock returns. These effects are particularly pronounced after the non-tradable share reform. Furthermore, in the post-reform era, portfolios with high illiquidity (i.e. high relative bid-ask spread, high Amihud illiquidity, low Amivest liquidity ratio) significantly outperform portfolios with low illiquidity, controlling for size, and book-to-market effects.

Influence of price discounts and skill-building strategies on purchase and consumption of healthy food and beverages: outcomes of the Supermarket Healthy Eating for Life randomized controlled trial

BACKGROUND: Fiscal strategies are increasingly considered upstream nutrition promotion measures. However, few trials have investigated the effectiveness or cost effectiveness of pricing manipulations on diet in real-world settings. OBJECTIVE: We assessed the effects on fruit, vegetable, and beverage purchasing and consumption of a 20% price-reduction intervention, a tailored skills-based behavior-change intervention, and a combined intervention compared with a control condition. DESIGN: The Supermarket Healthy Eating for Life trial was a randomized controlled trial conducted over 3 mo [baseline (time 1) to postintervention (time 2) with a 6-mo follow-up (time 3)]. Female primary household shoppers in Melbourne, Australia, were randomly assigned to a 1) skill-building (n = 160), 2) price-reduction (n = 161), 3) combined skill-building and price-reduction (n = 160), or 4) control (n = 161) group. Supermarket transaction data and surveys were used to measure the following study outcomes: fruit, vegetable, and beverage purchases and self-reported fruit and vegetable consumption at each time point. RESULTS: At 3 mo (time 2), price reduction-alone participants purchased more total vegetables and frozen vegetables than did controls. Price reduction-alone and price reduction-plus-skill-building participants purchased more fruit than did controls. Relative to controls, in the price-reduction group, total vegetable consumption increased by 233 g/wk (3.1 servings or 15% more than at baseline), and fruit purchases increased by 364 g/wk (2.4 servings; 35% more than at baseline). Increases were not maintained 6 mo postintervention (time 3). Price reduction-alone participants showed a tendency for a slight increase in fruit consumption at time 2 (P = 0.09) that was maintained at time 3 (P = 0.014). No intervention improved purchases of bottled water or low-calorie beverages. CONCLUSIONS: A 20% price reduction in fruit and vegetables resulted in increased purchasing per household of 35% for fruit and 15% for vegetables over the price-reduction period. These findings show that price modifications can directly increase produce purchases. The Supermarket Healthy Eating for Life trial was registered at Current Controlled Trials Registration as ISRCTN39432901.

The relationship between stock returns and the foreign exchange rate: the ARDL approach

This study employs the ARDL cointegration approach in order to examine the impact
of financial liberalization on the relationships between the exchange rate and share
market performance in China. We discovered that cointegration has existed between the
Shanghai A Share Index and the exchange rate of the renminbi against the US dollar
and Hong Kong dollar since 2005, when the Chinese exchange rate regime became a
flexible, managed, floating system. We found that both the exchange rate and the money
supply influenced stock price, with a positive correlation. We further show that the
money supply increase was largely caused by a huge ‘hot money’ inflow from other
countries in recent years. After local currency appreciation, hot money, followed by
the money supply increase, pushed the market into a high level, based on expectations
regarding the local currency’s further appreciation.

A random coefficient approach to the predictability of stock returns in panels

© The Author, 2014. Most studies of the predictability of returns are based on time series data, and whenever panel data are used, the testing is almost always conducted in an unrestricted unit-by-unit fashion, which makes for a very heavy parametrization of the model. On the other hand, the few panel tests that exist are too restrictive in the sense that they are based on homogeneity assumptions that might not be true. As a response to this, the current study proposes new predictability tests in the context of a random coefficient panel data model, in which the null of no predictability corresponds to the joint restriction that the predictive slope has zero mean and variance. The tests are applied to a large panel of stocks listed at the New York Stock Exchange. The results suggest that while the predictive slopes tend to average to zero, in case of book-to-market and cash flow-to-price the variance of the slopes is positive, which we take as evidence of predictability.

Capital Asset Price Model (CAPM) : uma aplicação ao mercado brasileiro de ações

Este trabalho tem por objetivo apresentar a fundamentação teórica e efetuar uma aplicação prática de uma das mais importantes descobertas no campo das finanças: o modelo de precificação de ativos de capital padrão, denominado de Capital Asset Price Model (CAPM). Na realização da aplicação prática, comparou-se a performance entre os retornos dos investimentos exigidos pelo referido modelo e os realmente obtidos. Foram analisadas cinco ações com a maior participação relativa na carteira teórica do Ibovespa e com retornos publicados de junho de 1998 a maio de 2001. Os dados foram obtidos da Economática da UFRGS e testados utilizando-se o Teste-t (duas amostras em par para médias) na ferramenta MS Excel. Os resultados foram tabelados e analisados, de onde se concluiu que, estatisticamente, com índice de confiança de 95%, não houve diferença de performance entre os retornos esperados e os realmente obtidos dos ativos objeto desta dissertação, no período estudado.

Detecting patterns of the spinoff decision of companies and accessing the determination of the abnormal returns

This paper examines value created through spinoffs over a period from 2002-2010. The net debt to average share price ratio and the debt to asset ratio of a company impacts the decision for this restructuring process statistically significant. The announcement of a spinoff yields abnormal returns (AR) for the stockholders of the parent. The relative size of the spin and the financial leverage correlated with the AR positively, whereas the net debt per share and the return on asset negatively. Therefore, no direct wealth transfer from the debt holders of a company to the equity holders can be derived from these results.

Interests prices and the Barosky - Summers resolution of the Gibson paradox under the gold standard

This paper presents a structural monetary úamework featunng a demand function for non-monetary uses of gold, such as the one drawn by Barsky and Summers in their 1988 analy8ÚI of the Gibson Paradox as a natural concomitant of the gold standard period. That structural model predicts that the laws of behavior of nominal prices and interest rates are functions of the rules set by the government to command the money supply. !ta fiduciary vemon obtaina Fisherian relationships &8 particular cases. !ta gold atandard 801ution yields a modelsimilar to the Barsky and Summers model, in which interest rates are exogeneous and subject to shocb. This paper integrates governnment bonds into the analysis, treats interest rates endogenously, and ahifts the responsibility for the shocb to the government budgetary financing policies. The Gibson paradox appears as "practically" the only cl&18 of behavioral pattern open for interest rates and price movements under apure gold standard economy. Fisherian-like relationshipe are utterly ruled out.

Predictable dividends and returns

The conventional wisdom is that the aggregate stock price is predictable by the lagged pricedividend ratio, and that aggregate dividends follow approximately a random-walk. Contrary to this belief, this paper finds that variation in the aggregate dividends and price-dividend ratio is related to changes in expected dividend growth. The inclusion of labor income in a cointegrated vector autoregression with prices and dividends allows the identification of predictable variation in dividends. Most of the variation in the price-dividend ratio is due to changes in expected returns, but this paper shows that part of variation is related to transitory dividend growth shocks. Moreover, most of the variation in dividend growth can be attributed to these temporary changes in dividends. I also show that the price-dividend ratio (or dividend yield) can be constructed as the sum of two distinct, but correlated, variables that separately predict dividend growth and returns. One of these components, which could be called the expected return state variable, predicts returns better than the price-dividend ratio does.

Nonparametric tail risk, macroeconomics and stock returns: predictability and risk premia

This paper proposes a new novel to calculate tail risks incorporating risk-neutral information without dependence on options data. Proceeding via a non parametric approach we derive a stochastic discount factor that correctly price a chosen panel of stocks returns. With the assumption that states probabilities are homogeneous we back out the risk neutral distribution and calculate five primitive tail risk measures, all extracted from this risk neutral probability. The final measure is than set as the first principal component of the preliminary measures. Using six Fama-French size and book to market portfolios to calculate our tail risk, we find that it has significant predictive power when forecasting market returns one month ahead, aggregate U.S. consumption and GDP one quarter ahead and also macroeconomic activity indexes. Conditional Fama-Macbeth two-pass cross-sectional regressions reveal that our factor present a positive risk premium when controlling for traditional factors.

Bright minds, big rent: gentrification and the rising returns to skill

In 1980, housing prices in the main US cities rose with distance to the city center. By 2010, that relationship had reversed. We propose that this development can be traced to greater labor supply of high-income households through reduced tolerance for commuting. In a tract-level data set covering the 27 largest US cities, years 1980-2010, we employ a city-level Bartik demand shifter for skilled labor and find support for our hypothesis: full-time skilled workers favor proximity to the city center and their increased presence can account for the observed price changes, notably the rising price premium commanded by centrality.

Volatility of returns, variations in prices and volume traded: evidence from the main stocks in Brazil

We study the relationship between the volatility and the price of stocks and the impact that variables such as past volatility, financial gearing, interest rates, stock return and turnover have on the present volatility of these securities. The results show the persistent behavior of volatility and the relationship between interest rate and volatility. The results also showed that a reduction in stock prices are associated with an increase in volatility. Finally we found a greater trading volume tends to increase the volatility.

Microscopic origin of non-Gaussian distributions of financial returns

In this paper we study the possible microscopic origin of heavy-tailed probability density distributions for the price variation of financial instruments. We extend the standard log-normal process to include another random component in the so-called stochastic volatility models. We study these models under an assumption, akin to the Born-Oppenheimer approximation, in which the volatility has already relaxed to its equilibrium distribution and acts as a background to the evolution of the price process. In this approximation, we show that all models of stochastic volatility should exhibit a scaling relation in the time lag of zero-drift modified log-returns. We verify that the Dow-Jones Industrial Average index indeed follows this scaling. We then focus on two popular stochastic volatility models, the Heston and Hull-White models. In particular, we show that in the Hull-White model the resulting probability distribution of log-returns in this approximation corresponds to the Tsallis (t-Student) distribution. The Tsallis parameters are given in terms of the microscopic stochastic volatility model. Finally, we show that the log-returns for 30 years Dow Jones index data is well fitted by a Tsallis distribution, obtaining the relevant parameters. (c) 2007 Elsevier B.V. All rights reserved.

Underlying dynamics of typical fluctuations of an emerging market price index: the Heston model from minutes to months

We investigate the Heston model with stochastic volatility and exponential tails as a model for the typical price fluctuations of the Brazilian São Paulo Stock Exchange Index (IBOVESPA). Raw prices are first corrected for inflation and a period spanning 15 years characterized by memoryless returns is chosen for the analysis. Model parameters are estimated by observing volatility scaling and correlation properties. We show that the Heston model with at least two time scales for the volatility mean reverting dynamics satisfactorily describes price fluctuations ranging from time scales larger than 20min to 160 days. At time scales shorter than 20 min we observe autocorrelated returns and power law tails incompatible with the Heston model. Despite major regulatory changes, hyperinflation and currency crises experienced by the Brazilian market in the period studied, the general success of the description provided may be regarded as an evidence for a general underlying dynamics of price fluctuations at intermediate mesoeconomic time scales well approximated by the Heston model. We also notice that the connection between the Heston model and Ehrenfest urn models could be exploited for bringing new insights into the microeconomic market mechanics. (c) 2005 Elsevier B.V. All rights reserved.

Gold electrodes from recordable CDs

Gold electrodes are widely used in electrochemistry and electroanalytical chemistry. The notable performance when used in stripping analysis of many ionic species and the extraordinary affinity of thio compounds for its surface make these electrodes very suitable for many applications. This paper reports a simple and novel way to construct gold electrodes (CDtrodes) using recordable CDs as the gold source. The nanometer thickness of the gold layer of recordable disks (50-100 mm) favors the construction of band nanoelectrodes with areas as small as 10(-6) cm(2). The plane surface can be easily used for the construction of conventional-sized gold electrodes for batch or now injection analysis or even to obtain electrodes as large as 100 cm(2). The low price of commercial recordable CDs allows a one way use. The evaluation and applicability of these electrodes in the form of nanoelectrodes, in batch and associated with flow cells, are illustrated in this paper.