“Dividend Policy and Share Price Volatility”
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Putting Volatility to Work
Wh o ’ s afraid of volatility? Not anyone who wants a true edge in his or her trad i n g , th a t ’ s for sure. Get a handle on the essential concepts and learn how to improve your trading with pr actical volatility analysis and trading techniques. 2 www.activetradermag.com • April 2001 • ACTIVE TRADER TRADING Strategies BY RAVI KANT JAIN olatility is both the boon and bane of all traders — The result corresponds closely to the percentage price you can’t live with it and you can’t really trade change of the stock. without it. Most of us have an idea of what volatility is. We usually 2. Calculate the average day-to-day changes over a certain thinkV of “choppy” markets and wide price swings when the period. Add together all the changes for a given period (n) and topic of volatility arises. These basic concepts are accurate, but calculate an average for them (Rm): they also lack nuance. Volatility is simply a measure of the degree of price move- Rt ment in a stock, futures contract or any other market. What’s n necessary for traders is to be able to bridge the gap between the Rm = simple concepts mentioned above and the sometimes confus- n ing mathematics often used to define and describe volatility. 3. Find out how far prices vary from the average calculated But by understanding certain volatility measures, any trad- in Step 2. The historical volatility (HV) is the “average vari- er — options or otherwise — can learn to make practical use of ance” from the mean (the “standard deviation”), and is esti- volatility analysis and volatility-based strategies. -
Dividend Policy in the Absence of Taxes
Dividend Policy in the Absence of Taxes Khamis Al-Yahyaee, Toan Pham*, and Terry Walter School of Banking and Finance, University of New South Wales Abstract We examine dividend policy in Oman, this being a unique environment where firms distribute almost 100% of their profits as dividends, and where firms are highly levered through bank loans, thus reducing the role of dividends in agency cost mitigation. We find that profitability, size and business risk are factors that determine dividend policy of both financial and non- financial firms. Government ownership, leverage and age have a significant impact on the dividend policy of non-financial firms but no effect on financial firms. The factors that influence the probability of paying dividends are the same factors that determine the amount of dividends paid for both financial and non-financial firms. Our results also show that agency costs mitigation is not a critical driver of dividend policy of Omani firms. Finally, we apply the Lintner (1956) model and find that non-financial firms adopt policies that smooth dividends, whereas financial firms do not have stable dividend policies. JEL Classification: G35 Keywords: dividends, taxes, agency theory December 2006 * Corresponding author. E-mail address: [email protected]. School of Banking and Finance, University of New South Wales, Sydney, 2052 Australia. Phone: +61 2 9385 5869 Fax: +61 2 9385 6347 1. Introduction “Although a number of theories have been put forward in the literature to explain their pervasive presence, dividends remain one of the thorniest puzzles in corporate finance” (Allen, Bernardo, and Welch (2000, p.2499)) The question of “Why do corporations pay dividends?” has puzzled researchers for many years. -
Performance Update
Performance Update A Multi-Cap Value Fund Seeking Long-Term Capital Appreciation * Mark Boyar Overview of 2nd Quarter 2021 Mark began his career as a securities analyst in 1968. In 1975, he founded Asset Analysis Focus, a subscription-based, institutional Compared with the first quarter of 2021, when the Georgia Senate research service focused on value investing. He quickly began runoff elections secured Democratic control of Congress (via the vice- managing money for high net worth clients and later formed Boyar presidential tiebreaker), protestors descended on the Capitol Building, Asset Management, a registered investment advisor, in 1983. He began and Archegos Capital imploded, the second quarter of 2021 was managing the Boyar Value Fund in 1998. His opinions are often sought tranquil. This calmness was reflected in the stock market, with the by such media outlets as Barron’s, Business Week, CNBC, Forbes, VIX (a measure of stock market volatility) ending the first half of 2021 Financial World, the New York Times and the Wall Street Journal. at 15.8. (In March 2020, at the height of the pandemic, that level reached 82.7.) Top Ten Equity Holdings Will the calm in the markets continue? Not necessarily, according to Nicholas Colas, cofounder of DataTrek Research, who notes that Holdings during the summer months, when trading desks are thinly staffed, any surprising developments “hit the market harder than they otherwise might . and since volatility and returns have a negative correlation, this dynamic can make for difficult investment environments.” History bears this out, says Akane Otani, writing in the Wall Street Journal: July delivers average gains of 1.6%, but according to the Stock Traders Almanac, historical August returns have been so poor that “August's a good month to go on vacation: trading stocks will lead to frustration.” The S&P 500 finished the second quarter of 2021 selling for 21.5x earnings (fwd.) versus 19.2x at the February 19, 2020, pre-COVID peak and 13.3x at the March 23, 2020, pandemic low. -
FX Effects: Currency Considerations for Multi-Asset Portfolios
Investment Research FX Effects: Currency Considerations for Multi-Asset Portfolios Juan Mier, CFA, Vice President, Portfolio Analyst The impact of currency hedging for global portfolios has been debated extensively. Interest on this topic would appear to loosely coincide with extended periods of strength in a given currency that can tempt investors to evaluate hedging with hindsight. The data studied show performance enhancement through hedging is not consistent. From the viewpoint of developed markets currencies—equity, fixed income, and simple multi-asset combinations— performance leadership from being hedged or unhedged alternates and can persist for long periods. In this paper we take an approach from a risk viewpoint (i.e., can hedging lead to lower volatility or be some kind of risk control?) as this is central for outcome-oriented asset allocators. 2 “The cognitive bias of hindsight is The Debate on FX Hedging in Global followed by the emotion of regret. Portfolios Is Not New A study from the 1990s2 summarizes theoretical and empirical Some portfolio managers hedge papers up to that point. The solutions reviewed spanned those 50% of the currency exposure of advocating hedging all FX exposures—due to the belief of zero expected returns from currencies—to those advocating no their portfolio to ward off the pain of hedging—due to mean reversion in the medium-to-long term— regret, since a 50% hedge is sure to and lastly those that proposed something in between—a range of values for a “universal” hedge ratio. Later on, in the mid-2000s make them 50% right.” the aptly titled Hedging Currencies with Hindsight and Regret 3 —Hedging Currencies with Hindsight and Regret, took a behavioral approach to describe the difficulty and behav- Statman (2005) ioral biases many investors face when incorporating currency hedges into their asset allocation. -
Modelling Australian Dollar Volatility at Multiple Horizons with High-Frequency Data
risks Article Modelling Australian Dollar Volatility at Multiple Horizons with High-Frequency Data Long Hai Vo 1,2 and Duc Hong Vo 3,* 1 Economics Department, Business School, The University of Western Australia, Crawley, WA 6009, Australia; [email protected] 2 Faculty of Finance, Banking and Business Administration, Quy Nhon University, Binh Dinh 560000, Vietnam 3 Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City 7000, Vietnam * Correspondence: [email protected] Received: 1 July 2020; Accepted: 17 August 2020; Published: 26 August 2020 Abstract: Long-range dependency of the volatility of exchange-rate time series plays a crucial role in the evaluation of exchange-rate risks, in particular for the commodity currencies. The Australian dollar is currently holding the fifth rank in the global top 10 most frequently traded currencies. The popularity of the Aussie dollar among currency traders belongs to the so-called three G’s—Geology, Geography and Government policy. The Australian economy is largely driven by commodities. The strength of the Australian dollar is counter-cyclical relative to other currencies and ties proximately to the geographical, commercial linkage with Asia and the commodity cycle. As such, we consider that the Australian dollar presents strong characteristics of the commodity currency. In this study, we provide an examination of the Australian dollar–US dollar rates. For the period from 18:05, 7th August 2019 to 9:25, 16th September 2019 with a total of 8481 observations, a wavelet-based approach that allows for modelling long-memory characteristics of this currency pair at different trading horizons is used in our analysis. -
There's More to Volatility Than Volume
There's more to volatility than volume L¶aszl¶o Gillemot,1, 2 J. Doyne Farmer,1 and Fabrizio Lillo1, 3 1Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM 87501 2Budapest University of Technology and Economics, H-1111 Budapest, Budafoki ut¶ 8, Hungary 3INFM-CNR Unita di Palermo and Dipartimento di Fisica e Tecnologie Relative, Universita di Palermo, Viale delle Scienze, I-90128 Palermo, Italy. It is widely believed that uctuations in transaction volume, as reected in the number of transactions and to a lesser extent their size, are the main cause of clus- tered volatility. Under this view bursts of rapid or slow price di®usion reect bursts of frequent or less frequent trading, which cause both clustered volatility and heavy tails in price returns. We investigate this hypothesis using tick by tick data from the New York and London Stock Exchanges and show that only a small fraction of volatility uctuations are explained in this manner. Clustered volatility is still very strong even if price changes are recorded on intervals in which the total transaction volume or number of transactions is held constant. In addition the distribution of price returns conditioned on volume or transaction frequency being held constant is similar to that in real time, making it clear that neither of these are the principal cause of heavy tails in price returns. We analyze recent results of Ane and Geman (2000) and Gabaix et al. (2003), and discuss the reasons why their conclusions di®er from ours. Based on a cross-sectional analysis we show that the long-memory of volatility is dominated by factors other than transaction frequency or total trading volume. -
Futures Price Volatility in Commodities Markets: the Role of Short Term Vs Long Term Speculation
Matteo Manera, a Marcella Nicolini, b* and Ilaria Vignati c Futures price volatility in commodities markets: The role of short term vs long term speculation Abstract: This paper evaluates how different types of speculation affect the volatility of commodities’ futures prices. We adopt four indexes of speculation: Working’s T, the market share of non-commercial traders, the percentage of net long speculators over total open interest in future markets, which proxy for long term speculation, and scalping, which proxies for short term speculation. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) and six non-energy commodities (cocoa, coffee, corn, oats, soybean oil and soybeans) over the period 1986-2010, analyzed at weekly frequency. Using GARCH models we find that speculation is significantly related to volatility of returns: short term speculation has a positive and significant coefficient in the variance equation, while long term speculation generally has a negative sign. The robustness exercise shows that: i) scalping is positive and significant also at higher and lower data frequencies; ii) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); iii) results are robust to different specifications of the mean equation. JEL Codes: C32; G13; Q11; Q43. Keywords: Commodities futures markets; Speculation; Scalping; Working’s T; Data frequency; GARCH models _______ a University of Milan-Bicocca, Milan, and Fondazione Eni Enrico Mattei, Milan. E-mail: [email protected] b University of Pavia, Pavia, and Fondazione Eni Enrico Mattei, Milan. E-mail: [email protected] c Fondazione Eni Enrico Mattei, Milan. -
The Cross-Section of Volatility and Expected Returns
THE JOURNAL OF FINANCE • VOL. LXI, NO. 1 • FEBRUARY 2006 The Cross-Section of Volatility and Expected Returns ANDREW ANG, ROBERT J. HODRICK, YUHANG XING, and XIAOYAN ZHANG∗ ABSTRACT We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. Stocks with high idiosyncratic volatility relative to the Fama and French (1993, Journal of Financial Economics 25, 2349) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility. IT IS WELL KNOWN THAT THE VOLATILITY OF STOCK RETURNS varies over time. While con- siderable research has examined the time-series relation between the volatility of the market and the expected return on the market (see, among others, Camp- bell and Hentschel (1992) and Glosten, Jagannathan, and Runkle (1993)), the question of how aggregate volatility affects the cross-section of expected stock returns has received less attention. Time-varying market volatility induces changes in the investment opportunity set by changing the expectation of fu- ture market returns, or by changing the risk-return trade-off. If the volatility of the market return is a systematic risk factor, the arbitrage pricing theory or a factor model predicts that aggregate volatility should also be priced in the cross-section of stocks. -
The Copeland Review Second Quarter 2020
The Copeland Review Second Quarter 2020 “We believe that stocks with sustainable dividend growth consistently outperform the market with less risk. ” (Don’t) Press Your Luck! "Today, these three players are after Big Bucks, but they'll have to avoid the Whammy, as they play the most exciting game of their lives! Big bucks, big bucks, no Whammies, come on!” - Press Your Luck, 1980s, 2019 and ‘20 Game Show One quarter ago, both the S&P 500 Index and are frequently driven by the most impaired, As our country works through this the MSCI World Ex US Index were down -20% lowest quality, highest risk stocks. So far, this period, we would like to express our year-to-date, on a total return basis, while the category has done well, along with thematic continued appreciation of everyone on Nasdaq Composite Index was down -14%. biotech and technology stocks, many of the front lines dealing with COVID-19. Now, having staged a remarkable rebound, the which are not profitable. Going forward, we Our hearts truly go out to you as well S&P 500 Index finds itself down only -4% and believe dividend growers can use their finan- and to those individuals and families directly impacted by the virus. the MSCI World Ex US Index is off only- 10% as cial strength to win the next stage of recov- of the end of June. Even more incredible, the ery while also proving more resilient should Nasdaq Composite Index rallied into positive things go south again, especially considering territory and now stands up +13% as of June that the valuations of dividend growth stocks Chart 1. -
Corporate Finance Lecture Note Packet 2 Capital Structure, Dividend Policy and Valuation
Aswath Damodaran 1 CORPORATE FINANCE LECTURE NOTE PACKET 2 CAPITAL STRUCTURE, DIVIDEND POLICY AND VALUATION Aswath Damodaran Spring 2016 Aswath Damodaran 2 CAPITAL STRUCTURE: THE CHOICES AND THE TRADE OFF “Neither a borrower nor a lender be” Someone who obviously hated this part of corporate finance First principles 3 Aswath Damodaran 3 The Choices in Financing 4 ¨ There are only two ways in which a business can raise money. ¤ The first is debt. The essence of debt is that you promise to make fixed payments in the future (interest payments and repaying principal). If you fail to make those payments, you lose control of your business. ¤ The other is equity. With equity, you do get whatever cash flows are left over after you have made debt payments. Aswath Damodaran 4 Global Patterns in Financing… 5 Aswath Damodaran 5 And a much greater dependence on bank loans outside the US… 6 Aswath Damodaran 6 Assessing the existing financing choices: Disney, Vale, Tata Motors, Baidu & Bookscape 7 Aswath Damodaran 7 8 The Transitional Phases.. 9 ¨ The transitions that we see at firms – from fully owned private businesses to venture capital, from private to public and subsequent seasoned offerings are all motivated primarily by the need for capital. ¨ In each transition, though, there are costs incurred by the existing owners: ¤ When venture capitalists enter the firm, they will demand their fair share and more of the ownership of the firm to provide equity. ¤ When a firm decides to go public, it has to trade off the greater access to capital markets against the increased disclosure requirements (that emanate from being publicly lists), loss of control and the transactions costs of going public. -
Shareholder Wealth Effect of Dividend Policy: Empirical Evidence from the Chinese Securities Market
Front. Bus. Res. China 2007, 1(3): 437–455 DOI 10.1007/s11782-007-0026-8 RESEARCH ARTICLE YI Yanxin, KE Dagang, ZHANG Xiao Shareholder wealth effect of dividend policy: Empirical evidence from the Chinese securities market © Higher Education Press and Springer-Verlag 2007 Abstract Based on the special separated equity management structure of the listed companies in China and using a sample of the listed companies with distributed dividend in 2003 and 2004, this paper tests the shareholder wealth effects of dividend policy in Chinese separated equity market. Results show that shareholders of non-circulating stock get a high return rate by cash dividends, and circulating shareholders obtain a high short-term return rate by stock dividends. Keywords dividend policy, shareholder wealth effect, blockholders 摘要 基于我国上市公司股权分置的特殊治理结构,以2003–2004年所有分配股 利的上市公司为样本,实证检验我国上市公司股利政策的股东财富效应,发 现:分配现金股利使非流通股股东实现高回报率,而流通股股东获得股票股利的 较高短期收益率。 关键词 股利政策,股东财富效应,控股股东 Translated from Nankai Guanli Pinglun 南开管理评论 (Nankai Business Review), 2006, 9(2): 4–10 YI Yanxin ( ) The School of Management, Xi’an Jiaotong University, Xi’an 710049, China E-mail: [email protected] KE Dagang The School of Management, Xi’an Jiaotong University, Xi’an 710049, China E-mail: [email protected] ZHANG Xiao The School of Management, Xi’an Jiaotong University, Xi’an 710049, China E-mail: [email protected] 438 YI Yanxin, KE Dagang, ZHANG Xiao 1 Introduction The extant domestic literature on dividend policy of listed companies mainly focuses on three perspectives: the signaling theory, agency cost theory and influencing factors. However, there are few studies on shareholder wealth effects derived from the high return associated with dividend issued by the listed companies. -
Creating an Ethical Stock Exchange
SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP WORKING PAPER CREATING AN ETHICAL STOCK EXCHANGE JAMIE HARTZELL AUGUST 2007 2 CREATING AN ETHICAL STOCK EXCHANGE JAMIE HARTZELL 3 CONTENTS 5-13 SECTION 1 – WHY IS AN ETHICAL EXCHANGE NECESSARY? 22-26 SECTION 4 – THE STRUCTURE OF AN ETHICAL EXCHANGE 5 THE EXISTING MARKETS 22 THE STAKEHOLDERS EXECUTIVE SUMMARY 6 PRICE SETTING ON THE EXISTING MARKETS 22 THE FUNCTIONS OF THE ETHICAL EXCHANGE 7 UNSUITABILITY OF THE EXISTING MARKETS FOR 22 TRADE AND NEW INVESTMENT EXECUTION ETHICAL BUSINESSES 22 COMPLIANCE WITH THE FINANCIAL SERVICES 8 THE EXTENT OF ETHICAL PUBLIC OFFERINGS (EPOS) AND MARKETS ACT AND THE COMPANIES ACT 10 DEMAND FOR AN ETHICAL EXCHANGE FROM 22 MARKETING SOCIAL ENTERPRISES 23 OWNERSHIP AND CONTROL OF THE EXCHANGE 11 THE BENEFITS OF A WIDE PUBLIC SHAREHOLDER BASE 23 ELIGIBLE INVESTMENTS CREATING A 12 DEMAND FOR AN ETHICAL EXCHANGE FROM INVESTORS 24 PRICING SOCIAL AND ENVIRONMENTAL RETURNS 25 CRITERIA FOR MARKET LISTING 14-17 SECTION 2 – THE EVOLUTION OF AN ETHICAL EXCHANGE 25 FINANCIAL CRITERIA 14 HISTORY OF ETHICAL SHARE TRADING TO DATE 25 SOCIAL AND ENVIRONMENTAL CRITERIA MARKET FOR 15 WHAT WOULD AN ETHICAL EXCHANGE DO? 25 TRANSPARENCY AND THE PROVISION 15 GENERATE LIQUIDITY IN INVESTMENTS IN OF INFORMATION SOCIAL ENTERPRISES 15 BRING NEW ISSUES TO MARKET 27-29 SECTION 5 – PRICING SHARES AND BONDS ETHICAL CAPITAL 15 ATTRACT NEW INVESTORS 27 THE FIVE MODELS 16 SUPPORT SMALLER ENTERPRISES WITH 27 OPTION 1 – FIXED PRICE TRADING START-UP FINANCE 27 OPTION 2 – SET PRICE TRADING 16 CREATE NEW