A Comparison of Alternative Testing Methodologies Used in Capital Market Research

Collins, Daniel W.; Dent, Warren T.

doi:10.2307/2490701

Cited by 196 publications

(150 citation statements)

References 22 publications

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“…Simulation results in Collins and Dent (1984) indicate that this method of calculating t-statistics leads to appropriate inferences in experimental designs similar to ours)5…”

Section: Hypotheses and Testssupporting

confidence: 59%

The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence

Korajczyk¹,

Lucas

McDonald

1988

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This paper develops a formal model of the timing and pricing of new equity issues, assuming that managers are better informed than new investors about the quality of the firm. Firms will prefer to issue equity when the market is most informed about the quality of the firm. This implies that equity issues tend to follow information releases, such as earnings announcements. The model also predicts a relation between the timing and pricing of equity issues.The price drop at the time of the equity issue announcement should increase in the time since the last information release, and the price drop at issue should increase with the time since the last information release or issue announcement. We teat the predictions of the theory on a sample of NYSE, AMEX and OTC firms who issued equity over the period [1978][1979][1980][1981][1982][1983]. We find evidence that there is a clustering of equity issues following earnings announcements and annual reports, and also that the price drop at the time of the equity issue is increasing in the time since the announcement of the issue.

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“…Simulation results in Collins and Dent (1984) indicate that this method of calculating t-statistics leads to appropriate inferences in experimental designs similar to ours)5…”

Section: Hypotheses and Testssupporting

confidence: 59%

The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence

Korajczyk¹,

Lucas

McDonald

1988

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“…Although the above test statistic is well specified if the variance of average abnormal returns is estimated correctly, event-time clustering renders the underlying independence assumption for abnormal returns in the cross-section invalid (Collins andDent 1984 andBernard 1987). To address this issue, we also compute the non-parametric rank test proposed by Corrado (1989), which is robust in the presence of non-normality, infrequent trading, and event-induced variance (Campbell and Wesley 1993).…”

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confidence: 99%

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

Dickgiesser

Kaserer

2010

German Economic Review

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Insider trading studies related to the German market have emphasized that outside investors may earn excess returns by mimicking the transactions of corporate directors. Such a result, provided that it holds, would constitute a serious violation of the efficient market hypothesis. The results presented in this paper, though, show that this anomaly is mainly caused by a subset of stocks with high arbitrage risk as measured by their idiosyncratic volatility. This restrains arbitrageurs from engaging in otherwise profitable and price-correcting trades. As arbitrage risk is positively related to a stock's bid/ask-spread, we show that the information conveyed by insider trades cannot be exploited in terms of generating abnormal returns once these transaction costs are taken into account. We conclude that the market's under-reaction to reported insider trades can mainly be explained by the cost associated with risky arbitrage. Our findings provide evidence that the German stock market is efficient with respect to insider trades in the sense that prices reflect publicly available information to the point where the marginal benefit of acting on information exceeds marginal costs.JEL Classification: G11, G14

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“…Therefore, the Efficient Market Hypothesis theory suggests that historical prices have no predictive capacity over the future prices. Thus, subsequent price shift should be random (Alexander (1961); Ball and Brown (1968), Fama, (1965); Rosenstein and Wyatt (1990), Chopra et al (1992), Malkiel (1995), Jensen and Benington, (1970), Fama, (1970), DeBondt and Thaler (1985), Kothari and Warner (1997), Elton et al (1993), Collins and Dent (1984), Seppi (1992); MacKinlay (1997), Campbell, Lo, and MacKinlay (1997), Corrado (1989), Jensen and Ruback (1983), Charest (1978) and Jarrell, Brickley and Netter (1988)). The event study methodology is one of the most used tool in economics, accounting and financial research.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Policy Announcement on Stock Market Volatility: Evidence from Currency Demonetisation in India

Sathyanarayana¹,

Gargesha²

2017

IOSR JBM

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A Comparison of Alternative Testing Methodologies Used in Capital Market Research

Cited by 196 publications

References 22 publications

The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence

The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

The Impact of Policy Announcement on Stock Market Volatility: Evidence from Currency Demonetisation in India

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