Capital market
17250930
Presidential Address: A simple model of capital market equilibrium with incomplete information
R C Merton
36720630
CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*
One of the problems which has plagued thouse attempting to predict the behavior of capital marcets is the absence of a body of positive of microeconomic theory dealing with conditions of risk/ Althuogh many usefull insights can be obtaine from the traditional model of investment under conditions of certainty, the pervasive influense of risk in finansial transactions has forced those working in this area to adobt models of price behavior which are little more than assertions. A typical classroom explanation of the determinationof capital asset prices, for example, usually begins with a carefull and relatively rigorous description of the process through which individuals preferences and phisical relationship to determine an equilibrium pure interest rate. This is generally followed by the assertion that somehow a market risk premium is also determined, with the prices of asset adjusting accordingly to account for differences of their risk.
William F Sharpe
21728948
The Economic Consequences Associated with Integrated Report Quality: Capital Market and Real Effects
The International Integrated Reporting Council's Framework identifies two goals for integrated reporting: improved information for outside providers of financial capital and better internal decision making. We extend prior research that finds a positive association between integrated report quality (IRQ) and firm value by examining two channels through which this association may arise a capital market channel and a real effects channel. To conduct these tests, we disaggregate firm value into three components: liquidity, cost of capital, and expected future cash flows. Using data from South Africa where integrated reporting is mandatory and an IRQ measure based on proprietary EY data, we find a positive association between IRQ and liquidity, which supports the capital market channel. We find no evidence of a relation between IRQ and cost of capital. We also find a positive association between IRQ and expected future cash flows. Because this association could reflect better investor cash flow forecasts a capital market effect, better internal decisions a real effect, or both, we attempt to distinguish these explanations. We find higher IRQ is (not) associated with higher realized future operating cash flows (greater analyst target price forecast accuracy) and is associated with less over and under investment. These findings support the real effects channel. Together, our findings are consistent with integrated reporting achieving its dual objective of improved external information and better internal decisions.
Mary E Barth Steven F Cahan Lily Chen Elmar Retief Venter
157484960
Does Integrated Reporting Matter to the Capital Market?
Integrated reporting &lt;IR&gt; is an emerging international corporate reporting initiative to address limitations to extant corporate reporting approaches, which are commonly criticized for being both voluminous and disjointed. While &lt;IR&gt;#160;is gaining in popularity, current momentum has been limited due to a lack of clear evidence of its benefits. Utilizing the most suitable setting currently available, being discretionary disclosures made by listed companies on the Johannesburg Stock Exchange, this study provides evidence that analyst forecast error reduces as a company's level of alignment with the &lt;IR&gt;#160;framework increases. Further, the improved alignment is associated with a subsequent reduction in the cost of equity capital for certain reporting companies. The results are obtained after controlling for factors relating to financial transparency and the issuance of standalone non&#8208;financial reports, which suggests that &lt;IR&gt;#160;is providing incrementally useful information to the capital market over and above existing reporting mechanisms.
Shangsi Zhou Roger Simnett Wendy Green
154576888
Capital Market Imperfections and Investment
Over the past decade, a number of researchers have extended conventional models of business fixed investment to incorporate a role for financial constraints' in determining investment. This paper reviews developments and challenges in this empirical research, and uses advances in models of information and incentive problems to motivate those developments and challenges. First, I describe analytical underpinnings of models of capital market imperfections in the investment process, and illustrate the principal testable implications of those models. Second, I motivate tests and describe and critique existing empirical studies. Third, the review considers applications of the underlying models to a range of investment activities, including inventory investment, R&D, employment demand, pricing by imperfectly competitive firms, business formation and survival, and risk management. Fourth, I discuss implications of this research program for analysis of effects of investment on monetary policy and tax policy. Finally, I examine some potentially fruitful avenues for future research.
Robert Glenn Hubbard
157059759
Capital Market and Economic Growth Nexus: Evidence from Turkey
This study explores the relations between the development level of capital market sub components, involving mutual/pension funds, corporate bond, stock and government bond markets, and economic growth over the period of 2006:M1 and 2016:M6 in Turkey. We find that there is a long run cointegrating relationship between capital market development and economic growth and also a unidirectional causality running from capital market development to economic growth. Using ARDL, Markov Switching Regression and Kalman Filter models, we also find that capital market development has asymmetric effects on economic growth where government bond market development is negatively but the aggregated index of other sub components is positively associated with economic growth.
Yener Coskun Unal Seven Hasan Murat Ertugrul Talat Ulussever
220428596
Capital market effects of securities regulation: Prior conditions, implementation, and enforcement
We examine the capital market effects of changes in securities regulation in the European Union aimed at reducing market abuse and increasing transparency. To estimate causal effects for the population of E.U. firms, we exploit that for plausibly exogenous reasons, such as national legislative procedures, E.U. countries adopted these directives at different times. We find significant increases in market liquidity, but the effects are stronger in countries with stricter implementation and traditionally more stringent securities regulation. The findings suggest that countries with initially weaker regulation do not catch up with stronger countries, and that countries diverge more upon harmonizing regulation.Received August 3, 2015; accepted April 25, 2016, by Editor Andrew Karolyi.
Hans B Christensen Luzi Hail Christian Leuz
55474410
Nonmarketable assets and capital market equilibrium under uncertainty
Master Student's Name Lasha Bokuchava Master Thesis Title Nonmarketable Assets and Capital Market Equilibrium under Uncertainty Faculty Graduate School of Management Main field of study Corporate Finance Year 2016 Academic Advisor's Name Alexander V. Bukhvalov Description of the goal, tasks and main results In this paper, the author pays special attention to the model developed by Mayers (1972) who challenged the assumption of marketability of all assets by introducing the effect of 5 nonmarketable assets. Mayers examined the role of returns to human capital as a proxy for nonmarketable asset. Mayers' extended model suggests that since any individual investor's human capital is unique, the covariance between the market portfolio and payoffs to human capital will have an impact on the optimal weight of the market portfolio, therefore, the covariance explains why investors hold different portfolios in reality. This research aims to understand whether the CAPM with nonmarketable assets has meaningful implications in the Russian market. The following objectives are met to realize the ultimate goal of the paper: 1. Theoretical and empirical background of the traditional Capital Asset Pricing Model are covered; 2. Theoretical and empirical background of the CAPM model with nonmarketable assets are covered; 3. Methodologies for the calculation of differences between the Mayers and SLM risk measures are derived; 4. The data on 50 most liquid stocks of Russia's largest companies is obtained. The companies are further segmented into 10 different sectors of economy to precisely evaluate the effect of returns to human capital on different classes of assets; 5. Regressions are run to estimate risk measures for respective classes of assets; 6. Differences between the Mayers and SLM risk measures are calculated to check whether this differences lead to significant deviations in final estimations of the required returns on risky assets in Russia; 7. Interpretation of results and limitations of the approach are elaborated. Contrary to the SLM model, the expanded model implies that not all maximizing investors hold the identical (except for scale) portfolio of marketable assets. It implies that each investor holds a portfolio of marketable assets that solves his personal (and possibly unique) portfolio problem and, therefore, allows investors to maintain unique portfolios. Empirical analysis of the CAPM with nonmarketable assets has shown significant difference of the estimates of the models for Innovations sectors. The beta predicted by extended model is 9.2% higher than the SLM 6 beta. Unfortunately, the research has failed to prove the validity of the model for other sectors of companies and for the market in general, which may be attributable to the limitations stated in the paper. These limitations include: 1) the quarrels about the way to define human capital, 2) the controversy of using human capital as a proxy, and 3) the imperfection of data on Russian stock market.
Bokuchava Lasha Zurabovich Bokuchava Lasha
154027593
Does Integrated Reporting Matter to the Capital Market?
Integrated reporting (IR) is an emerging international corporate reporting initiative arising to address, inter alia, the limitations of the current corporate reporting suite which are commonly criticized for being both voluminous and disjointed. While IR is gaining in popularity, current momentum is limited until there is clear evidence of benefits. Utilising the most suitable setting currently available, being disclosures in accordance with the Johannesburg Stock Exchange IR listing requirements, this study provides evidence of such benefits by finding that analysts' forecast error and dispersion reduces as the level of alignment with the IR framework increases. Further, the improved alignment is associated with a subsequent reduction in the cost of equity capital for certain reporting companies. The results are obtained after controlling for factors relating to financial transparency and the issue of standalone non financial reports, suggesting that IR is providing incrementally useful information over existing reporting mechanisms to the capital market.
Shangsi Zhou Roger Simnett Wendy Green
158494078
Chinese Capital Market: An Empirical Overview
The Chinese capital market, despite its relative short history in its modern form, has experienced a tremendous growth and is now the second largest in the world. Due to China's tight capital controls, the development of its capital market has mostly been isolated from and hence not been well understood by the rest of the world. Yet, this state of isolation is bound to change substantially as China becomes more integrated into the global financial system. In this paper, we provide an empirical overview of the Chinese capital market: its historical development and main empirical characteristics.
Grace Xing Hu Jun Pan Jiang Wang