Seasonalities in security returns

Idiosyncratic Risk and Security Returns∗

The traditional CAPM approach argues that only market risk should be incorporated into asset prices and command a risk premium. This result may not hold, however, if some investors can not hold the market portfolio. For example, if one group of investors fails to hold the market portfolio for exogenous reasons, the remaining investors will also be unable to hold the market portfolio. Therefore,...

Round Numbers and Security Returns

We document consistent return patterns related to round numbers. We examine returns following previous day closing prices that are just above or below round number benchmarks. We find, for one-digit, two-digit and three-digit levels, that returns following closing prices just above a round number benchmark are significantly higher than returns following prices just below. For example, returns f...

Negative Overnight Returns: China's Security Markets

We find that there exist statistically significant negative overnight returns in China’s security markets, which is totally different from the previous research on HS300 Index by He et al. (2013), and the negative overnight returns are comparatively larger in China’s GEM (Growth Enterprise Market) board and SME (Small and Medium Enterprise) board than in the mainboards of Shanghai and Shenzhen ...

Optimal Investment, Growth Options, and Security Returns

As a consequence of optimal investment choices, a firm’s assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm’s systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: ~i! the time-series relation between the book-to-market ratio and asset returns; ~ii! the cross-se...

Using Lévy processes to model security returns