Following a report of a possible seasonal in Australian share prices [Praetz (1973)], a study was made of the behaviour of share returns using different data and methodology to that of the original report. The test included forecasts of the seasonal using Box and Jenkins methods. Although the results indicate some evidence of a seasonal, it is shown that this is not prima facie evidence of market inefficiency. It is suggested that a more likely explanation is related to the structure of the economy, e.g., changing opportunity cost of money through the year.

This paper empirically investigates the seasonal behavior of the liquidity premium in asset pricing. The evidence suggests a strong seasonal component. In the 1961–1990 period, the liquidity premium is reliably positive only during the month of January. For the non-January months, one cannot detect a positive liquidity premium. The impact of the relative bid-ask spreads on asset pricing in non-January months cannot be reliably distinguished from zero. In contrast to Amihud and Mendelson (1986), however, our evidence suggests that the size effect is significant, even after controlling for spreads.

I propose a new measure of venture capital (VC) firm reputation and analyze its performance implications on private companies. Controlling for portfolio company quality and other VC-specific factors including experience, connectedness, syndication, industry competition, exit conditions, and investment environment, I find companies backed by more reputable VCs by initial public offering (IPO) capitalization share (based on cumulative market capitalization of IPOs backed by the VC), are more likely to exit successfully, access public markets faster, and have higher asset productivity at IPOs. Further tests suggest VCs’ IPO Capitalization share effectively captures both VC screening and monitoring expertise. My findings have financial implications for limited partners and entrepreneurs regarding their VC-sorting activities.

Recent bank mergers generally did not improve relative operating performance or produce positive abnormal returns to acquiring bank shareholders. We examine the relationship between mergers and CEO compensation during 1986–1995, a period marked by overcapacity and frequent mergers. We find that mergers have a net positive effect on compensation, mainly via the effect of size on compensation. Compensation generally increases even if mergers cause the acquiring bank's stock price to decline, as is typical after a merger announcement. The form of compensation affects merger decisions, since CEOs with more stock-based compensation were less likely to make an acquisition.

This study examines the effect of real exchange rate changes on multinational firms and incorporates the effect of intra-industry competition on the relation between exchange rates and firm value. To test the relation more effectively, tests are conducted using a sample of automotive firms from the United States and Japan. Consistent with theoretical predictions, there is significant exposure to exchange rate shocks. Moreover, there is evidence of time-variation in exchange rate exposure, which is consistent with changes in the competitive environment within the industry. Finally, evidence is presented that is consistent with foreign sales being a major determinant of exposure and the effectiveness of operational hedging through foreign production.

Swedish lottery bonds offer a unique opportunity to study ex-day effects in an environment where cash distributions are tax-advantaged relative to capital gains. Thus, in the lottery bond market, we observe a reversal of the preference for capital gains that researchers have cited as an explanation for the ex-day behavior of U.S. equities. Further, in this market there are barriers to short-term arbitrage when prices do reflect the tax preferences of individual investors. We find the bonds are priced around the ex-day to reflect differential tax rates on income and capital gains consistent with the prevailing tax regimes. The bonds consistently experience negative returns over the coupon payment period, and in fact often sell at negative yields prior to the cash distribution, as one would expect given tax-motivated trading between high-tax investors, who buy prior to the distribution, and low-tax investors, who buy after the distribution.

The paper investigates how quickly prices attain new equilibrium levels after large-block transactions, and measures the associated temporary and permanent price effects. We find that prices adjust within at most three trades, with most of the adjustment occurring in the first trade. The temporary price effect for seller-initiated transactions is related to block size, but the temporary price effect observed for buyer-initiated transactions is no larger than that observed in 100 share trades. Most of the price effect associated with block trades is permanent and is related to block size, regardless of the initiating party.

Shanken (1985) derives a test for the zero-beta capital asset pricing model (CAPM) which, as he points out, is equivalent to a test of the mean/variance efficiency of the market portfolio. This note illustrates the geometry of Shanken's test in the mean/variance space.

We provide evidence that identifiable subsets of investors use significantly different information sets. Investors initiating large trades respond to analysts’ earnings forecast errors, while investors initiating small trades respond to a less-sophisticated signal that underestimates the implications of current earnings innovations for future earnings levels. This suggests small investors exhibit the behavior that Bernard and Thomas [Journal of Accounting and Economics 13, 305–340] theorize causes post-earnings announcement drift. We also use analysts’ forecasts to significantly improve the predictability of returns around earnings announcements previously documented by Bernard and Thomas. Finally, results attempting to link return predictability to the prevalence of small-investor trading are mixed.

We demonstrate that analysts revise their forecasts of net operating income downward following the announcement of an equity-for-debt swap. Their revisions are positively correlated with the size of the stock-price reaction to the swap announcement. This evidence supports the hypothesis that announcements of equity-for-debt swaps convey information about the expected level of cash flows of the firm. We also provide evidence that this information is about transitory changes in the expected cash flows.