The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Stock Market Return Expectations: Some General Properties
Published: 09/01/1980 | DOI: 10.1111/j.1540-6261.1980.tb03510.x
JOSEF LAKONISHOK
This paper examines how and how well do leading economists forecast stock market returns. This question is fundamental in finance, since the Capital Asset Pricing foundation rests upon assumptions about the properties of investors' expectations for stock market returns. The results reveal that economists' expectations of market returns as exemplified in Livingston's data do not meet the necessary conditions of efficiency. It should be noted however, that in later period some improvement in the quality of economists' forecasts was observed.
Anomalous Price Behavior Around Repurchase Tender Offers
Published: 06/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03698.x
JOSEF LAKONISHOK, THEO VERMAELEN
This paper reports anomalous price behavior around repurchase tender offers. Buying shares before the expiration date of a repurchase tender offer and tendering to the firm produces, on average, abnormal returns of more than 9 percent over a period shorter than one week. In addition, we find that repurchasing companies experience economically and statistically significant abnormal returns in the two years after the repurchase. The upward price drift is mainly caused by the behavior of the small firms in the sample.
Volume for Winners and Losers: Taxation and Other Motives for Stock Trading
Published: 09/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb04559.x
JOSEF LAKONISHOK, SEYMOUR SMIDT
Capital gains taxes create incentives to trade. Our major finding is that turnover is higher for winners (stocks, the prices of which have increased) than for losers, which is not consistent with the tax prediction. However, the turnover in December and January is evidence of tax‐motivated trading; there is a relatively high turnover for losers in December and for winners in January. We conclude that taxes influence turnover, but other motives for trading are more important. We were unable to find evidence that changing the length of the holding period required to qualify for long‐term capital gains treatment affected turnover.
The Weekend Effect: Trading Patterns of Individual and Institutional Investors
Published: 03/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb05089.x
JOSEF LAKONISHOK, EDWIN MABERLY
In this paper, we document regularities in trading patterns of individual and institutional investors related to the day of the week. We find a relative increase in trading activity by individuals on Mondays. In addition, there is a tendency for individuals to increase the number of sell transactions relative to buy transactions, which might explain at least part of the weekend effect.
Tax Reform and Ex‐Dividend Day Behavior
Published: 09/01/1983 | DOI: 10.1111/j.1540-6261.1983.tb02289.x
JOSEF LAKONISHOK, THEO VERMAELEN
This paper investigates the effect of a major Canadian tax reform on the ex‐dividend day behavior of companies on the Toronto Stock Exchange. The results are inconsistent with the hypothesis that price changes on ex‐dividend days reflect the relative taxation of dividends and capital gains for the “representative” investor, but are consistent with the hypothesis that ex‐dividend day price behavior reflects short‐term trading activities.
Stock Splits and Stock Dividends: Why, Who, and When
Published: 09/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb03919.x
JOSEF LAKONISHOK, BARUCH LEV
This study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions. The findings suggest that stock splits are mainly aimed at restoring stock prices to a “normal range.” Some support can also be found for the oft‐mentioned signalling motive of stock splits. Stock dividends are altogether different from stock splits, and they appear to be a decreasing phenomenon. The clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends.
Simple Technical Trading Rules and the Stochastic Properties of Stock Returns
Published: 12/01/1992 | DOI: 10.1111/j.1540-6261.1992.tb04681.x
WILLIAM BROCK, JOSEF LAKONISHOK, BLAKE LeBARON
This paper tests two of the simplest and most popular trading rules—moving average and trading range break—by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, our results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH‐M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models.
Stock Repurchases in Canada: Performance and Strategic Trading
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00291
David Ikenberry, Josef Lakonishok, Theo Vermaelen
During the 1980s, U.S. firms announcing stock repurchases earned favorable long‐run returns. Recently, concerns have been raised over the robustness of these findings. This concern comes at a time of explosive growth in repurchase programs. Thus, we study new evidence from the 1990s for 1,060 Canadian repurchase programs. Moreover, because of Canadian law, we can carefully track repurchase activity monthly. Similarly to the situation in the United States, the Canadian stock market discounts the information in repurchase announcements, particularly for value stocks. Completion rates in Canada are sensitive to mispricing. Trades also appear linked to price movements; managers buy more shares when prices fall.
The Behavior of Stock Prices Around Institutional Trades
Published: 09/01/1995 | DOI: 10.1111/j.1540-6261.1995.tb04053.x
LOUIS K. C. CHAN, JOSEF LAKONISHOK
All trades executed by 37 large investment management firms from July 1986 to December 1988 are used to study the price impact and execution cost of the entire sequence (“package”) of trades that we interpret as an order. We find that market impact and trading cost are related to firm capitalization, relative package size, and, most importantly, to the identity of the management firm behind the trade. Money managers with high demands for immediacy tend to be associated with larger market impact.
Institutional Equity Trading Costs: NYSE Versus Nasdaq
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb04819.x
LOUIS K. C. CHAN, JOSEF LAKONISHOK
We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size, and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms, while costs for trading the larger stocks are lower on NYSE. The cost differences estimated from a regression model are, however, sensitive to the choice of time period.
Contrarian Investment, Extrapolation, and Risk
Published: 12/01/1994 | DOI: 10.1111/j.1540-6261.1994.tb04772.x
JOSEF LAKONISHOK, ANDREI SHLEIFER, ROBERT W. VISHNY
For many years, scholars and investment professionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This article provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.
Stock Prices and Financial Analysts' Recommendations
Published: 03/01/1983 | DOI: 10.1111/j.1540-6261.1983.tb03634.x
JAMES H. BJERRING, JOSEF LAKONISHOK, THEO VERMAELEN
The recommendations of a Canadian brokerage house are evaluated by a number of techniques. The results reveal that an investor following the recommendations would have achieved significantly positive abnormal returns, even after allowing for transactions cost.
Fundamentals and Stock Returns in Japan
Published: 12/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb04642.x
LOUIS K. C. CHAN, YASUSHI HAMAO, JOSEF LAKONISHOK
This paper relates cross‐sectional differences in returns on Japanese stocks to the underlying behavior of four variables: earnings yield, size, book to market ratio, and cash flow yield. Alternative statistical specifications and various estimation methods are applied to a comprehensive, high‐quality data set that extends from 1971 to 1988. The sample includes both manufacturing and nonmanufacturing firms, companies from both sections of the Tokyo Stock Exchange, and also delisted securities. Our findings reveal a significant relationship between these variables and expected returns in the Japanese market. Of the four variables considered, the book to market ratio and cash flow yield have the most significant positive impact on expected returns.
The Stock Market Valuation of Research and Development Expenditures
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00411
Louis K. C. Chan, Josef Lakonishok, Theodore Sougiannis
We examine whether stock prices fully value firms' intangible assets, specifically research and development (R&D). Under current U.S. accounting standards, financial statements do not report intangible assets and R&D spending is expensed. Nonetheless, the average historical stock returns of firms doing R&D matches the returns of firms without R&D. However, the market is apparently too pessimistic about beaten‐down R&D‐intensive technology stocks' prospects. Companies with high R&D to equity market value (which tend to have poor past returns) earn large excess returns. A similar relation exists between advertising and stock returns. R&D intensity is positively associated with return volatility.
The Level and Persistence of Growth Rates
Published: 03/21/2003 | DOI: 10.1111/1540-6261.00540
Louis K. C. Chan, Jason Karceski, Josef Lakonishok
Expectations about long‐term earnings growth are crucial to valuation models and cost of capital estimates. We analyze historical long‐term growth rates across a broad cross section of stocks using several indicators of operating performance. We test for persistence and predictability in growth. While some firms have grown at high rates historically, they are relatively rare instances. There is no persistence in long‐term earnings growth beyond chance, and there is low predictability even with a wide variety of predictor variables. Specifically, IBES growth forecasts are overly optimistic and add little predictive power. Valuation ratios also have limited ability to predict future growth.
Momentum Strategies
Published: 12/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb05222.x
LOUIS K. C. CHAN, NARASIMHAN JEGADEESH, JOSEF LAKONISHOK
We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book–to–market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.