The Journal of Finance

More Powerful Portfolio Approaches to Regressing Abnormal Returns on Firm‐Specific Variables for Cross‐Sectional Studies

Published: 12/1992,  Volume: 47,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1992.tb04697.x  |  Cited by: 16

RAMESH CHANDRA, BALA V. BALACHANDRAN

OLS regression ignores both heteroscedasticity and cross‐correlations of abnormal returns; therefore, tests of regression coefficients are weak and biased. A Portfolio OLS (POLS) regression accounts for correlations and ensures unbiasedness of tests, but does not improve their power. We propose Portfolio Weighted Least Squares (PWLS) and Portfolio Constant Correlation Model (PCCM) regressions to improve the power. Both utilize the heteroscedasticity of abnormal returns in estimating the coefficients; PWLS ignores the correlations, while PCCM uses intra‐and inter‐industry correlations. Simulation results show that both lead to more powerful tests of regression coefficients than POLS.

A Portfolio Approach to Estimating the Average Correlation Coefficient for the Constant Correlation Model

Published: 12/1989,  Volume: 44,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1989.tb02664.x  |  Cited by: 19

YASH P. ANEJA, RAMESH CHANDRA, ERDAL GUNAY

This paper presents a portfolio approach to estimating the average correlation coefficient of a group of stocks which are considered for portfolio analysis. The average correlation coefficient has been shown to produce a better estimate of the future correlation matrix than individual pairwise correlations. The advantage of the approach described here is that it does not require the estimation of pairwise correlations for estimating their average.

DISCLOSURE: A STUDY OF THE CONSENSUS AMONG PUBLIC ACCOUNTANTS AND SECURITY ANALYSTS*

Published: 6/1974,  Volume: 29,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1974.tb01503.x  |  Cited by: 1

Gyan Chandra

Do Spin‐offs Expropriate Wealth from Bondholders?

Published: 9/11/2003,  Volume: 58,  Issue: 5  |  DOI: 10.1111/1540-6261.00598  |  Cited by: 139

William F. Maxwell, Ramesh P. Rao

AbstractA wealth transfer from bondholders to stockholders is one of several hypotheses used to explain stockholder gains on the announcement of a spin‐off. However, previous empirical research has not found systematic evidence supporting the wealth expropriation hypothesis. Using a larger sample with comprehensive bond data, we find evidence consistent with wealth expropriation. Bondholders, on average, suffer a significant negative abnormal return during the month of the spin‐off announcement. However, even accounting for the loss to the bondholders, the aggregate value of the publicly traded debt and equity increases on a spin‐off announcement, suggesting that the wealth expropriation hypothesis is not a complete explanation of the stockholder gains. In explaining the magnitude of the losses to bondholders, we find they are a function of the loss in collateral in the spun‐off subsidiary and the level of financial risk of the parent firm. Consistent with a loss to bondholders, firms are more likely to have their credit rating downgraded than upgraded after a spin‐off. Additionally, consistent with the wealth transfer hypothesis, losses to bondholders tend to be more severe, the larger the gains to shareholders.

The Resiliency of the High‐Yield Bond Market: The LTV Default

Published: 9/1989,  Volume: 44,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1989.tb02641.x  |  Cited by: 1

CHRISTOPHER K. MA, RAMESH P. RAO, RICHARD L. PETERSON

This paper investigates the resiliency of the new‐issue high‐yield bond market by examining the changes in implied default rates of such bonds before and after the largest high‐yield bond default, i.e., the LTV bankruptcy. Specifically, the paper compares implied default probabilities of high‐yield bonds during the post‐LTV period calculated from actual new‐issue yields with instrumental default probabilities calculated on the assumption that the default had not occurred. A comparison of these probabilities reveals that the market's perception of default on the high risk segment of the bond market increased significantly after the LTV bankruptcy. However, the effect was transitory, lasting only six months. Thus, the market was resilient to a major default.

The Timing of Option Repricing

Published: 8/2004,  Volume: 59,  Issue: 4  |  DOI: 10.1111/j.1540-6261.2004.00675.x  |  Cited by: 56

Sandra Renfro Callaghan, P. Jane Saly, Chandra Subramaniam

We investigate whether executive stock option repricings are systematically timed to coincide with favorable movements in the company's stock price. For a sample of 236 repricing events, we observe sharp increases in stock price in the 20‐day period following the repricing date. In addition, repricing dates tend to either precede the release of good news or follow the release of bad news in the quarterly earnings announcements. Since information about stock option repricing is not generally released to the public around the repricing date, these findings suggest that CEOs opportunistically manage the timing of the option repricing date.

An Investigation of the Informational Role of Short Interest in the Nasdaq Market

Published: 10/2002,  Volume: 57,  Issue: 5  |  DOI: 10.1111/0022-1082.00495  |  Cited by: 553

Hemang Desai, K. Ramesh, S. Ramu Thiagarajan, Bala V. Balachandran

This paper examines the relationship between the level of short interest and stock returns in the Nasdaq market from June 1988 through December 1994. We find that heavily shorted firms experience significant negative abnormal returns ranging from −0.76 to −1.13 percent per month after controlling for the market, size, book‐to‐market, and momentum factors. These negative returns increase with the level of short interest, indicating that a higher level of short interest is a stronger bearish signal. We find that heavily shorted firms are more likely to be delisted compared to their size, book‐to‐market, and momentum matched control firms.