Liquidity effects of the introduction of the S&P 500 index futures contract on the underlying stocks

Article Abstract:

A study is made on the effect of the introduction of Standard and Poor's 500 futures contract on the bid-ask spreads in the cash market. This is of particular interest because high bid-ask spreads can be disadvantageous to the interest of investors. Several studies have forecasted a spread increase after the introduction of index futures. W.L. Silber, on the other hand, has contended that index futures can lead to low-cost hedging opportunities for market makers. A test for a simple shift in the mean spread level in the postfutures period of certain traded stocks is made. Then, a test for changes in the mean spread after controlling for the effect of secular shifts in variables is done. Finally, an examination of the proportion of spread is made. The results show that a 3.7% increase in the average proportional spread for the combined sample firms following the introduction of the futures market.

Research, Liquidity (Finance), Futures, Standard and Poor's 500-Stock Price Index

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Is there a global market for convertible bonds?

Article Abstract:

A single convertible bonds market was shown to exist in the US after the removal of withholding tax on foreign-held bonds in July 1984. American issuers of convertible debt have employed a self-selection process for both the domestic and offshore bond market. Prior to 1984, a disparity in abnormal returns in the domestic market (significantly negative returns) and the Eurobond market (inconsistently negative) was observed. This difference in stock price reactions cannot be rationalized using existing models of signaling. However this disparity was in line with speculation that American firms benefited from the Eurobonds tax advantage compared with domestic bonds prior to the tax change in 1984, through the partial division of the convertible bonds market.

Taxation, Eurobond market, Convertible bonds, Sovereign debt market

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A comparison of annual common stock returns: 1871-1925 with 1926-85

Article Abstract:

Common stocks' returns are compared for two periods: for 1871 to 1925 (using Cowles Commission data), and for 1926 to 1985 (using data compiled by Fisher and Lorie as well as by Ibbotson and Sinquefield). Annual returns for common stocks are analyzed for each of the two periods and compared across periods. Returns are expressed in both actual dollar amounts and inflation-adjusted dollar amounts. The comparison indicates an average annual return rate of 6.6 percent for either period and for the entire 115 year history of stock trading in the US. Variability in common stocks' annual return rates between the two periods is also comparable.

Economic aspects, Stocks, History, Return on investment, Rate of return

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