Do markets overreact: international evidence

Article Abstract:

Support for the overreaction hypothesis formulated by Conrad and Kaul varies when tested with seven industrialized countries. Compared to other industrialized countries, no evidence was noted in the US which would validate the overreaction hypothesis. Instead, it was noted that the market is consistently being outperformed by low-price portfolios. In Canada, the effect of overreaction was found to be relatively weak. Testing of overreaction hypothesis also reveals that some of the long-term price reversals noted in winner and loser stocks can be explained by price and size effects.

Securities and Commodity Exchanges, Security and commodity exchanges, Securities Exchanges, Research, Stocks, Exchanges, Industrialized countries, Financial markets, Industrial nations

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Market discipline, bank subordinated debt, and interest rate uncertainty

Article Abstract:

Fixed-rate deposit insurance schemes provide incentives for institutions to purchase risky assets. The study analyses subordinated debt by looking at 2 different types of risk, firm and interest rate risk. It adapts the valuation model used by Gorton and Santomero in 1990 to test for market discipline. It shows that Gorton and Santomero's tests were ambiguous because they assumed a constant interest rate and failed to take into account debt instrument sensitivity to interest rate change. Market discipline data interpretation needs to be precise to prevent ambiguity.

DEPOSITORY INSTITUTIONS, Analysis, Interest rates

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Foreign acquisitions in the United States: effect on shareholder wealth of foreign acquiring firms

Article Abstract:

Gains received by shareholders from acquisitions of US firms by foreign companies are investigated. Results show that foreign buyers of US firms, particularly those from Japan, UK, Australia and Netherlands, gain more than do US buyers of foreign firms. Findings further confirm the hypothesis that bidding competition reduces buyer returns. The 1986 Tax Reform Act has not been found to deprive gains to foreign purchasers of US companies.

Finance, Acquisitions and mergers, International aspects, Stockholders, Letting of contracts, Competitive bidding

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