Forecasting Cross-Section Stock Returns using The Present Value Model

We contribute to the debate over whether forecastable stock returns reflect an unexploited profit opportunity or rationally reflect risk differentials. We test whether agents could earn excess returns by selecting stocks which have a low market price compared to an estimate of the fundamental value obtained from the present value model. The criterion for stock picking is one which could actually have been implemented by agents in real time. We show that statistically significant, and quantitatively substantial, excess returns are delivered by portfolios of stocks which are cheap relative to our estimate of fundamental value. There is no evidence that the under priced stocks are relatively risky and hence excess returns cannot easily be interpreted as an equilibrium compensation for risk.Excess returns, Trading rule, Efficient markets, Present value model, Stock prices.

How stable is the underlying process of stock prices? Empirical evidence of structural breaks in the firm-level dividend of the U.S. firms

In this paper, we present empirical evidence of instability in the form of structural breaks in dividend at the firm level of the U.S. firms. We perform the Bai and Perron (2003) structural break program that estimates multiple breaks based on deterministic econometric approach. We also observe for links between any specific episodes in the economic and financial history of the U.S and structural breaks detected in the dividend process of the U.S firms

Stock Returns Following Profit Warnings: A Test of Models of Behavioural Finance.

Models in behavioural finance have been developed to explain apparent anomalies in stock returns. A property common to a number of these models is that agents under react in the short run to public signals about future earnings. This contrasts sharply with the popular informal belief that stock prices overreact to news. A behavioural model also predicts returns reversals over longer horizons. We examine stock returns following profit warnings to test which, if any, of these hypotheses stands up to scrutiny on a new data set which was generated by a process which corresponds closely to that assumed in the behavioural models.

Can the Cross-Sectional Variation in Expected Stock Returns Explain Momentum?

To be published in Journal of financial and quantitative analysis, 200

On the membership of decision making committees

Draft published as working paper in November 2000The decision of a committee is determined jointly by the votingprocess it adopts and the composition of its membership. The paper analyses the process through which committee members emerge from the eligiblepopulation and traces the consequences of this for the decisions ofthe committee. It is shown that the equilibrium committee will becomposed of representatives from the extremes of the tastedistribution. These extremes balance each other and the committeereaches a moderate decision. However, this mutual negation by theextremes is a socially wasteful use of time. Data from the UK Houseof Lords is used to illustrate these results