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11 posts on "Stocks"
September 6, 2023

Leader‑Follower Dynamics in Shareholder Activism

wooden figures in triangular formation with the lead figure colored red.

Activist shareholders play a central role in modern corporations, influencing the capital structure, business strategy, and governance of firms. Such “blockholders” range from investors who actively jawbone or break up firms to index funds that are largely passive in that they limit themselves to voting. In between, however, is a key group of blockholders that have historically focused on trading but have embraced activism as an established business strategy in the past few decades. Campaigns involving such “trading” blockholders have become ubiquitous, increasingly targeting large-capitalization firms; further, their attacks feature multiple activists, each with individual stakes that, in isolation, are unable to control targets. In this post, we ask three questions: (1) How do trading activists build stakes before an attack, while anticipating that other investors may have similar incentives? (2) Does the nature of strategic trading change relative to settings where activism is unlikely to occur? (3) Are there trade-offs between trading and the firm’s long-term value?

Posted at 7:00 am in Financial Markets, Stocks | Permalink
May 26, 2021

The Overnight Drift in U.S. Equity Returns

Since the advent of electronic trading in the late 1990s, S&P 500 futures have traded close to 24 hours a day. In this post, which draws on our recent Staff Report, we document that holding U.S. equity futures overnight has earned a large positive return during the opening hours of European markets. The largest positive returns in the 1998–2019 sample have accrued between 2 a.m. and 3 a.m. U.S. Eastern time—the opening of European stock markets—and averaged 3.6 percent on an annualized basis, a phenomenon we call the overnight drift.

January 6, 2021

The International Spillover of U.S. Monetary Policy via Global Production Linkages

Julian di Giovanni describes work with Galina Hale that employs an empirical framework to quantify the role of the global production network in transmitting U.S. monetary policy across international stock markets.

December 21, 2020

What’s Up with Stocks?

“U.S. stocks are racing toward a second consecutive quarter of dramatic gains, continuing a historic stock-market recovery that few predicted in the depths of the March downturn,” said a September Wall Street Journal article. “The stock market is detached from economic reality. A reckoning is coming,” said the Washington Post. What is going on? In this post, I look not at what stocks have actually done or will do, but at what investors expected should have happened, and what they expect will happen going forward. It turns out that, at least by the particular measure of expectations I consider, investors expected stock returns to be high all along and continue to expect the same in the future.

Posted at 7:00 am in Financial Markets, Stocks | Permalink
May 15, 2019

Did Changes in Economic Expectations Foreshadow Swings in the 2018 Elections?

In our previous post, we looked at political polarization in economic expectations based on county-level results in the 2016 presidential election. In this post, we analyze how expectations leading up to and following the 2018 midterm elections evolved based on how districts voted in the House of Representatives elections. Do we see a similar post-election change in political polarization of beliefs when comparing congressional districts in which a Republican won in 2018 with those won by a Democrat? Were observed changes in expectations leading up to the 2018 elections systematically different in areas where the election resulted in a change in the party holding the House seat? We show that economic expectations deteriorated notably between the 2016 and 2018 elections in districts that switched from Republican to Democratic control, compared to districts that remained Republican.

January 17, 2019

The Indirect Costs of Lehman’s Bankruptcy

In our previous post, we assessed losses to customers and clients from foregone opportunities after Lehman Brothers filed for bankruptcy in September 2008. In this post, we examine losses to Lehman and its investors in anticipation of bankruptcy. For example, if bankruptcy is expected, Lehman’s earnings may decline as customers close their accounts or certain securities (such as derivatives) to which Lehman is a counterparty may lose value. We estimate these losses by analyzing Lehman’s earnings and stock, bond, and credit default swap (CDS) prices.

Posted at 7:00 am in Banks, Crisis, Stocks | Permalink
October 6, 2014

What Can We Learn from Prior Periods of Low Volatility?

Volatility, a measure of how much financial markets are fluctuating, has been near its record low in many asset classes.

May 9, 2014

Crisis Chronicles: Central Bank Crisis Management during Wall Street’s First Crash (1792)

As we observed in our last post on the Continental Currency Crisis, the finances of the United States remained chaotic through the 1780s as the young government moved to establish its credit.

April 9, 2014

Lunch Anyone? Volatility on the Tokyo Stock Exchange around the Lunch Break on May 23, 2013, and Stock Market Circuit Breakers

Stock market circuit breakers halt trading activity on a single stock or an entire exchange if a sudden large price move occurs.

Posted at 7:00 am in Financial Markets, Liquidity, Stocks | Permalink
May 8, 2013

Are Stocks Cheap? A Review of the Evidence

We surveyed banks, we combed the academic literature, we asked economists at central banks.

Posted at 7:00 am in Financial Markets, Stocks | Permalink | Comments (21)
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