Stock Rates and the Syndication of Second-Hand Information Composition

Stock Prices and the Syndication of Second-Hand Information Author(s): Peter Lloyd Davies and Michael Canes Reviewed work(s): Source: The Journal of Business, Volume. 51, Number 1 (Jan., 1978), pp. 43-56 Published by: The University of Chicago Press Stable WEB ADDRESS: http://www.jstor.org/stable/2352617. Reached: 25/02/2013 12: 03 The use of the JSTOR archive indicates the acceptance from the Terms & Conditions of Use, available at. http://www.jstor.org/page/info/about/policies/terms.jsp

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Peter Lloyd Davies*

College or university of Rochester

Michael Canes*

American Petroleum Institute

Share Prices plus the Publicationof Second-Hand Information

Introduction Considerable data has built up over the past ten years suggesting which the stock market changes in an successful manner for the arrival of recent information. Claims by specialized analysts that excess results may be earned by learning price movements have found little help in studies by simply Fama and Blume (1966), Jensen and Benington (1970), and others. ' Investigations of price actions accompanying monetary events (e. g., Ball and Darkish [1968] on earnings notices, Fama ain al. [1969] on share splits) likewise have offered very little hope that trading based upon these bulletins will be rewarding. Perhaps importantly, the major returns received by professional portfolio managers do not is very much higher, given the risk level, than the comes back from a naive approach of buying and holding the industry portfolio (see, e. g., Sharpe 1966; Jensen late 1960s, 1969). Several economists have expressed fulfillment with these kinds of results upon grounds that efficiently decided stock rates give better signals pertaining to resource allowance than rates that do not really reflect 2. We gratefully acknowledge the help of Myron Scholes of the School of Chicago, who provided us together with the daily come back data employed in our calculations. 1 . A great amount of short-lived great serial relationship seems to can be found in daily returns however, not enough to power a trading approach. (Journal of Business, 1978, vol. fifty-one, no . 1)

This newspaper presents data on the effects of secondary diffusion of share analysts' tips after major dissemination to analysts' clientele. The evidence suggests that such supplementary dissemination considerably affects share prices and the effect is usually not turned within the future 20 trading days. One particular inference is the fact stock experts provide economically valuable data to customers, and a second is the fact primary spread of this sort of information will not always result in a full stock-price adjustment, contrary to the claims of the strong sort of the useful market hypothesis.

? 1978 by The University of Chicago

0021-9398/78/5101-0006$01. 16 43

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44

Journal of Organization

available information. Others happen to be perplexed, yet , at an implied inefficiency-namely, the existence of the security-analysis industry. If prices reflect all information that analysts will be examining, how come then will be investors offering for their services? There are several likely answers. One is that analysts' recommendations derive from inside info that is not but reflected in prices. This kind of leaves unusual the apparent lack of regular superior overall performance by skillfully...

References: Ball, R., and Brown, L. 1968. A great empirical evaluation of accounting income quantities. Journal of Accounting Study 6 (Fall): 159-78. Black, F.; Jensen, M.; and Scholes, Meters. 1972. The main city asset costs model: some empirical testing. In Meters. C. Jensen (ed. ), Studies in the Theory of Capital Markets. New York: Praeger. Fama, E. 1965. The behaviour of currency markets prices. Log of Organization 38 (January): 34-105. Juicio, E., and Blume, M. 1966. Filtration system rules and stock market trading. Journal of Business 39 (January): 226-41. Fama, E.; Fisher, L.; Jensen, Meters.; and Rotate, R. 1969. The realignment of stock prices to new info. International Financial Review twelve (February): 1-21. 12. We ran the tests upon 1970 and 1971 info separately and also virtually the same results.

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Journal of Business

Jensen, M. late 1960s. The performance of shared funds inside the period 1945-64. Journal of Finance 3 (May): 389-416. Jensen, M. 1969. Risk, the pricing of capital assets, as well as the evaluation of investment portfolios. Journal of Business 42 (April): 167-247. Jensen, M., and Benington, G. 1970. Random strolls and specialized theories: a few additional evidence. Journal of Finance twenty-five (May): 469-82. Lloyd-Davies, G. 1975. Rumours, market productivity and pareto optimality within an uncertain capital market. Working Paper Series, No . 7537, University of Rochester, Graduate School of Management, Sept. Mandelbrot, B. 1963. The variation of selected speculative rates. Journal of Business thirty eight (October): 394-419. Sharpe, Watts. 1966. Shared fund efficiency. Journal of Business 39 (January): 119-38.

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