No abstract

Policy makers often try to raise a region's income by altering its industrial mix.However, such attempts to increase local income may have an adverse effect on the stability of the region's economy. In this paper, we develop single-, aggregate-, and multiregional portfolio models that can be used by policy makers to generate frontiers of riskhcome-efficient industrial mixtures for a regional economy. These portfolio models are modified for application to the tourist industry in six regions of Spain. In practice, we find that the introduction of bounds on the magnitude of sector rebalancing has a major effect on the model solutions.

This paper investigates the link between earnings and share prices for a sample of UK companies for the years 1961 to 1977. Three measures of earnings were used: the traditional historical cost accounting return and two which were closer to cash flow measures. The strength of the link between earnings and cumulative abnormal returns was investigated relative to the level of inflation. The results indicate that, while there is substantial information content in the traditional historical cost rate of return, there is very little information conveyed by the measure closest to pure cash flow. No support was therefore found for the use of cash flow based reports. Evidence was found showing substantial changes in the nature of the relationship between accounting and stock returns, but this could not be explained by the effects of inflation. This paper complements the study by Board, Day & Walker (1989) which examined the link between inflation and company profit for a large sample of US companies. The paper examines the link between earnings and share prices for a sample of UK companies, making use of three measures of earnings (two of which are closer to cash flow based measures than historical cost earnings). The strength of this link relative to the rate of inflation is also considered. Section I contains some discussion of the hypotheses under examination, sections I1 and I11 contain discussion of the techniques and sample, and sections IV to VII discuss the results of the tests. Section VIII contains some concluding remarks. I. Theoretical frameworkIt now seems generally agreed that, although accounting numbers are not the only source of information about companies' prospects, accounting earnings do provide information to the stock market which is used in the setting of prices. A crude rationale for this belief might be that increased profits indicate an increased likelihood of that company being in a good trading position. A more sophisticated view, following from the implications of the efficient market hypothesis, which highlights the linkages between share prices and earnings, is given below.Rational shareholders are assumed to be concerned only with their eventual wealth, which is derived from gains made from dividend payments *The authors are members of the Department of Accounting and Finance, London School of Economics and Political Science. They are most grateful to the referees of this paper, whose suggestions have resulted in a much improved paper. and capital gains. Thus the price of a share should reflect the present value of a stream of expected future dividends. Changes in expectations about this stream will cause the price to change, enabling shareholders to make gains or losses on sale. As the following equation shows, the dividend stream is based on the pattern of expected future cash flows, and so we would expect information which is used to form expectations about the future pattern of cash flows to be useful. P, = 1 E(DJ(1 + r)[ = 1 E(CFJ(1 + r)' m m 1 = O 1 = O where D, represents the divide...

On the London Stock Exchange the publication of large trades is delayed to give the market-maker concerned time to unwind the change in their inventory. Using trade and quotations data on 42 stocks for two years, a number of different effects are investigated. These include the association between trade size and the traded bid-ask spread, the inventory control policies of individual market-makers around large trades, the size and speed of the price impact of large trades whose publication is delayed, and the effects of delayed publication on the volume and spreads of the traded equity options market. Copyright Blackwell Publishers Ltd. 1996.

There has been considerable interest, both academic and regulatory, in the hypothesis that the higher is the volume in the futures market, the greater is the destabilizing effect on the stock market. We show that conventional approaches, such as adding exogenous variables to GARCH models, may lead to false inferences in tests of this question. Using a stochastic volatility model, we show that, contrary to regulatory concern and the results of other papers, contemporaneous informationless futures market trading has no significant effect on spot market volatility. Copyright Blackwell Publishers Ltd 2001.