In this study we re‐examine the presence of random walk in stock prices in Brazil and Mexico. We employ variance ratio tests on weekly stock returns for indexes as well as individual firms. The results reveal mean aversion in Mexico at both the index level and the firm level. In contrast, the Brazil indexes show a greater tendency toward random walk; however, the results for the individual firms suggest mean reversion. The results cannot be attributed to a firm size effect. Evidence is presented in favor of a greater degree of nonsynchronous trading for Brazilian securities than for Mexican securities.

The purpose of this study is to examine the relationship between firm size and time‐varying betas of UK stocks. We extend the (Journal of Finance 45, 1120–1155) methodology by explicitly modeling conditional heteroscedasticity in the market model residual returns. Our results show that the time‐varying coefficient is not statistically significant for both small and large firm stock indexes. We also find that accounting for GARCH effects in the Schwert‐Seguin market model yields beta estimates that are markedly differently from those when conditional heteroscedasticity is ignored. Event studies that ignore conditional heteroscedasticity may bias the abnormal returns of small and large firms, thereby leading to a different conclusion regarding the significance of an information event.

No abstract

This study investigates the stock‐market reaction to layoff announcements where more than 1000 workers are affected. We employ a dummy variable regression (DVR) version of the market model and compare the results obtained using ordinary least squares (OLS) versus exponential GARCH (EGARCH), and value‐weighted (VW) versus equally weighted (EW) market index. We find that the stock market responds negatively to layoffs attributed to low demand. We also find that contrary to prior research, the market reacts positively to restructuring‐related layoffs on the announcement date. This pattern of market reaction is observed regardless of the market index used or the parameter estimation methods employed, although the empirical results indicate that using EGARCH/VW market index tends to generate fewer statistically significant test results and smaller (in the absolute size of the cumulative) abnormal returns (ARs). Taken together, our study provides additional support for the claim that studies of stock‐market reaction to corporate events must account for the time variation in return volatility. Ignoring these could result in erroneous inferences.