Zhang (2005) and Cooper (2006) provide a theoretical risk-based explanation for the value premium by suggesting a nexus between firms' book-to-market ratio and investment irreversibility. They argue that unproductive physical capacity is costly in contracting conditions but provides growth opportunities during economic expansions, resulting in covariant risk between firms' investment in tangible assets and market-wide returns. This article uses the Australian accounting environment to empirically test this theory - a test that is not possible using US data. Consistent with the theoretical argument, tangibility is priced in equity returns, and augmenting the Fama and French three-factor model with a tangibility factor increases model explanatory power. Copyright (c) 2010 The Authors. Accounting and Finance (c) 2010 AFAANZ.
Despite considerable empirical evidence reporting a negative relationship between net share issuance and subsequent returns, it remains unresolved whether this anomaly is explained by risk or investor irrationality. This study examines the net share issuance anomaly using seasoned equity offerings before and after the introduction of an imputation tax system. We report robust evidence of a negative relationship between net share issuance and returns post‐imputation, but no relationship pre‐imputation. Our results provide evidence to support the international pervasiveness of the net share issuance anomaly, but more importantly suggest that this anomaly may be explained by risk.
This study investigates whether passive investment managers can exploit the size and value premia without incurring prohibitive transaction costs or being exposed to substantial tracking error risk. Returns on the value premium are shown to be pervasive across size groups, while the size premium is nonlinear and driven by microcaps. The value premium cannot be explained by the capital asset pricing model; however, returns on value portfolios do covary across monetary regimes. The substantial turnover required to achieve annual rebalancing and the relative illiquidity of Australian small-cap firms means that investing in a portfolio of large-cap value firms appears to be the best way for passive fund managers to exploit the Fama and French (1993) premia.
The results of the put-call parity studies by Loudon (1988) and Taylor (1990) are in direct conflict despite the authors reporting the use of virtually identical models and methods. Employing an improved version of Taylor's data collection procedures, we test the parity theorem in the period studied by Loudon. The results are similar to those of Loudon. As a result, we run separate checks of Taylor's data and analysis. The check of the data reveals that over sixty per cent of Taylor's observations are invalid. The check of the analysis reveals that the lower boundary of the put-call parity relation was incorrectly calculated by Taylor. Correcting this error results in fundamentally different conclusions. anonymous referees of this journal. We have also benefited from comments made at a seminar of the Department of Accounting and Finance, Monash Univerity, Clayton. We are also grateful for financial support provided by the Faculty of Economics Commerce and Management, Monash University. We are particularly indebted to Stephen Taylor who provided us with his data and made comments on earlier drafts.
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