This dissertation offers and tests a theory regarding the source of asymmetric cross-correlation in size-based portfolio returns and variances. This 'information transfer' theory states that large firm portfolio returns may 'lead' those of small firm portfolios because large firm stock prices contain 'better quality' information versus small firm stocks, and are thus used as information signals by investors in smaller firm stocks. The theory is contrasted against the transaction cost theory, as offered by Cohen, et al. (1980, 1983) and Mech (1990), which states that cross-correlations in portfolio returns obtain because of differential transaction costs among size-based portfolios. / These competing theories are tested by studying the cross-correlation characteristics of portfolios formed by proxies for information content of securities (size and relative trading volume) and transaction costs (share price and bid/ask spread). Tests performed include studies of simple cross-correlation patterns of portfolios formed controlling alternately for information quality and transaction cost proxies in weekly and daily returns, cross-mean and cross-variance influence tests using univariate and multivariate GARCH-M models and tests regarding theory implications for large magnitude returns. / Results support the conclusion that information quality and transaction costs both play a role in the cross-correlation patterns of size-based portfolios. Both simple cross-correlation patterns and multivariate parameter estimates support this conclusion. However, no evidence was found that return variances are consistently predictable among portfolios nor that large magnitude returns for leading portfolios are followed by quicker price adjustments by lagging portfolios than small magnitude returns. The finding that the quality of information available for securities plays a role in the asymmetric predictability of stock returns is the unique contribution of this work. / Source: Dissertation Abstracts International, Volume: 55-09, Section: A, page: 2933. / Major Professor: David R. Peterson. / Thesis (Ph.D.)--The Florida State University, 1994.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_77251 |
| Contributors | Richardson, Terry Lynn., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 257 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
Page generated in 0.002 seconds