"Relations Between Portfolio Returns and Market Multiples," Global Finance Journal, 4/24/2008, pages 1-10, with Drs. J. Jeong and S. Mukherji.
One finding of this empirical investigation was that a company's per share price to sales ratio (PSR) was the valuation ratio with the highest explanatory power for subsequent stock returns and the most consistently significant relationshiop with subsequent stock returns. There was a statistically significnat inverse relationshiop between this ratio and subsequent stock returns. The research also tested multivariate regressions which decomposed the PSR into various other financial ratios. The PSR component with the highest explanatory power for subseqeusnt stock returns was the net profit margin. For this PSR component there was a statistically significant inverse relationship with future stock returns. This finding is consistent with evidence provided by earlier researchers that the relatively favorable returns of low PSR stocks reflects the market overreaction to both the depressed current profitablilty of value stocks and the high current profitabiltiy of companies with relatively high valuation ratios.
The Time Patterns of Relative Returns for Low Price-to-Sales and Low Price-to-Book Portfolios, Journal of Social and Behavioral Sciences, fall 2008, co-authored with Dr. Rajni Goel.
An empirical investigation (1988-2003) of the relationships between 2 company specific valuation ratios--the per share price to sales ratio (PSR) and the per share price to book ratio (PBR)-- and the subsequenst rates of return for a company's stock. One finding of this investigation was that portfolios of companies in the lower quartile based on either the PSR or the PBR experienced favorable relative rates of return during the subsequent year. Another finding was that companies in the lower quartile based on either the PSR or the PBR experienced negative relative rates of return during the portfolio formation year. There was a very significant change in the relative rates of return for these companies --from negative to positve--between the portfolio formation year and the first subsequent year. This finding suggests that the low valuation ratios of these companies can be partially attributed to their negative relative rates of during the portfolio formation year. Another significant finding of this research was a lagged pattern of future rates of return for both the low PSR portfolios and the low PBR portfolios. For both low PSR and low PBR portfolios, the rates of return during the second subsequent year were higher than during the first sulbsequenst year. This finding of a lagged relationship for rates of return suggests that investors can realize favorable rates of retrun by investing in stocks that met either the low PSR criterion or the low PBR criterion one year earlier.
An Empirical Analysis of Small and Large Company Stock Returns During Republican and Democratic Presidential Administrations, Business and Economic Review, 4/7/2006, pp. 14-25, coauthored with Dr. Sam Ziorklui.
This report was an empirical investigation of the relaltionships between common stock returns and the Presidential terms of both Republican and Democratic Presidential Adminintations. The research found the highest average rate of return during the third year of a Presidential term which can be explained by the administration's implementation of measures to improve economic perfomance prior to the next election. The lowest average rates of return for the stock market were observed during the 1st year of a Presidential term because of obviously diminished interest in the next Presidential election. Another finding was that Democratic Presidential administrations were especially favorable to the rates of return of small company stocks. That can be explained by the expansionary pro-growth monetary policies that are generally associated with their administrations.
"Financial Sector Reform and Financial Savings in Sub-Saharan Africa: The Case of Ghana," Savings and Development Quarterly Review, 1/15/2003, with Dr. Sam Ziorklui.
This study was an empirical examination of the impact of financial sector reform in Ghana on promoting and increasing savings mobilization to the country's banking system and private sector. The empirical results of this study showed that financial sector reform did not realize its intended goal of raising private sector financial saving through the banking system. Statistical tests of econometric models showed that the inflationary pressures caused by the government's fiscal policy of deficit spending and the associated expansionary monetary policy caused higher inflation rates that reduced the real interest rates on deposits The lower real interest rates reduced the incentives to save through the banking system. The policy conclusion of this research is that governments should adopt fiscal and monetary policies to lower the inflation rate to single digits in order to raise the deposit real interest rate, which would provide an adequate incentive for savings mobilization through the banking system and the private sector of the economy.
"The Development of Capital Markets and Growth in Sub-Saharan Africa: The Case of Ghana," African Economic Policy Discussion Paper, U. S. A. I. D., 2/1/2001, with Dr. Sam Ziorklui.
This research examined the constraints and impediments to the development of capital markets in Ghana, and also the effects of policy changes to enhance the development of capital markets there. A primary policy objective of the developing countries should be to increase the allocation of capital to the private sector in order to raise the growth rate of the economy. In Ghana, the macroeconomic policies of fiscal deficits have had the negative effects of crowding out the allocation of credit to medium and small businesses and have resulted in capital being attracted away from the private sector. Further, increased regulatory requirements for the banks have had the adverse effect of curtailing the allocation of bank lending to the private sector of the economy. A favorable economic development has been the establishment of the Ghana Stock Exchange which has provided a means for corporations to raise long-term capital to finance future growth and has provided investors with an opportunity for diversification. The policy implications of this research include reducing the fiscal deficits, less restrictive regulations of the banks, and enhancing/expanding the operations of the Ghana Stock Exchange.
"The Injustices of an American Urban Correctional Facility: A Prison Teacher's Report," with Magdelena Campbell, 2016.
Reviewed, revised and rewrote this enlightening booklet. The report's conclusion was that mass incarcerations, some of which were associated with the "war on drugs," imposed excessive and unnecessarily high costs on the taxpayer with extremely minimal benefits to society. In order for this situation to improve, it is essential that sufficient educational resources are allocated to enable inmates to receive the training required for them to be successful outside of the overcrowded prison system. Despite the extremely low benefits to society of the current prison system, it has been profitable to some companies and individuals who therefore have a significant vested interest in the continuation of the current system.
"Relations Between Portfolio Returns and Market Multiples," Proceedings of the Academy of Financial Services 2004 Annual Meeting, with Drs. Jeong and Mukherji.
This econometric analysis investigated the relationships between various market valuation ratios and found that the per share price to sales ratio (PSR) of a company was the most consistently reliable predictor of subsequent stock returns. There was a statistically significant inverse relationshiop between the PSR and subsequent stock returns.
"How and Why are Stock Returns Related to Market Multiples," presented at the 2001 Southern Finance Association Annual Meeting, with Drs. Jeong and Mukherji.
This econometric investigation found statistically significant inverse relationships between market valuation ratios and subsequent stock returns. The variable with the highest explanatory power for subsequent stock returns was the per share price to sales ratio of a company.
"Do Sale-Price and Debt-Equity Explain Stock Returns Better Than Book-Market and Firm Size
This article was an empirical investigation of the potential role of 4 explanatory variables for the future returns of a company's common stock. The 4 variables were the per share sales-to-price ratio (the SPR), the ratio between a company's book value and the market value of its equity, the firm's debt to market value of equity ratio, and the market value of a company's equity (which is a measure of a firm's size). One finding of this research is that there was a statistically significant relationship between the per share sales to price ratio (the SPR) and the subsequent returns of a company's common stock. Another very significant finding of this research was that the SPR absorbed the roles of the 3 other explantory variables for subsequent stock returns and "...the SPR consistently has the greatest explanatory power for stock returns among the four variables that were examined...." (P. 58) The findings of this empirical investigation support the conclusion that investors should consider selecting stocks for their portfolios with relatively high values for the SPR since these stocks may be undervalued relative to their long-term potential and therefore can be expected to have favorable subsequent rates of return.
Forecasting the Performance of a Company's Common Stock With a Model Based on the Sales Price Ratio
This research was an empirical investigation of the relationship between a company's per share sales/price ratio (SPR) and the future rate of return of a company's common stock. One finding of this investigation was a direct relationship between the absolute value of the SPR and a stock's annual rate of return during the subsequent year. Another significant finding of this research was a direct relationship between the 2-year trend of this valuation ratio and a stock's annual rate of return during the subsequent year.
"An Inquiry Into the Relationship Between Projected Changes in Earnings Per Share and Subsequent Security Performance
The purpose of this cross-sectional econometric analysis was to investigate the relationship between the projected growth rate in earnings per share and subseqent secluirty performance. The statistcial tests of this research confirmed the hypothesis of a statistically significant inverse/negative relatliosnhip between the projected growth rate in earnings per share and subsequent seclurity performance. The theoretical explanation for this finding is that for stocks with favorable earnins projections investors are overoptimistic, which causes the stocks to be overvalued relative to their long-term future earnings potential; and for stocks with unfavorable earnings projections, investors are overpessimistic which causes these stocks to be undervalued relative to their long-term future earnings potential. The investment strategy conclusion of this research was that investors can realize favorable portfolio returns by selecting stocks with unfavorable earnings projections.
The Effectiveness of an Econometric Approach to Forecasting Earnings and the Use of These Forecasts in Security Selection
Even though the historical corporate earnings growth rate has a signficant effect on common stock returns, empirical evidence has found that neither extrapolation nor the forecasts of security analysts have been of significant value in forecasting the earnings growth rate. In fact, exprapolation has generally provided forecasts of earnings growth rates that are more reliable than the forecasts of security analysts. The purpose of this empirical investigation was to explore the possibility and statistically test the hypothesis that an econometric model based on available on available financial data would provide estimates of the earnings growth rates that are more reliable than the forecasts of security analysts. The findings of this research confirm the hypothesis. One finding of this research was a statistically significant relationship between a company's retention ratio and the subsequent growth rate of its total after-tax earnings. This finding is not surprising since corporatiosn generally retain earnings for the purpose of future growth. Another finding was a statistically signifinat inverse relationshiop between a corporation's return on investment (measured by the ratio between EBIT and total assets) and the subsequent earnings growth rate. A reasonalbe explanation for this finding is the tendency of the rate of return on corporate assest to regress toward the mean. The conclusion of this research was that an econometric model based on available financial data can be applied toward evaluating the validity of the estimated earnings growth rates provided by security analysts.