Returns in Over-the-Counter Stock Markets

Returns in Over-the-Counter Stock Markets

PAUL F. JESSUP
ROGER B. UPSON
Copyright Date: 1973
Edition: NED - New edition
Pages: 128
https://www.jstor.org/stable/10.5749/j.ctttt1n7
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  • Book Info
    Returns in Over-the-Counter Stock Markets
    Book Description:

    Returns in Over-the-Counter Stock Markets was first published in 1973. Important new information about over-the-counter (OTC) stock markets is presented here, based on the authors’ broad analysis of returns from various OTC markets over an extended time period. As the authors note, individual investors have included OTC stocks in their portfolios for many years, but more recently institutions have become fore active investors in such stocks. Despite greater public participation, information about OTC markets has been limited, and thus this book fills a basic need in financial literature. The study examines the national OTC market, made up of widely held stocks of relatively large firms, and also regional OTC markets concerned in five metropolitan areas -- Atlanta, Chicago, Minneapolis-St.Paul, St. Louis, and San Francisco. The principal questions dealt with are the dimensions of OTC markets, investment returns in various OTC markets, the impact of portfolio diversification in these markets, and the volatility of returns from OTC markets. Throughout, these questions are approached from an investor’s viewpoint. By analyzing portfolio outcomes rather than selected examples of OTC stocks, the authors provide a counterweight to publicized success stories about individual OTC stocks. The data constitute an important foundation for further research studies and for public policy decisions relating to securities laws and investment regulations.

    eISBN: 978-0-8166-6316-3
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-x)
  2. Table of Contents
    (pp. xi-xvi)
  3. PART I. Identifying Over-the-Counter Markets
    • 1 Over-the-Counter Market Systems: An Introduction
      (pp. 3-12)

      This chapter specifies interrelationships and dimensions of over-thecounter (OTC) markets, both at a point in time and as a process over time. It does not provide detailed descriptions of each of these markets.

      Over-the-counter markets, which include both a national and diverse regional markets, constitute one sector of the nation’s securities markets.

      Although bonds, warrants, and other financial instruments are traded in some of these markets, only common stocks are analyzed in this book.

      The registered exchanges, such as the American Stock Exchange and the New York Stock Exchange, make up the other sector of the securities markets. The exchanges...

  4. PART II. Measuring Market Returns
    • 2 Indexes versus Rates of Return
      (pp. 15-25)

      Indexes of stock prices, computations of dividend yield, and comprehensive rates of return are widely used as measures of investor experience in securities markets. In this chapter, not only is a widely reported price index of OTC stocks shown to have major limitations, but new, more comprehensive measures are also introduced.

      Indexes are one way of summarizing numerically the performance of a stock market and various subcategories of stocks. To examine the past price history of the New York Stock Exchange, investors refer to such indexes as the Dow Jones Composite Average of sixty-five stocks, the Standard & Poor’s 500...

    • 3 Returns from the National Over-the-Counter Market
      (pp. 26-35)

      Short-run and long-run returns from national OTC portfolios are presented and analyzed in this chapter. In addition, these returns are compared with those available from NYSE portfolios. All statistical tests in this and subsequent chapters are at the 95 percent confidence level.

      Table 3-1 shows mean one-year returns from national OTC portfolios for each year from 1946 through 1969. Chapter 1 explained that, for this study, samples of thirty securities were randomly drawn from the population of national OTC stocks at the beginning of each year. For each sampled stock, market information, such as prices, dividends, and capital changes, was...

    • 4 Returns from Regional Over-the-Counter Markets
      (pp. 36-44)

      The principal question in this chapter is, Do portfolio returns from regional OTC stocks differ from those of nationally traded stocks? As has already been mentioned, the five regional OTC markets analyzed in this study are Atlanta, Chicago, Minneapolis-St. Paul, St. Louis, and San Francisco. Each of these geographically diverse cities is a regional financial center, as evidenced by its being the location of a Federal Reserve Bank. Also, in each city, a principal daily newspaper provides price quotations for regionally traded OTC stocks during the time span 1955–69, the only exception being St. Louis for which quotations are...

  5. PART III. Winners, Losers, and Diversification
    • 5 High and Low Portfolio Returns
      (pp. 47-53)

      Three principal questions are discussed and answered in this chapter:

      1. Do high portfolio returns differ significantly among OTC markets?

      2. Are distributions of stock returns within high-return OTC portfolios significantly skewed, implying that high portfolio returns are associated with inclusion — by skill or chance — of some stocks that provide substantially above average returns that “pull up” the total portfolio return?

      3. As a counterpoint, what are the attributes of low-return portfolios? Previous chapters focus on average returns from 100 portfolios each year. In this chapter, “low” and “high” portfolio returns are defined as those at the first and ninth...

    • 6 High- and Low-Return Stocks
      (pp. 54-58)

      Portfolio returns from OTC markets are analyzed in preceding chapters. Because stock selection provides necessary inputs for portfolio managers, this chapter will examine returns from selected stocks.

      The definitions of “high return” and “low return” used in this chapter are similar to those in the preceding chapter. A high-return stock is defined as theonelocated at the top decile of a distribution of one-year returns. Similarly, a low-return stock is theonelocated at the bottom decile of the distribution.

      Are high-return stocks as likely to occur in OTC markets as in registered stock exchanges? Also, are returns from...

    • 7 Diversification
      (pp. 59-62)

      Portfolio managers generally diversify among stocks in order to reduce the impact of adverse individual stock returns on a total portfolio return.¹ By what is basically an averaging process, the portfolio return lies somewhere between the extreme outcomes of the individual stocks.

      Holding many common stocks can only reduce the risk of diverse returns from individual stocks. It cannot eliminate the “market risk” (or “systematic risk”).² To illustrate, a widely diversified portfolio of NYSE stocks will have a return of about — 10 percent if all NYSE stocks average a return of — 10 percent in a particular year. In a declining...

  6. PART IV. Market Volatility
    • 8 Relative Volatility: The Beta Controversy
      (pp. 65-70)

      Portfolio theory recently has refined its concepts and measures of return. No longer are price indexes generally accepted as measures of portfolio performance over time. Now expected are inclusive rate-of-return measures that comprise both dividends and changes in capital values (Chapter 2).

      Definition and measurement of “risk” similarly have received increasing attention from researchers and portfolio managers. Although there is not yet unanimity as to appropriate risk measures, recent research emphasizes relative volatility as a measurable risk concept.¹ Relative volatility focuses on the question, How volatile is a particular portfolio of stocks (or a single stock) relative to the general...

    • 9 Market Attributes of Over-the-Counter Stocks
      (pp. 71-76)

      Investors are concerned with more than just returns and volatility of returns of their stock holdings. They also consider such attributes as dividend policies, total valuation of stocks traded in various markets, and movement of stocks among markets. New information about these market attributes is presented in this chapter.

      Rate-of-return measures include both dividends and price changes. Do cash dividend policies differ among stocks in national and regional OTC markets? Furthermore, how do cash dividend policies of OTC stocks compare with those of NYSE stocks? The percentage of OTC stocks paying cash dividends declined during 1955–70, most noticeably after...

  7. PART V. Conclusions
    • 10 Opportunities in Over-the-Counter Markets
      (pp. 79-82)

      Returns from diverse OTC markets are analyzed in this book, which focuses on the national OTC market and regional OTC markets in Atlanta, Chicago, Minneapolis-St. Paul, St. Louis, and San Francisco. These OTC analyses are compared with results of previously published, comprehensive studies of returns from stocks listed on the NYSE.

      A framework integrating the nation’s stock markets is presented in Chapter 1. Interrelationships among OTC markets and the registered stock exchanges are identified at a point in tune. Also specified are the various transition paths by which many OTC stocks, over time, mature from regional OTC markets to the...

  8. Appendixes
    (pp. 85-102)
  9. Index
    (pp. 103-109)