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The Effect of Payment Delays on Stock Prices

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  • DeGennaro, Ramon P

Abstract

In this paper stock returns are modeled as a function of payment delays. Three hypotheses are tested: (1) that buyers compensate sellers for a six-business-day payment delay; (2) that the rate of compensations is the riskless rate; and (3) that this delay is solely responsible for day-of-the-week effects. Results support the first and second hypothesis, but not the third. The coefficient on the variable that controls for payment delays is correctly signed and statistically significant. It is the correct size in all periods but one. However, the estimated rate of compensations probably differs across days of the week. Finally, controlling for a six-business-day payment delay fails to eliminate the weekly pricing pattern.

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Bibliographic Info

Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

Volume (Year): 13 (1990)
Issue (Month): 2 (Summer)
Pages: 133-45

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Handle: RePEc:bla:jfnres:v:13:y:1990:i:2:p:133-45

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Cited by:
  1. Pardy, Robert, 1992. "Regulatory and institutional impacts of securities market computerization," Policy Research Working Paper Series 866, The World Bank.

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