REINTERPRETATION OF THE SHAREHOLDER GAINS IN SELLOFF TRANSACTIONS

This paper examines the overall wealth effects of selloffs. When sellers and buyers are examined separately, abnormal returns are found around the announcement days. However, a combination of matched-pair buyers and sellers in value-weighted portfolios wipes out these gains. In a sample of 182 selloff portfolios, 93 of them experience positive returns while the remaining 89 cases face negative price reactions. These results cast doubt on the conclusion that selloff activity is generally synergistic. In addition, a large size difference is found between buyers and sellers. Large buyers win more often than small buyers. Small sellers win more often than large sellers. Our results show that when examining selloffs for synergy equally-weighted results can be biased.     

The Effect of Voluntary Sell-off Announcements on Shareholder Wealth

Sell-off activities arise when a firm sells part of its assets (e.g., a segment, a division, etc.) but continues to exist in essentially the same form. This study investigates the effect of voluntary sell-offs on stock returns. From a sample of over 1000 sell-off events (first public announcements), the evidence shows that both sellers and buyers earn significant positive excess returns from these transactions. The excess returns earned by buyers are smaller than those earned by sellers. There is also evidence that sell-off announcements are preceded by a period of significant negative returns for the sellers which suggests that the sellers, on average, performed poorly prior to their sell-off activities.     

The anatomy of buyer–seller dynamics in decentralized markets

In this paper I investigate the nexus between buyer–seller dynamics, financial frictions and market efficiency in decentralized markets. To do so, I introduce financial frictions in a dynamic market with heterogeneous traders. Heterogeneously constrained buyers sequentially enter the market to acquire units of a generic good from heterogeneously endowed sellers. I characterize two closely related classes of equilibria, respectively called homogeneous equilibrium with no entry (HEWNE) and homogeneous equilibrium with entry (HEWE). Both equilibria prescribe a market where only the efficiently endowed type of seller exists in the limit. However, the two equilibria diverge in the specification of agents’ behavior subsequent to trade. In HEWNE, sellers and buyers exit the market upon successful trading. In HEWE, like in supply chains, in every period certain types of buyers replace exiting sellers, thus becoming potential sellers for subsequent waves of buyers. First, I identify the critical role of frictions in steering the complex evolution of market heterogeneity for both classes of equilibria. Secondly, I operationalize the combined study of HEWNE and HEWE to obtain sharp predictions on market efficiency for a range of empirically-relevant situations in which buyer–seller dynamics are decoupled, for example when entry of new sellers is delayed or stopped. Third, I test the theoretical findings against a simulated artificial market.     

GLAMOUR VERSUS VALUE: TRADING BEHAVIOR OF INSTITUTIONS AND INDIVIDUAL INVESTORS

We design a new metric to measure the net buying and selling by institutions and individual investors and find that from 1980 to 2004 institutional investors were net buyers of growth stocks and net sellers of value stocks, implying that individual investors were net buyers of value stocks and net sellers of glamour stocks. The institutional preference for glamour and value stocks seems to be related to sell‐side analysts' recommendations and recent favorable stock price performances, especially during the post‐1994 period. Finally, the institutional buying of growth stocks and sale of value stocks was not based on superior information.     

Demand–supply imbalances in the credit default swap market: empirical evidence

This paper empirically examines demand–supply imbalances in the credit default swap (CDS) market and provides evidence of its effect on the CDS spread dynamics. Analysis is conducted on a large and homogenous data set of the 92 non-financial European companies with the most quoted Euro-denominated CDS contracts during the 2002–2008 period. Main findings indicate that short-term CDS price movements, not related to fundamentals, are positively affected by demand–supply imbalances when protection buyers outstrip protection sellers. Results illustrate that CDS spreads reflect not only the price of credit protection, but also a liquidity premium for the anticipated cost of unwinding the position of protection sellers, especially during stress periods.     

Comparison websites in UK retail financial services

Comparison websites have become a fundamental part of UK retail financial services. These websites appeal to both buyers and sellers. They offer buyers the ability to enter their details once and then quickly compare a range of products, usually ordered by price. For sellers, they offer a supply of potential customers who have refined their needs through the comparison process, and are thus more likely to complete a purchase. This paper analyses the role of comparison websites, drawing on case studies from three major providers of UK financial services comparisons. The paper also analyses the criticisms made of comparison websites, draws out implications for practitioners and consumers and outlines areas for future research.     

Distortions in Real Estate Transactions with Out-of-State Participants

Using the MLS and the land registration data from Indiana, this paper identifies and explains price distortions associated with out-of-state sellers and buyers in the housing market. We find that out-of-state buyers pay 20.4% higher prices than local buyers, and the premium is fully explained by the former purchasing larger homes than the latter. On the other hand, out-of-state sellers receive a 21.2% price discount, among which 9.3% is attributable to differences in transactional characteristics, 3.2% is explained by increased motivation and weak bargaining power of out-of-state sellers, and 1.5% is due to differences in agent characteristics and behaviours. The remaining 7.2% discount varies systematically with the informational disadvantage of out-of-state sellers, and with the market condition. Our results are robust to model misspecification.     

Conflicts of interest,information provision,and competition in the financial services industry

In some markets sellers have better information than buyers over which products best serve a buyer's needs. Depending on the market structure, this may lead to conflicts of interest in the provision of information by sellers. This paper studies this issue in the market for financial services. The analysis presents a new model of competition between banks, where price competition influences the ensuing incentives for truthful information revelation. We also compare conflicts of interest in two different firm structures, specialized banking and one-stop banking.     

Asymmetric information and the death of ABS CDOs

A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a “workhorse” model for pricing securities under asymmetric information and a novel dataset, we show how adverse selection could explain why the bulk of these securities either traded at significant discounts or did not trade at all.     

Pricing and commitment by two‐sided platforms

I study pricing and commitment by platforms in two‐sided markets with the following characteristics: (i) platforms are essential bottleneck inputs for buyers and sellers transacting with each other; (ii) sellers arrive before buyers; and (iii) platforms can charge both fixed fees and variable fees (royalties). I show that a monopoly platform may prefer not to commit to the price it will charge buyers at the same time it announces its seller price if it faces unfavorable seller expectations. With competing platforms, commitment makes the existence of an exclusive equilibrium (in which sellers register with only one platform) less likely, but it has no impact on multi‐homing equilibria (in which sellers support both platforms) whenever these exist.     

Sales Concessions in the US Housing Market

This article examines the use of concessions in the US housing market, specifically payments for closing costs, home warranties, and structural repairs. This is the first study to examine the motivations and characteristics of homeowners that utilize concessions. It also examines the impact concessions have on transaction prices and marketing durations. While the literature has attempted to determine if concessions can reduce marketing durations or increase transaction prices, the evidence is tainted by endogeneity and sample issues. Additionally, we find that relative bargaining power between buyers and sellers has a fundamental effect on how concessions alter prices and marketing durations. This aspect has been considered only narrowly in the extant literature. Our results demonstrate that when sellers have bargaining power, transactions including concessions exhibit higher prices and shorter marketing durations. Conversely, when buyers have greater negotiation leverage, transactions including concessions experience lower prices and longer marketing periods.     

Platform Externality,Asymmetric Information,and Counterfeit Deterrence in E-Commerce

The fight against online sales of counterfeit goods has received much attention. To the best of our knowledge, existing literature on online counterfeiting lacks a theoretical framework. To fill this gap, this article proposes a two-period model with sellers, buyers, and a platform. We focus on the relationship among platform structure (characterized by the ratio of buyers to sellers), asymmetric information, deterrence strength, and the ratio of counterfeits. Cross-network externalities of platform make platform managers worry about potential exodus of buyers and sellers due to counterfeits. This externality provides platform with strong incentives to fight counterfeits by itself, even without external regulatory requirement. We further show that the higher the ratio of buyers to sellers, the lower the ratio of counterfeits. Moreover, a lower degree of information asymmetry or a higher degree of punishment can reduce the ratio of counterfeits. We suggest that governments and e-commerce platforms work together in the fight against counterfeiting.     

International CO2 taxation and the dynamics of fossil fuel markets

International CO₂ taxation may have major implications for fossil fuel markets. These effects must be taken into account in calculating the net gain from CO₂ taxation. The paper assumes that buyers have formed an agency that applies a CO₂ tax and sellers are competitive or constitute a resource cartel. When sellers are competitive, buyers' agency may use monopsony power by applying an import tariff. At the resulting time-consistent equilibrium, the sellers lose their resource rent. In contrast, the solution where the sellers' cartel maximizes its profits is time inconsistent. At the time-consistent Nash feedback equilibrium, the seller's monopoly power vanishes asymptotically. The sellers' export fee reduces the buyers' pollution tax. At this equilibrium, the buyers' pollution tax includes an import subsidy, and the tax falls below the present value of the marginal pollution damage. In the Nash feedback equilibrium, higher pollution damage may imply higher initial producer prices, although this effect is always the reverse in the Pareto optimum.     

Endogenous market segmentation for lemons

Information asymmetry between sellers and buyers often prevents socially desirable trade. This article presents a new mechanism that mitigates the inefficiencies caused by information asymmetry. I consider decentralized markets under adverse selection and show that such markets can be endogenously segmented in a way that improves social welfare. Endogenous segmentation is driven by low‐quality sellers’ incentive to attract more buyers by separating from high‐quality sellers. The mechanism helps us understand the roles of several real‐world institutions, such as multiple marketplaces, costless advertisements, and nonbinding list prices.     

Pricing forward contracts in power markets by the certainty equivalence principle: Explaining the sign of the market risk premium

In this paper we provide a framework that explains how the market risk premium, defined as the difference between forward prices and spot forecasts, depends on the risk preferences of market players and the interaction between buyers and sellers. In commodities markets this premium is an important indicator of the behavior of buyers and sellers and their views on the market spanning between short-term and long-term horizons. We show that under certain assumptions it is possible to derive explicit solutions that link levels of risk aversion and market power with market prices of risk and the market risk premium. We apply our model to the German electricity market and show that the market risk premium exhibits a term structure which can be explained by the combination of two factors. Firstly, the levels of risk aversion of buyers and sellers, and secondly, how the market power of producers, relative to that of buyers, affects forward prices with different delivery periods.     

Inflation and Welfare in Retail Markets: Prior Production and Imperfectly Directed Search

This paper considers the effect of monetary policy and inflation on retail markets: goods are dated and produced prior to being retailed; buyers direct their search on price and general quality; buyers’ match‐specific tastes are private information. Sellers set the same price for all buyers, some of whom do not value the good highly enough to buy it. The market economy is typically inefficient as a social planner would have the good consumed. Under free entry of sellers, the Friedman rule is optimal policy. When the upper bound on the number of participating sellers binds, moderate levels of inflation can be welfare improving.     

Methods of Payment in Asset Sales: Contracting with Equity versus Cash

We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value‐enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity‐based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers.     

Buyer power and mutual dependency in a model of negotiations

We study bilateral bargaining between several buyers and sellers in a framework that allows both sides, in case of a bilateral disagreement, flexibility to adjust trade with each of their other trading partners and receive the gross benefit generated by each adjustment. A larger buyer pays a higher per‐unit price when buyers' bargaining power in bilateral negotiations is sufficiently low, and a lower price otherwise. An analogous result holds for sellers. These predictions, and the implications of different technologies, are explained by the fact that size is a source of mutual dependency and not an unequivocal source of power.     

Understanding in‐house transactions in the real estate brokerage industry

About 20% of residential real estate transactions in North America are in‐house transactions, for which buyers and sellers are represented by the same brokerage. We examine to what extent in‐house transactions are explained by agents' strategic incentives as opposed to matching efficiency. Using home transaction data, we find that agents are more likely to promote internal listings when they are financially rewarded and such effect becomes weaker when consumers are more aware of agents' incentives. We further develop a structural model and find that about one third of in‐house transactions are explained by agents' strategic promotion, causing significant utility loss for home buyers.     

Search Costs,Behavioral Biases,and Information Intermediary Effects

In many markets, buyers, sellers, and their agents have differential information about the quality of heterogeneous assets. We study negotiated transaction prices in the commercial real estate market, which is characterized by heterogeneous assets, illiquidity, and highly segmented local markets, all of which increase the importance of asymmetric information in negotiated pricing outcomes. Using 114,588 industrial, multi-family and office sale transactions that occurred during 1997–2011, we document that distant commercial real estate buyers pay, on average, premiums of 4 % to 15 % relative to local buyers, controlling for individual property characteristics as well as time fixed-effects. We also examine the extent to which the sources of these observed premiums are a product of higher search costs/information asymmetry problems associated with distance (search cost channel) or a result of reference-dependence preference/anchoring based on the price levels in the investors’ local market (behavioral biases channel). Our results suggest the observed price premiums are explained by distant investors who face higher search costs and are at an information disadvantage compared to investors located in closer proximity to the property. In contrast, anchoring plays a more muted role in explaining observed premiums. The use of an intermediary (broker) increases, on average, the acquisition prices of buyers and decreases the disposition prices of sellers by 3 % to 8 %. This result is consistent with the incentive real estate agents have to convince sellers to dispose of their properties too quickly and to convince buyers to search less and therefore pay higher prices.