Day end returns—stock price manipulation

In this paper, we examine if closing prices are manipulated. Earlier research has shown that closing prices are one of the most used benchmarks against which trader performance is evaluated. If a trader takes a big net position a given day, it is likely that he wants to enhance his performance by manipulating the closing price. We build a simple regression model to test for closing price manipulation in the Finnish stock market. Robustness checks were made for the effect of: (a) size of the net position; (b) differences in returns across firms; (c) different size of net position for different firms, block trades and spread trades. The results before close, for the base case, were in line with our hypothesis. However, the robustness checks showed that block trades and spread trades explained a part, but not all, of our results. The results after close were generally weak, but tilted towards our hypothesis.     

Mutual Fund Stock‐Picking Skill: New Evidence from Valuation‐ versus Liquidity‐Motivated Trading

We propose a novel Trade Motivation Matrix that allows differentiating funds’ valuation‐motivated (VM) and liquidity‐motivated (LM) trades on single trade level. It thus enables analyses of stock‐picking skill on three levels: trade, stock, and fund. On trade level, we find significant outperformance of VM buys and significant underperformance of VM sells, indicating manager stock‐picking skills, especially during illiquid market periods. VM trades outperform LM trades, confirming negative performance effects due to flow risk, especially when market liquidity is low. On stock level, collective VM buying explains high future stock returns while collective VM selling is related to future losses, indicating wisdom of the crowd. On fund level, higher trading discretion, measured by a higher degree of VM trading, is observed for smaller, older funds holding higher cash buffers. Finally, higher trading discretion is related to higher future fund alpha, especially during illiquid times.     

Stock market dynamics with rational liquidity traders

In the Kyle (1985) finite horizon model of stock market dynamics with a trader who holds long-lived information, informed trading intensities rise with time, and the slopes of the equilibrium price schedules fall. This paper shows that this result depends crucially on the irrational liquidity trader assumption. We replace the irrational noise traders with a sequence of rational, risk averse, liquidity traders who receive endowment shocks to their holdings of the risky asset. We demonstrate that unless liquidity traders are sufficiently risk averse, the slope of equilibrium price schedule rises over time, while informed trading intensities fall. In particular, Kyle's result holds only when liquidity traders are so risk averse that they ‘over-rebalance’ their portfolio's holdings of the risky asset, so that their final holdings of the risky asset have the opposite sign of their initial position.     

Sell-side analyst heterogeneity and insider trading

This study explores insider trading patterns under different earnings surprises. After controlling for stock market liquidity and earnings announcements returns, we show that insiders sell more aggressively depending on the heterogeneity of analysts whose EPS forecasts are met or beaten to camouflage their trades. Specifically, insiders sell more shares of their company sooner after the publication of earnings when top analysts' forecasts are met or beaten. Consistent with the informed trading literature, insiders strategically select these moments because the stock price impact is low and the legal scrutiny of their trades is minimal. To support this result, we employ an exogenous drop in firms' analyst coverage due to the closure or merger of brokerage houses. Furthermore, in line with the camouflage incentives, by selling after top analysts' forecasts are met or beaten, stock prices adjust slowly to insider trades. Finally, we show that the incentives of insiders to hide their trades are concentrated in opportunistic insiders and members of the top management team, who are more likely to bear the costs of selling shares after positive news.     

股指期货推出对现货市场价格影响的理论分析

本文构建一个由策略交易者、趋势跟随者、流动性提供者以及套利者组成的多期多市场决策模型,分析在股指期货推出时间给定的条件下,推出前后大盘价格的变动。我们发现,股指期货的引入对股票现货市场的短期效应受市场跟风行为的强弱,即羊群效应大小的影响。当跟风程度较弱时,股指在期货推出前短期下跌,推出后继续下跌;而当跟风程度较强时,股指在期货推出前短期上涨,推出后则下跌。由于国内投资者具有很强的跟风倾向,该模型预测股指期货在推出前短期内将抬高大盘,推出后则压低大盘。另外,股指期货的推出也可能降低市场的波动性。     

Strategic insider trading in foreign exchange markets

Inside traders are well-documented to leverage private idiosyncratic information for personal gain in centralized exchanges such as stock markets. Evidence is rare, however, for decentralized and fragmented over-the-counter markets with microstructure properties that make them particularly vulnerable to stealth trading. The 2015 criminal conviction of Hill and Kamay for foreign exchange insider trading is the first in over-the-counter markets. We analyze their actions to show the complex, strategic decision-making of insiders even in opaque markets where they run a low risk of detection and prosecution: they trade when the market is most sensitive to local information, carefully choose and time their trades to minimize the risk of confounding information disclosures that may affect their profits, as well as act during high noise trading to mask their trades. Our results are consistent with evidence on insider trading in stock markets. We highlight the limitations of regulatory control in over-the-counter markets where technology-based surveillance methods are ineffective, while reinforcing the importance of whistleblowers in detecting and preventing insider trading.     

Insider trading and share repurchases: Do insiders and firms trade in the same direction?

Signaling undervaluation is often considered a primary motive for repurchasing stock, but insider trading activity by repurchasing firms is not always consistent with undervaluation. Net insider buying and selling are both more frequent in quarters when firms are repurchasing non-trivial amounts of stock, with the odds of observing a repurchase the highest in quarters with net insider selling. In multinomial logit models, share repurchases associated with net insider selling are positively related to illiquidity, option exercises by insiders, and pre-repurchase returns and negatively correlated with industry-adjusted book to market ratios when compared to other repurchases. Hence, repurchases when insiders are selling stock are more likely done to support share prices or avoid dilution and are less likely undervaluation signals. We find that insider trades either validate or mitigate the undervaluation signal of the repurchase. Abnormal returns of repurchasing firms with net insider buying versus net insider selling in a given quarter are significantly higher for the quarter immediately after the repurchase and the three subsequent years. For repurchases accompanied by net insider selling, abnormal returns are negligible after only one year.     

Do market prices reveal the decision models of sophisticated investors?: Evidence from the laboratory

If security prices are fully revealing, then all public information should be reflected in prices, and unsophisticated traders may be able to learn how various types of information affect security valuation by observing prices. A series of laboratory asset markets was conducted to examine whether unsophisticated traders are able to learn to evaluate publicly released information by trading with and observing trades made by a sophisticated trader who knows the valuation implications of the information. We find that unsophisticated traders who participate in an asset market with a sophisticated trader show significant improvement in their ability to use public information on a subsequent price estimation task. Conversely, a control group consisting only of unsophisticated traders shows no improvement. We conclude that market prices convey the sophisticated trader’s private information in a manner that permits unsophisticated investors to learn the stock price implications of a public information release.     

Good Day Sunshine: Stock Returns and the Weather

Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relationship between morning sunshine in the city of a country's leading stock exchange and daily market index returns across 26 countries from 1982 to 1997. Sunshine is strongly significantly correlated with stock returns. After controlling for sunshine, rain and snow are unrelated to returns. Substantial use of weather‐based strategies was optimal for a trader with very low transactions costs. However, because these strategies involve frequent trades, fairly modest costs eliminate the gains. These findings are difficult to reconcile with fully rational price setting.     

Locals,foreigners, and multi-market trading of equities: Intraday evidence from Thailand

We study stock market orders and trades in a developing country, Thailand, where foreign ownership limits partially segment local and foreign investors into two distinct markets. Some foreigners forgo voting rights and distributions to trade on the “local board”, while some locals forgo such benefits and pay a price premium to trade on the “foreign board”. Regardless of nationality, these cross-market traders typically submit orders when liquidity is high, fill orders at relatively beneficial prices, exploit patterns in stock prices across markets, display profitable holding-period returns, and enhance price discovery. This suggests that skilled, informed trading that affects market quality does not depend on trader nationality.     

Locals, foreigners, and multi-market trading of equities: Intraday evidence from Thailand

We study stock market orders and trades in a developing country, Thailand, where foreign ownership limits partially segment local and foreign investors into two distinct markets. Some foreigners forgo voting rights and distributions to trade on the “local board”, while some locals forgo such benefits and pay a price premium to trade on the “foreign board”. Regardless of nationality, these cross-market traders typically submit orders when liquidity is high, fill orders at relatively beneficial prices, exploit patterns in stock prices across markets, display profitable holding-period returns, and enhance price discovery. This suggests that skilled, informed trading that affects market quality does not depend on trader nationality.     

Managers' Trading Around Stock Repurchases

We analyze personal open market trades by managers around stock repurchases by tender offer. With the exception of Dutch auction offers, managers trade their firm's shares prior to repurchase announcements as though repurchases convey favorable inside information to outsiders. Prior to fixed price repurchase offers that do not follow takeover-related events, managers increase their buying and reduce their selling of their firm's shares. Prior to repurchases that follow takeover-related events, only a decrease in selling is found. No abnormal trading precedes Dutch auction repurchase offers.     

A note on execution costs for stock index futures: Information versus liquidity effects

This paper examines execution costs and the impact of trade size for stock index futures using price-volume transaction data from the London International Financial Futures and Options Exchange. Consistent with Subrahmanyam [Rev. Financ. Stud. 4 (1991) 17] we find that effective half spreads in the stock index futures market are small compared to stock markets, and that trades in stock index futures have only a small permanent price impact. This result is important as it helps to better understand the success of equity index products such as index futures and Exchange Traded Funds. We also find that there is no asymmetry in the post-trade price reaction between purchases and sales for stock index futures across various trade sizes. This result is consistent with the conjecture in Chan and Lakonishok [J. Financ. Econ. 33 (1993) 173] that the asymmetry surrounding block trades in stock markets is due to the high cost of short selling and the general reluctance of traders to short sell on stock markets.     

The next tick on Nasdaq

The Nasdaq stock market provides information about buying and selling interest in its limit order book. Using a vector autoregressive model of trades and returns, I assess the effect of the entire order book on the next tick. I also determine the influence of individual market makers and electronic networks and find evidence that the identity of market participants can be useful information. Finally, I produce a set of dynamic market price responses to buy and sell orders, and I find that these estimates vary with standard measures of liquidity.     

Are corporate managers savvy about their stock price? Evidence from insider trading after earnings announcements

We find that insiders trade as if they exploit market underreaction to earnings news, buying (selling) after good (bad) earnings announcements when the price reaction to the announcement is low (high). We also find that insider trades attributable to public information about earnings and the price reaction generate abnormal returns. By demonstrating that managers spot market underreaction to earnings news, our results imply that managers are savvy about their company’s stock price.     

Anonymity, Adverse Selection, and the Sorting of Interdealer Trades

This article uses unique data from the London Stock Exchangeto examine how trader anonymity and market liquidity affectdealers' decisions about where to place interdealer trades.During our sample period, dealers could trade with each otherin the direct, nonanonymous public market or use one of fouranonymous brokered trading systems. Surprisingly, we find thatadverse selection is less prevalent in the anonymous brokeredmarkets. We show that this pattern can be explained by the waydealers "price" the adverse selection risk inherent in tradingwith other dealers. We also relate our findings to recent changesin dealer markets.     

卖空机制能够约束内部人减持吗？——基于融资融券制度的经验证据

本文以我国放松卖空管制为视角,探究其对内部人减持的影响。研究表明,卖空机制能够抑制企业内部人减持行为。机制分析发现,卖空对内部人减持的抑制作用是通过缓解股权高溢价实现的。进一步研究表明,卖空能够抑制大股东、董事以及管理层减持,但对监事减持无影响;卖空能够降低内部人减持的获利程度,并且在内部人减持动机更大时,对内部人减持的抑制作用更强;卖空通过约束内部人减持提升了股票定价效率,还有助于降低内部人增持行为。本文的研究结论丰富了卖空和内部人减持领域的文献,并对政府部门完善制度设计具有启示意义。     

Empirical Identification of Non-Informational Trades Using Trading Volume Data

This paper empirically identifies non-informational and informational trades using stock returns and trading volume data of the U.S., Japanese, and U.K. stock markets and five individual firms. We achieve the identification by imposing a restriction from theoretical considerations. Our results show that trading volume is mainly driven by non-informational trades, while stock price movements are primarily driven by informational trades. We also find that, around the 1987 stock market crash, trading volumes due to non-informational trades increased dramatically, while the decline in stock market prices was due mainly to informational trades. Increases in volatilities both in returns and in trading volumes during and after the crash are mainly due to non-informational trades. Regarding the trading volume-serial correlation in the stock returns relationship, we find evidence that is consistent with theoretical predictions that non-informational components can account for high trading volume accompanied by a low serial correlation of stock returns.     

Intraday Behavior of Stock Prices and Trades around Insider Trading

Our evidence indicates that insiders' trades provide significant new information to market participants and they are incorporated more fully in stock prices as compared to noninsiders' trades. We find that market professionals do not front-run insiders' trades. Both insiders' purchases and sales result in significant contemporaneous and subsequent price impact, while sales by large shareholders result in a contemporaneous stock price decline that is subsequently reversed. The arrival of insider purchases reverse the prevailing negative order imbalances from third party trades and lead to piggy-backing by market professionals resulting in subsequent market purchase orders as well as stock price increases.     

卖空机制的审计收费效应研究

卖空机制作为一种金融创新,如何在提高证券市场定价效率的同时,有效发挥外 部治理功能、改善公司治理、间接推动国内资本市场健康发展成为理论和实践中的一项重要 课题。运用多元回归模型对国内卖空机制改变审计风险、进而影响审计收费行为的实证检验表 明,随着股票卖空比率的上升,公司审计收费也相应增加。而股票卖空比率与公司审计费用受 制度环境影响显著,在市场化水平较高的地区,公司审计面临来自投资者更大的压力。此外, 公司审计收费与股票卖空比率的正相关关系会因卖空机制的存在变得更加显著。