Recent SEC prosecution and insider trading on forthcoming merger announcements

While trading on nonpublic information is illegal, the enforcement of this law has been elusive, particularly in the area of trading in advance of merger announcements. We examine the impact of insider trading on daily stock price changes for firms identified by the SEC in the Antoniu-Newman insider trading case. Using residual analysis, the abnormal returns occuring prior to the announcement are calculated and compared with a sample of 188 typical merger candidates not identified in the Antoniu-Newman case to determine whether or not there was an unusually large market reaction prior to the forthcoming merger announcement on the subset of merger candidates involved in the court procedure.     

Reaching informed agreement in multispecialist cooperation

Very often, complex decisions must be made by a group of specialists rather than a single decision maker. To make an effective decision, the combination of the group's expertise must be brought to bear on the situation. Fusing expertise where individuals have very detailed knowledge in their own areas and much weaker understanding of others is characterized by many difficulties: (1) agents cannot communicate their expertise in an intelligible way to nonexperts because of differences in vocabulary and conceptual content; (2) the process allows for incorrect inferences; and (3) no one knows what anyone else needs to know. This impasse cannot be broken until shared mental models are developed to provide a level of agreement in evaluating alternatives needed to focus the activity of the group. This article presents a model of decision making by teams of specialists in which agents' evaluations confound expert and naive inferences in judging alternatives. A partitioning of agent knowledge into expert and naive models is proposed. The naive portion of agents' models provides both a common language and the inferential skeleton needed for the development of shared models. Communications are categorized into types of evaluation or justification based on their form and the entities they involve within the agent models. A process of model refinement is outlined, linking communications among agents to modifications of the naive/ shared portions of their models. The process of cooperative problem solving by a team of specialists is characterized as a search among alternatives in which model refinement continually alters the agents' evaluations, leading to progressively greater accuracy and more precisely directed search. The model is intended as a research tool for investigating multiagent problem solving among people and machines.     

Cross‐sectional determinants of post‐IPO stock performance: evidence from China

This paper examines the cross‐sectional determinants of post‐IPO long‐term stock returns in China. We document that the aftermarket P/E ratio has the most robust negative association with post‐IPO stock returns. The negative relation indicates that the market corrects the aftermarket overvaluation of IPO firms in the long run. Underwriter reputation has a positive effect on post‐IPO stock returns, while board size has a negative impact, consistent with the views that reputable underwriters mitigate the information asymmetry in IPO pricing and over‐sized boards reduce the effectiveness of corporate governance. However, we find little evidence indicating that the equity ownership structure is significantly associated with post‐IPO stock returns.     

COVID on campus: An empirical analysis of COVID infection rates at U.S. colleges and universities

We provide an empirical analysis of the determinants of cumulative COVID infection rates at 1069 U.S. colleges and universities during the 2020–21 academic year. We propose that financially constrained educational institutions faced a trade-off between the reduction of COVID infection risks and an institution's educational, social, reputational, and financial goals. We find that cumulative infection rates are higher at wealthier institutions, measured by higher endowments per student or higher tuition rates. Institutions with lower enrollment yields in admissions also have higher COVID infection rates, perhaps reflecting the greater influence of student preferences on decision making at these institutions. Economies of scale in COVID mitigation emerge gradually over the course of the year. Finally, COVID infection rates do not differ significantly for otherwise similar public and private institutions in states with Democratic governors, but they are significantly higher for public institutions in states with Republican governors.     

Exchange-traded fund ownership and underlying stock mispricing

In response to the increasing proliferation of exchange-traded funds (ETFs), and a warning from the Wall Street hero Michael Burry that passive investing has put the stock market into ‘bubble’ territory, we examine the relation between stock ownership by ETFs and mispricing from 2002 to 2018. We find that increased ETF ownership induces overpricing in underlying stocks. We then identify three mechanisms for this relationship: the overpricing of stocks attributable to increased ETF ownership is stronger for stocks that experience an increase in passive ETF ownership; during periods characterised by high investor sentiment; and for illiquid stocks. Our results are robust to a battery of tests including alternative measures for all key variables and are not confounded by the global financial crisis. Additional analyses show that mispricing caused by ETF ownership change is not driven by firm fundamentals and does not exacerbate stocks' information environment around earnings announcement.