Information Asymmetry and Asset Prices: Evidence from the China Foreign Share Discount

We examine the effect of information asymmetry on equity prices in the local A‐ and foreign B‐share market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross‐sectional variation in B‐share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid‐ask spread in the A‐ and B‐share markets explains 44% and 46% of the variation in B‐share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables.     

The Structure of Asset Prices and Socially Useless/Useful Information

This paper relates the value of additional information to asset prices in a pure exchange setting. The price structure of interest revolves around a “pricing-hypothesis”: the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy. Two basic results are developed. First, if the incremental information is useless then the pricing-hypothesis applies. Second, if the pricing hypothesis is assumed valid, then the information is valuable in a weak sense. The results are also considered in the context of empirical research. The case is made for viewing statistical tests of association between prices and signals as tests of the social value of information.     

Costly Information Acquisition,Social Networks,and Asset Prices: Experimental Evidence

We design an experiment to study the implications of information networks for incentives to acquire costly information, market liquidity, investors' earnings, and asset price characteristics in a financial market. Social communication crowds out information production as a result of an agent's temptation to free ride on the signals purchased by her neighbors. Although information exchange among traders increases trading volume, improves liquidity, and enhances the ability of asset prices to reflect the available information in the market, it fails to improve price informativeness. Net earnings and social welfare are higher with information sharing due to reduced acquisition of costly signals.     

The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study

A complete understanding of security markets requires a simultaneous explanation of price behavior, trading volume, portfolio composition (ie., asset allocation), and bid-ask spreads. In this paper, these variables are observed in a controlled setting—a computerized double auction market, similar to NASDAQ. Our laboratory allows experimental control of information arrival—whether simultaneously or sequentially received, and whether homogeneous or heterogeneous. We compare the price, volume, and share allocations of three market equilibrium models: telepathic rational expectations, which assumes that traders can read each others minds (strong-form market efficiency); ordinary rational expectations, which assumes traders can use (some) market price information, (a type of semi-strong form efficiency); and private information, where traders use no market information. We conclude 1) that stronger-form market models predict equilibrium prices better than weaker-form models, 2) that there were fewer misallocation forecasts in simultaneous information arrival (SIM) environments, 3) that trading volume was significantly higher in SIM environments, 4) and that bid-ask spreads widen significantly when traders are exposed to price uncertainty resulting from information heterogeneity.     

Dispersion of Beliefs, Asset Prices, and Noisy Aggregation of Information

This paper discusses the determinants of the dispersion of beliefs of informed investors and the effects of this dispersion on the equilibrium level of asset prices in a noisy rational expectations model. It is shown that lower asset prices are usually associated with an increase in the dispersion of beliefs. However, when the noise level of private signals is high, or when asset prices are abnormally high, increased dispersion of beliefs will be associated with higher asset prices. This paper shows that the dispersion of beliefs is an increasing function of the standard deviations of an asset's payoff and the noise in the asset's supply, while it may be a decreasing or an increasing function of the standard deviation of errors in private signals.     

Dividends and the Resolution of Uncertainty

Investors' alleged preference for current rather than future dividends cannot, it is argued, be explained by the hypothesis of a progressively higher discount rate for more distant dividends to reflect increasing riskiness. It is more likely to be caused by inadequate standards of disclosure by companies concerning their intended uses of the funds retained by them, as compared with the standards required for external sources of finance, and by the market's consequent lack of confidence in the productivity of the former.     

Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk

Using cross-sectional data from the SCF and Tax Model, we show that entrepreneurial income risk has a significant influence on portfolio choice and asset prices. We find that households with high and variable business income hold less wealth in stocks than other similarly wealthy households, although they constitute a significant fraction of the stockholding population. Similarly for nonentrepreneurs, holding stock in the firm where one works reduces the portfolio share of other common stocks. Finally, we show that adding proprietary income to a linear asset pricing model improves its performance over a similar model that includes only wage income.     

Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles

We model consumption and dividend growth rates as containing (1) a small long‐run predictable component, and (2) fluctuating economic uncertainty (consumption volatility). These dynamics, for which we provide empirical support, in conjunction with Epstein and Zin's (1989) preferences, can explain key asset markets phenomena. In our economy, financial markets dislike economic uncertainty and better long‐run growth prospects raise equity prices. The model can justify the equity premium, the risk‐free rate, and the volatility of the market return, risk‐free rate, and the price–dividend ratio. As in the data, dividend yields predict returns and the volatility of returns is time‐varying.     

Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate

This paper investigates the relationship between capital flows, turnover and returns for the UK private real estate market. We examine a number of possible implications of capital flows and turnover on capital returns testing for evidence of a price pressure effect, ‘return chasing’ behaviour and information revelation. The main tool of analysis is a panel vector autoregressive (VAR) regression model in which institutional capital flows, turnover and returns are specified as endogenous variables in a two equation system in which we also control for macro-economic variables. Data on flows, turnover and returns are obtained for the ten market segments covering the main UK commercial real estate sectors. Our results do not support the widely-held belief among practitioners that capital flows have a ‘price pressure’ effect on property prices. However, we do find a significant positive relationship between lagged turnover and contemporaneous capital returns, suggesting that asset turnover provides increased price revelation which, in turn, reduces investment risk and increases property values.     

The Effects of Uncertainty on Market Prices: Evidence from Coaching Changes in the NBA

Abstract:  This study examines the effects of uncertainty on market prices. Specifically, we use the National Basketball Association betting market to examine whether uncertainty resulting from midseason coaching changes affects the ability of bettors to accurately set betting lines. We find that uncertainty amid midseason coaching changes results in less accurate pricing, as evidenced by higher volatility and greater overall inaccuracy in betting lines. We also find that uncertainty regarding the ability of the replacement coach and/or his strategies results in less accurate pricing, again evidenced by higher volatility and greater overall inaccuracy in betting lines.     

Information Uncertainty and the Post-Earnings-Announcement Drift Anomaly: Insights from REITs

This is the first study to examine the post-earnings-announcement drift anomaly in a Real Estate Investment Trust (REIT) context. The efficient markets hypothesis suggests that unexpected earnings should be fully incorporated into asset prices soon after being publicly announced. We hypothesize that publicly announced earnings signals may be more certain for REITs due to the presence of a parallel (private) asset market, suggesting less drift for REIT stocks. However, we find a large REIT drift component that is both statistically and economically significant. Furthermore, while the initial earnings surprise response is more muted for REITs, we find that the magnitude of the drift is significantly larger for REITs than for ordinary common stocks (NonREITs). Thus, information does not appear to move between the private and public asset markets in such a way as to render REIT earnings signals more certain than NonREIT earnings signals.     

宏观经济不确定性视角下实体企业金融资产配置动机

近年来,金融与实体经济发展相背离引发的资金"脱实向虚"问题引起高度关注。微观层面,实体企业参与金融资产配置的动机和所产生的经济效果差异显著。就此,本文以2007—2017年上市非金融企业为研究样本,运用固定效应模型和工具变量法进行了实证分析。研究结论表明:我国实体企业进行金融资产配置具有投资获利和缓解融资约束的双重动机,但宏观经济不确定性上升会使逐利动机占据主导,并相对弱化融资约束缓释效果;从企业的异质性角度来看,宏观经济不确定性上升会推动国有企业增加金融投资,这也是我国金融资源配置效率低下的具体表征;相较于其他投资工具,长期股权投资是平滑经济发展中的不确定性影响、缓解融资约束的有效方式。     

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton's (1987) investor recognition hypothesis.     

资产价格波动、财富效应稳定性与货币政策调控分析

本文通过一个财富效应的比较分析模型,采取状态空间模型和VAR模型检验中国城镇居民资产财富效应的稳定性。检验得到三点结论。一是从强弱性来看,各资产的财富效应微弱。二是从稳定性来看,住房资产的财富效应相对稳定,证券类金融资产的财富效应最不稳定。三是由于财富效应的微弱性特征,其非对称性特征不明显。造成上述情况的主要原因是,这些资产价值变化的暂时性特征过于突出,而持久性特征不明显,在弱化财富效应的同时引起财富效应不稳定。为维护财富效应的稳定性,货币政策应该适度干预资产价格的波动,并侧重于对房地产价格的调控,加强资产市场的预期管理,加强资本流动管理,降低国际市场波动对国内财富效应的负面影响。     

The Manipulation of Executive Stock Option Exercise Strategies: Information Timing and Backdating

I identify three option exercise strategies executives engage in, including (i) exercising with cash and immediately selling the shares, (ii) exercising with cash and holding the shares, and (iii) delivering some shares to the company to cover the exercise costs and holding the remaining shares. Stock price patterns suggest executives manipulate option exercises. They use private information to increase the profitability of all three strategies, and likely backdated some exercise dates in the pre‐Sarbanes‐Oxley period to enhance the profitability of the latter two strategies, where the executive's company is the only counterparty. Backdating is associated with reporting of internal control weaknesses.     

Disclosure of Private Information and Reduction of Uncertainty: Environmental Liabilities in the Chemical Industry

We investigate the potential uncertainty-reducing role of accounting information in the context of contingent Superfund liability valuation. We first develop theoretical arguments for the way reduction of uncertainty regarding these contingent liabilities is expected to affect security prices. Empirical proxies are developed for two types of uncertainty surrounding contingent Superfund liabilities: site uncertainty and allocation uncertainty. In a valuation framework, we then investigate whether financial statement disclosures and accruals reduce uncertainty and thereby affect security valuation. Specifically, we analyze the interaction of private information contained in firm disclosures and accruals with inherent uncertainty surrounding contingent Superfund liabilities. Results suggest that in a regulatory environment allowing substantial reporting discretion, firm-provided financial statement information affects valuation of contingent Superfund liabilities by reducing uncertainty. Further, we find that information revealed through accruals versus disclosures is differentially effective at reducing site and allocation uncertainty.     

The Impact of Irreversibility,Uncertainty and Timing Options on Deprival Valuations and the Detection of Monopoly Profits

This paper has two purposes. The first is to derive rules identifying the deprival value of an asset (i) which is irreversible to one extent or another; (ii) the benefit stream of which is subject to continuing uncertainty; and (iii) for which an option to wait exists as to when to reacquire should the owner be deprived of it. The second is to consider whether accounting rates of return employing these deprival value rules can be developed to help in the detection of monopoly profits in circumstances where investment decision-making takes place in the presence of irreversibility, uncertainty and the existence of timing options. The ‘new’ deprival value rules for an asset differ from the ‘conventional’ ones in that present value less the value of the option to reinvest in the asset appears in the ‘new’ rules wherever present value appears in the ‘conventional’ rules. Examples are provided which suggest that ‘new’ and ‘conventional’ deprival value rules can differ materially. A further result is that accounting rates of return can be developed using the ‘new’ deprival value rules that are, in principle, useful in the detection of monopoly profits. Nonetheless, in practice such use requires a level of information that renders the result superfluous in the sense that the provision of replacement cost balance sheet data, combined with the level of information needed, is sufficient to reveal the presence of monopoly profits directly.