Crises,contagion and cross-listings

We investigate whether cross-listing shares in the form of depositary receipts in overseas markets benefits investors in emerging market countries during periods of local financial crisis from 1994 to 2002. We regress cumulative abnormal returns for three windows surrounding the crisis events on the cross-listing status while controlling for cross-sectional differences in firm age, trading volume, foreign exposure, disclosure quality and corporate governance. Further, we examine cross-listing effects in countries popularly thought to experience contagious effects of these crises. We find that cross-listed firms react significantly less negatively than non-cross-listed firms, particularly in the aftermath of the crisis. The results on contagious cross-listing effects are however mixed. Our findings are consistent with predictions based on theories of market segmentation as well as differential disclosure/governance between developed and emerging markets. We do not find evidence that foreign investors “panic” during a currency crisis.     

Stock price synchronicity and analyst coverage in emerging markets

This paper examines the relation between the stock price synchronicity and analyst activity in emerging markets. Contrary to the conventional wisdom that security analysts specialize in the production of firm-specific information, we find that securities which are covered by more analysts incorporate greater (lesser) market-wide (firm-specific) information. Using the R² statistics of the market model as a measure of synchronicity of stock price movement, we find that greater analyst coverage increases stock price synchronicity. Furthermore, after controlling for the influence of firm size on the lead–lag relation, we find that the returns of high analyst-following portfolio lead returns of low analyst-following portfolio more than vice versa. We also find that the aggregate change in the earnings forecasts in a high analyst-following portfolio affects the aggregate returns of the portfolio itself as well as those of the low analyst-following portfolio, whereas the aggregate change in the earnings forecasts of the low analyst-following portfolio have no predictive ability. Finally, when the forecast dispersion is high, the effect of analyst coverage on stock price synchronicity is reduced.     

Belief diversity and price informativeness around earnings announcements

The consequences of price informativeness have been extensively studied in the past. In contrast, this study goes a step backward to explore its determinants by examining whether belief diversity facilitates a complete and timely reflection of earnings news into prices. Using a global dataset, we find a higher abnormal return variance ratio (lower post-earnings announcement drift) in the presence of more diversely-informed beliefs among traders. This inference holds despite several robustness checks. Moreover, the cross-country analysis reveals that the documented impact of belief diversity intensifies in countries with higher market development, greater corporate transparency, and stronger investor protection.     

The economic consequences of increased disclosure: Evidence from international cross-listings

We examine market behavior around earnings announcements to understand the consequences of the increased disclosure that non-U.S. firms face when listing shares in the U.S. We find that absolute return and volume reactions to earnings announcements typically increase significantly once a company cross-lists in the U.S. Furthermore, these increases are greatest for firms from developed countries and for firms that pursue over-the-counter listings or private placements, which do not have stringent disclosure requirements. Additional tests support the hypothesis that it is changes in the individual firm's disclosure environment, rather than changes in its market liquidity, ownership, or trading venue, that explain our findings.     

Corporate financing decisions, managerial market timing, and real investment

Both market timing and investment-based theories of corporate financing predict under-performance after firms raise capital, but only market timing predicts that the composition of financing (equity compared with debt) should also forecast returns. In cross-sectional tests, we find that the amount of net financing is more important than its composition in explaining future stock returns. In the time series, investment-based factor models explain abnormal stock performance following a variety of corporate financing events that previous studies link to market timing. At the aggregate level, the amount of new financing is also more important for future market returns than its composition. Overall, our joint tests reveal that measures of real investment are correlated with future returns and measures of managerial market timing are not.     

Ownership concentration,foreign shareholding,audit quality,and stock price synchronicity: Evidence from China

This paper investigates the effects of largest-shareholder ownership concentration, foreign ownership, and audit quality on the amount of firm-specific information incorporated into share prices, as measured by stock price synchronicity, of Chinese-listed firms over the 1996–2003 period. We show that synchronicity is a concave function of ownership by the largest shareholder with its maximum at an approximate 50% level. Further, we find that synchronicity is higher when the largest shareholder is government related. We also find that foreign ownership and auditor quality are inversely associated with synchronicity. Finally, we show that the amount of earnings information reflected in stock returns is lower for firms with high synchronicity.     

The impact of business group affiliation on stock price informativeness: Evidence from an emerging market

This paper examines the relationship between business group affiliation and stock price informativeness in an emerging market setting. We use stock price synchronicity as a measure, and study the impact of group affiliation ‐specifically the extent of affiliation, ownership structure and existence of group bank‐ on firm specific information content. Results reveal that the amount of firm‐specific information capitalized into stock prices tends to be lower (higher) when the firm is group‐affiliated (unaffiliated), indirectly (directly) owned, and affiliated group has (does not have) a group bank. Additionally, the extent of group affiliation maintains a non‐linear relationship with synchronicity, suggesting that the perception of higher versus lower levels of group ownership differs.     

Stock price reaction to public and private information

I use Easley and O’Hara's [1992, Journal of Finance 47, 577–604] private information-based trading variable, PIN, together with a comprehensive public news database to empirically measure the effect of private and public information on the post-announcement drift. I show that stocks associated with high PIN, consensus public news surprises, and low media coverage experience low or insignificant drift. Thus not all information acquisition variables have the same effect on the market's efficiency. Whether information is public or private is irrelevant; what matters is whether information is associated with the arrival rate of informed or uninformed traders.     

New evidence on the price and liquidity effects of the FTSE 100 index revisions

We study the price and liquidity effects following the FTSE 100 index revisions. We employ the standard GARCH(1,1) model to allow the residual variance of the single index model (SIM) to vary systematically over time and use a Kalman filter approach to model SIM coefficients as a random walk process. We show that the observed price effect depends on the abnormal return estimation methods. Specifically, the OLS-based abnormal returns indicate that the price effect associated with the index revision is temporary, whereas both SIM with random coefficients and GARCH(1,1) model suggest that both additions and deletions experience permanent price change. Added (removed) stocks exhibit permanent (temporary) change in trading volume and bid-ask spread. The analysis of the spread components suggests that the permanent change associated with additions is a result of non-information-related liquidity. We interpret the permanent price effect of additions and deletions combined with the permanent (temporary) shift in liquidity of added (removed) stocks as evidence in favour of the imperfect substitution hypothesis with some non-information-related liquidity effects in the case of additions.     

Lost in translation: Delayed ex-dividend price adjustments of Hong Kong ADRs

Previous research documents that Hong Kong stocks have a full ex-dividend price adjustment consistent with dividends and capital gains being tax free. We examine ex-dividend price behavior of Hong Kong ADRs to assess the impact of differing tax environments in US and Hong Kong. These ADRs typically go ex-dividend before their underlying stock. They experience significant abnormal returns of 1.16% on their ex-day; the average ex-day price drop is only 30% of the dividend. However, ADR prices drop when the underlying stock goes ex-dividend subsequently. The cumulative ADR price drop is equal to the dividend. Thus, the ADR ex-dividend adjustment resembles that of the underlying stock, consistent with home country tax laws governing ADR price behavior. Neither liquidity nor transaction costs can explain the anomalous delayed ex-dividend adjustment of ADRs.     

Competitive and Information Effects of Cross-Border Stock Listings

We examine the effect of 269 cross‐border listings on rivals in the listing and domestic markets and find that U.S. rivals experience significant gains whereas domestic rivals do not. Both competitive and information effects are important in explaining the reaction of U.S. rivals. Regarding the competitive effects, the reaction of rivals is less favorable when listings originate in developed countries and more favorable when listing firms do not have prior operating presence in the United States. Regarding the information effects, the reaction is less favorable when listings are combined with equity offerings and more favorable when the listing is the first to occur within an industry.     

Stock market integration and volatility spillover: India and its major Asian counterparts

Stock market integration and volatility spillover between India and its major Asian counterparties is studied. Apart from different degrees of correlations, contemporaneous intraday return spillovers between India and its Asian counterparts are found to be positively significant and bi-directional. Hong Kong, Korea, Singapore and Thailand are found to be four Asian markets from where there is significant flow of information in India. Though most of the information gets transmitted between the markets without much delay, some amount of information still remains unsent and is found to be successfully transmitted as soon as the domestic market opens in the next day.     

Stated and revealed investment decisions concerning retail structured products

We analyze the investment behavior of private clients with regard to retail structured products. To ascertain their stated and revealed preferences, we use a questionnaire and a field experiment. The real product issued in the field experiment is comparable to the hypothetical product in the questionnaire in terms of both payoff and communication. We find that a product described in simple words strongly motivates people to invest in structured products for the first time, and also eliminates gender differences. However, the real product attracts far fewer first-time buyers than we expected from the questionnaire results.     

Momentum Strategies: Evidence from Pacific Basin Stock Markets

We investigate the profitability of momentum investment strategy in six Asian stock markets. Unrestricted momentum investment strategies do not yield significant momentum profits. Although we find that a diversified country‐neutral strategy generates small but statistically significant returns during 1981–1994, when we control for size and turnover effects we find that the country‐neutral profits dissipate. Our evidence suggests that the factors that contribute to the momentum phenomenon in the United States are not prevalent in the Asian markets.     

Access to management and the informativeness of analyst research

We examine whether access to management at broker-hosted investor conferences leads to more informative research by analysts. We find analyst recommendation changes have larger immediate price impacts when the analyst?s firm has a conference-hosting relation with the company. The effect increases with hosting frequency and is strongest in the days following the conference. Conference-hosting brokers also issue more informative, accurate, and timely earnings forecasts than non-hosts. Our findings suggest that access to management remains an important source of analysts? informational advantage in the post-Regulation Fair Disclosure world.     

Stock returns and volatility following the September 11 attacks: Evidence from 53 equity markets

September 11 attacks matter, and why not? Given that globalization has integrated financial markets, the magnitudes of the effect of the September 11 attacks on global markets are expected to be pervasive. We used data from 53 equity markets to investigate the short term impact of the September 11 attacks on markets' returns and volatility. Our empirical findings indicate that the impact of the attacks resulted in significant increases in volatility across regions and over the study period. However, stock returns experienced significant negative returns in the short-run but recovered quickly afterwards. Nevertheless, we find that the impact of the attacks on financial markets varied across regions. The implication here is that the less integrated regions (e.g., Middle East and North Africa) are with the international economy, the less exposed they are to shocks.     

Control-ownership wedge and investment sensitivity to stock price

This study examines whether insiders’ incentives for private control benefits affect investment sensitivity to stock price. While Chen et al. (2007) link stock price informativeness to firms’ learning from the stock market, we offer an alternative agency-cost based explanation. Using a total of 2822 firms from 22 countries in East Asia and Western Europe, we document a strong negative association between control-ownership wedge and investment-q sensitivity, suggesting that insiders’ incentives for private control benefit reduce their propensity to listen to the market. Furthermore, the negative impact of wedge on investment-q sensitivity is primarily driven by sub-optimal investments. Overall, we provide evidence that agency problem is an important factor that determines the learning from the stock market in capital allocation.     

The informativeness and ability of independent multi-firm directors

Motivated by SEC regulations requiring a majority of independent directors on corporate boards, we examine director informativeness and ability by observing the trading performance of independent directors who serve on multiple boards. As a proxy for informativeness, we find positive trading performance relative to purchases and sales. More impressive, these performance opportunities appear to be available to market participants who observe directors' Form 4 trades. We do not find evidence that diversification motives or busyness affects director trading performance. On the other hand, we do find that audit and compensation committee memberships enhance director trading performance on the sales side but that committee membership does not affect the profitability of director purchases. In comparison, multi-firm directors out-perform single-firm directors and this performance differential seems to be more attributable to superior ability than to better information.     

Cross-listing and pricing efficiency: The informational and anchoring role played by the reference price

When a firm cross-lists its shares in segmented markets, the price of the first issued share, as a reference, plays both an informational and anchoring role in pricing the second issued share. We develop a model illustrating the dual-role. Empirically, we examine a group of Chinese firms that first issue foreign shares and then domestic A-shares, for which the anchoring effect adds to the A-share underpricing. Consistent with the model predictions, we find that the A-share underpricing is positively related to the difference in costs of capital in the two segmented markets, and that this positive association is weaker when participants are less likely to resort to the anchoring heuristic and when the A-share valuation involves less uncertainty.     

Local investors,price discovery,and market efficiency

This study examines the effect of locally informed investors on market efficiency and stock prices using large power outages, which are exogenous events that constrain trading. Turnover in stocks headquartered in an outage area with 0.5% of U.S. electrical customers drops by 3–7% on the first full day of the outage, and bid–ask spreads narrow by 2.5%. Firm-specific price volatility is 2.3% lower on blackout dates. This effect is larger for smaller, lesser-known stocks and in higher income areas. Consistent with a valuation discount and higher expected returns for stocks with more informed traders, firms with a one-standard-deviation higher local trading propensity have market-to-book values that are 5% lower, Tobin's Q that is 6% lower, annualized four-factor alphas that are 1.2% higher, and average spreads that are 6.5% higher. Together, the evidence suggests that informed investors contribute disproportionately to both liquidity and price discovery, and that these contributions are reflected in valuations and expected returns.