Impact of warrant introductions on the behaviour of underlying stocks: Australian evidence

The present study examines the impact of first‐time introduction of warrants by third party issuers on the trading behaviour of a sample of underlying stocks listed on the Australian Stock Exchange. We investigate the price, liquidity and volatility impact of underlying stocks after warrant issuance and find considerable differences to those found for option listings. Significant negative abnormal returns on both the announcement and listing date of derivative warrants are reported, followed by a negative price drift. Relative trading volume and price volatility of underlying stocks are found to be significantly higher post‐warrant listing. Interestingly, we find that warrant holders are unable to realize gains for the majority of trading days when they are alive, consistent with the view that banks trade profitability from their issue.     

资本市场国际影响力提升效应研究——来自A股纳入明晟(MSCI)新兴市场指数的证据

2018年5月15日,首批纳入明晟(MSCI)新兴市场指数的A股股票名单正式公布。我们发现,被纳入MSCI的股票(标的股票)在公告日前后有显著为正的累计超额收益。相较于主要特征相似的匹配股票,标的股票纳入MSCI后的分析师评级有显著提升。进一步研究表明,在公告日前后融资(融券)交易量显著上升(下降),而换手率没有明显变化,并且净融资交易与公告效应显著正相关。本文的发现表明,A股纳入MSCI这一事件具有明显的信息含量,传递了有关企业前景的正面信息,并促使本地市场聪明投资者进行更活跃的交易,这对促进价格发现、促成价值投资具有一定的推动作用。     

The impact of derivatives hedging on the stock market: Evidence from Taiwan’s covered warrants market

We examine the impact of derivatives hedging on the spot market using accurate hedge ratios of covered warrants traded in the Taiwan Stock Exchange (TWSE). Results present significant positive abnormal returns and trading volumes before the announcement of a warrant’s issuance, and the effect is stronger when the hedging demand is larger. Moreover, a significantly positive relationship exists between stock return volatility and the price elasticity of hedging demand. Finally, we observe a significantly negative price effect upon the underlying stock after a call warrant has expired in-the-money due to the liquidation of hedging portfolios.     

In-the-Money Warrant Extensions

This paper examines the warrant price and stock price reactions to the extension of the expiration date of in-the-money warrants. The warrant prices increase significantly in response to the announcement, consistent with option pricing theory. Shareholders experience no significant abnormal returns at the announcement, contrary to the conjecture that an extension will transfer wealth from shareholders. There is support for the idea that firms extend warrant life because the existing assets' cash flow obviates the need for additional financing. The data show that both the stocks and the warrants perform poorly in the month following the extension announcement.     

我国上市公司高送转公告效应的实证研究

为检验上市公司定高送转预案公告发布对其股票价格的影响,本文以2009年至2010年沪深两市推出高送转预案的285家上市公司为样本,选取公告日前10日至公告日后20日为事件窗口,运用事件研究法对高送转公告效应进行实证研究。结果表明：中国股市具有明显的高送转公告效应,上市公司高送转预案公告发布前后股票具有显著的正价格效应,会产生持续的累计异常正收益;然而,由于信息不对称,部分投资者通常会提前获得有关高送转的内幕信息并提前买入,并以此获得可观的超额收益,而普通投资在公告发布后买入只能获得小部分的超额收益并且需要承担更大的风险。     

Convertible debt issuance,capital structure change and financing-related information: Some new evidence

This paper provides evidence on the valuation effects of convertible debt issuance. Common stockholders earn significant negative abnormal returns at the initial announcement of a convertible debt offering, and also at the issuance date. In contrast, the average valuation effect on common stock at the announcement of non-convertible debt offerings is only marginally negative, and is zero at issuance. The significant negative average effect on common stock value appears not to be systematically related to either the degree of leverage change induced by the convertible debt issuance or the extent to which the proceeds from issuance are used for new investment or to refinance existing debt. If, as appears likely, the issuance of convertible debt on average increases financial leverage, these results are inconsistent with evidence from other recent studies documenting common stock price effects of the same sign as the change in leverage. The evidence suggests that convertible debt offerings convey unfavorable information about the issuing firms, but the specific nature of such information remains unidentified.     

Informed local trading prior to earnings announcements

Do individual investors have better information about local stocks? Our results demonstrate that they do. Large trading imbalances by investors living close to a firm's headquarters predict the stock's earnings announcement return. Stocks with the most net buying by local investors average significantly higher market-adjusted announcement returns than stocks with the most net selling by local investors. This return difference is pronounced for small and medium-sized firms, but absent among large firms, which have significant analyst coverage. Local investors' information advantage comes at the expense of nonlocal traders.     

Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements

This article examines the price formation process during dividend announcement day, using daily closing prices and transactions data. We find that the unconditional positive excess returns, first documented by Kalay and Loewenstein (1985) , are higher for small-firm and low-priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid-ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax-related ex-day trading. Rather, the price behavior is related to the absorption of dividend information.     

Short sales constraints and price adjustments to earnings announcements: Evidence from the Hong Kong market

This study examines how short sales constraints affect the stock price adjustment to the release of public information in the Hong Kong Stock Exchange. Using a unique feature of this market that allows us to directly investigate the impact of short sales restriction, we find the following. First, non-shortable stocks react more strongly to the publication of negative information than shortable stocks do. Second, non-shortable stocks are overpriced before negative earnings announcements. Hence, part of the strong market reaction of non-shortable stocks on announcement day could be due to the correction of such overpricing. Third, the prices of non-shortable stocks reverse following the announcement of negative information, suggesting that investors overreact to negative information on announcement day. Fourth, it takes longer for the prices of non-shortable stocks to adjust to negative earnings information. On the whole, our results support the research that finds short sales restrictions reduce the efficiency of stock markets.     

Information asymmetry in warrants and their underlying stocks on the stock exchange of Thailand

This paper examines the informational role of warrants based on the unique order data from the Stock Exchange of Thailand, where both warrants and stocks are traded under the same market structure and where warrants are as liquid as stocks. The estimated probability of informed trading (PIN) in warrants is found to be statistically higher than their underlying stocks regardless of order submission type and order size. The PIN explains a substantial portion of the cross-sectional variation in the opening spread beyond trading volume and minimum tick size. We find evidence that a signed warrant trade contains information about the future stock price and that warrants with a higher PIN have greater predictive powers.     

PRICE AND VOLUME EFFECTS ASSOCIATED WITH THE CREATION OF STANDARD & POOR'S MIDCAP INDEX

In this paper we explore price and volume effects associated with the 1991 creation of Standard & Poor's MidCap 400 index. Prior work on changes in the composition of existing indices finds a significant price response to the announcement. Various authors link the effect to price pressure, information, an outwardly shifting demand curve for securities, and the increased attention that comes with inclusion in an index. Using event study methodology, we find significant price and volume effects during the two weeks leading up to the Standard & Poor's announcement, but no significant effect in the two-day interval around the event. Apparently, information leakage and/or anticipation preceded the creation of the index. The price run-up is permanent since the positive abnormal returns leading up through the announcement are not associated with significantly negative abnormal returns after the announcement. In addition, MidCap stocks significantly outperform the market during the fifty-two weeks following the announcement. Using cross-sectional regressions, we show that these prior-period abnormal returns are positively related to abnormal volume and institutional holdings. We also find that firms trading over-the-counter had larger price run-ups than NYSE or AMEX firms.     

The financing decisions of REITs: The case of warrant extensions

In this paper, we examine the warrant price and stock price reactions to the announcement of warrant life extensions by REITs. As predicted by option pricing theory, warrant prices increase in response to these extensions. The stocks of REITs making the extension announcements experience average abnormal returns that are not significantly different from zero. Thus, total firm value appears to increase, with the gains accruing primarily to the warrantholders.     

The Valuation Effects of Warrant Extensions

In this paper, we examine the warrant price and stock price reactions to the announcement of warrant life extensions. As predicted by option-pricing theory, warrant prices increase in response to an extension. Our principal finding is that the stocks of firms making the extension announcements experience positive abnormal returns on average. We interpret the evidence as supportive of an anticipation hypothesis in which the market perceives the decision to extend the warrants' expiration date as a favorable indication for the stock price before the subsequent expiration.     

Intraday stock price effects of ad hoc disclosures: the German case

This paper examines intraday stock price and trading volume effects caused by ad hoc disclosures in Germany. The evidence suggests that the stock prices react within 30 min after the ad hoc disclosures. The adjustment of the trading volume needs even more time. We find no evidence for abnormal high price nor trading volume reactions in the five transactions before ad hoc disclosures. The bigger the company, which announces an ad hoc disclosure, the less severe the abnormal price effect, following the announcement, is. The higher the trading volume at the last trading day before the announcement, the higher the price and trading volume effects, after the ad hoc disclosures, are.     

The S&P500 index effect reconsidered: Evidence from overnight and intraday stock price performance and volume

This study focuses on S&P500 inclusions and deletions, examining the impact of potential overnight price adjustment after the announcement of an S&P500 index change. We find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event. More importantly, observing the tick-by-tick stock price performance and volume effects on the key days during the event window for the first time, we find evidence of consistent trading patterns during trading hours. A separate analysis of NASDAQ and NYSE listed stocks allows for a detailed examination of the price and volume effect at an intra-day level. We find that index funds appear to cluster their rebalancing activities near to and after the close on the event date, suggesting that they are more concerned with tracking error than profit.     

The Impact of Information Release on Stock Price Volatility and Trading Volume: The Rights Offering Case

This paper examines whether information released via rights offering announcements induces changes in price volatility and trading volume of underlying stock. The results of this paper provide support for the release of new information via offering announcements and evidence of its effects on price volatility and volume of underlying stock. Specifically, utilization of the announced information by investors is evidenced by greater trading volume following the announcement date than during the pre-announcement period. We interpret this result to mean that informedness dominates consensus. However, stock price volatility decreased from the pre-announcement period to the post-expiration period of rights offerings.     

The effects of changes in index composition on stock prices and volume: Evidence from the Istanbul stock exchange

Previous evidence has shown that stocks included in (excluded from) an index exhibit significant positive (negative) abnormal returns on the announcement day, and that trading volume is affected by the event. This study examines the price and volume effects on stocks associated with the changes in the value-weighted index composition of two indices, of the ISE, where the index funds and index derivatives do not exist. Consistent with previous evidence, stocks included in (excluded from) the index tend to generate positive (negative) abnormal returns in ISE. Volume and volume volatility are also significantly affected. Our results seem to support the hypotheses of price-pressure, imperfect substitute and attention due to the lack of index-funds and derivatives market in Turkey.     

Informed trading,information uncertainty,and price momentum

In this paper we investigate the effects of informed trading (PIN) and information uncertainty in determining price momentum. We find that trading strategies based on buying high-uncertainty good-news stocks and shorting high-uncertainty bad-news stocks work well when limited to high-PIN stocks, while stocks with low-PIN do not exhibit price continuations, even when the uncertainty level of those stocks is high. In contrast, momentum returns are always significant for high-PIN stocks, irrespective of information uncertainty. Overall, we show that the informed trading effect is both independent of and stronger than that of information uncertainty in determining price momentum.     

Effects of Preferred Stock Re-rating on Common Stock Prices: Further Evidence

This study examines the price reactions of common stocks to changes in preferred stock ratings, with focuses on firms with less information available in the market as well as on firms with a relatively larger proportion of preferred stock financing. Emphasis on differential information and the relative size of preferred stocks across firms provide a more powerful test of the effect of rating changes on stock prices. Contrary to previous studies that report no price effect on common stocks due to preferred stock re-ratings, these results show that for low-information firms and for firms with a larger proportion of preferred stocks in their capital structure, a preferred stock rating downgrade exerts significant negative price effect on common stocks during the two-day announcement period. Our findings also have implications for future studies of other firm-specific events such as security offerings, stock repurchases, and convertible calls.     

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.