Twitter activity,investor attention,and the diffusion of information

We examine the impact of Twitter attention on stock prices by examining over 21 million company‐specific tweets over a 5‐year period. Through a quasi‐natural experiment identifying official Twitter outages, we find that Twitter influences stock trading, especially among small, less visible securities primarily traded by retail investors. In addition, we determine that Twitter activity is associated with positive abnormal returns and when tweets occur in conjunction with traditional news events, more information is spread to investors. Finally, we show that retail investor activity drives the Twitter effect as institutional investors less actively trade the affected stocks.     

Related securities and price discovery: Evidence from NYSE-listed Non-U.S. stocks

In this paper we analyze whether handling related securities improves a market maker's information environment and helps to incorporate new information in stock prices. Our empirical tests are focused on New York Stock Exchange specialists and the U.S. share in price discovery of 64 British and French companies cross-listed on the NYSE. We define related securities as stocks from the same country, the same region, or other foreign stocks. We find strong evidence that a higher prominence of related stocks in the specialist portfolio is associated with a higher U.S. share in price discovery of our sample firms. We interpret our findings as evidence that concentrating market makers in similar stocks reduces information asymmetries and improves the information environment as market makers can extract information relevant to a stock from order flow to related securities. To support our argument, we show that the adverse selection component of the bid–ask spread is negatively related to the prominence of other foreign stocks in the specialist portfolio.     

Short-sellers: Informed but restricted

According to theory, the level of short-selling can predict short-run future returns through two channels. One channel relates to the demand-side of the stock lending market: short-sellers are informed. The other channel relates to the supply-side: short-sellers are restricted. Measuring the importance of each channel is empirically challenging when, in general, supply and demand in the stock lending market are not directly observable. This paper takes advantage of a unique dataset that contains actual shifts in lending supply of stocks on the Brazilian market and proposes an identification strategy for the effects of both supply and demand on stock prices. We find that both channels are important.     

Short sales,institutional investors and the cross-section of stock returns

Short-sale constraints are most likely to bind among stocks with low institutional ownership. Because of institutional constraints, most professional investors simply never sell short and hence cannot trade against overpricing of stocks they do not own. Furthermore, stock loan supply tends to be sparse and short selling more expensive when institutional ownership is low. Using institutional ownership as a proxy, I find that short-sale constraints help explain cross-sectional stock return anomalies. Specifically, holding size fixed, the under-performance of stocks with high market-to-book, analyst forecast dispersion, turnover, or volatility is most pronounced among stocks with low institutional ownership. Ownership by passive investors with large stock lending programs partly mitigates this under-performance, indicating some impact of stock loan supply. Prices of stocks with low institutional ownership also underreact to bad cash-flow news and overreact to good cash-flow news, consistent with the idea that short-sale constraints hold negative opinions off the market for these stocks.     

Short Sale Constraints and Single Stock Futures Introductions

This paper exploits the unique experimental setting created by nearly 1,300 new single stock futures listings on the OneChicago exchange between 2003 and 2009. I investigate the impact of derivatives introductions on the tightness of short sale constraints facing their underlying assets. After controlling explicitly for supply and demand conditions in the stock lending market, this experiment reveals a precipitous decline in active utilization rates and loan fees in the lending market, after the futures introductions. The paper provides strong evidence that supports the view that derivatives represent a viable alternate synthetic short selling venue relaxing short sale constraints facing their underlying assets.     

Market quality changes in the London Stock Market

This paper examines the impact that the introduction of a closing call auction had on market quality at the London Stock Exchange. Using estimates from the partial adjustment with noise model of Amihud and Mendelson [Amihud, Y., Mendelson, H., 1987. Trading mechanisms and stock returns: An empirical investigation. Journal of Finance 42, 533–553] we show that opening and closing market quality improved for participating stocks. When we stratify our sample securities into five groups based on trading activity we find that the least active securities experience the greatest improvements to market quality. A control sample of stocks are not characterized by discernable changes to market quality.     

高管减持如何影响投资者预期?——基于超额融券的经验证据

随着我国融资融券业务逐步扩容,投资者向证券公司融券卖出的卖空交易成为市场消化负面信息的重要机制。本文以高管减持事件窗口期的超额融券量为研究对象,采用事件研究法考察我国企业高管减持所任职公司股票对市场预期的影响。实证结果表明,相比估计期,高管减持窗口期超额融券量显著增长,并且减持比例越高或者减持金额越大,超额融券量越高,表明高管减持显著降低了外部投资者对公司股票的价值预期。进一步研究显示,良好的信息透明度能够显著降低高管减持对超额融券量的正向影响。本文用超额融券量直观地度量投资者预期变化,丰富和发展了高管减持经济后果的研究,对规范我国上市公司高管减持行为及监管部门完善相关监管规定具有启示意义。     

Piecing together the extent of retail fractional trading

We examine the introduction of fractional trading and its impact on retail security ownership. Fractional trading aims to increase investor access to securities with high prices. Over the initial months of Robinhood’s fractional trading program, the number of unique owners increases approximately 53 percentage points more for stocks priced above $100 versus those priced below $50. Intraday, high-price stocks exhibit incremental ownership growth specifically during periods when fractional trading is permitted. Our results show that Robinhood investors make ample use of fractional trading to acquire previously inaccessible securities, indicating a substantial reduction in price-based investing frictions and carrying implications for retail portfolio management. In addition, we show that potential market impacts of fractional trading appear negligible based on share volume data from multiple brokers with fractional trading programs.     

The use of open source internet to analysis and predict stock market trading volume

The objective of this paper is to evaluate the impact of information demand and supply on stock market trading volume. Few studies have demonstrated the role of Google search data in analyzing trading volume activity. In this study, we employ a proxy for information demand which is derived from weekly internet search volume. The latest is from Google Trends database, for 25 of the largest stocks traded on CAC40 index, between April 2007 and March 2014. We use news headlines as a proxy for information supply. We use Garch model to analyze and predict trading volume.The empirical results present new evidences. First, information supply has an impact on trading volume but information demand's impact is much more important. Secondly, by applying MCA to results found, it could be concluded that the impact of public information on transaction volume is conditioned by two elements: the firm and market news disclosure and the second element relates to the characteristics of the market participants, more precisely their news interpretations and their risk aversion. Thirdly, we used Chow structural break test to verify the stability of our model. We found that for securities with structural changes, information demand is the responsible variable of the change in our model. Finally, we found that information variables have a predictive power on transaction volume.This paper contributes to existing literature by incorporating open source internet-based data into the analysis and prediction of transaction volume. Using internet information about the stock market, which has appeared recently as an interesting research for financial empiricists, computer scientists and practitioners, will have a very important utility because quantifying demand and supply of information becomes possible.     

THE EFFECT OF TRADING IN EIGHTHS ON SECURITY RETURN BEHAVIOR

Currently the equity securities of most British, Canadian and US firms trade in eighths. However, this pricing system may soon be abandoned in the US. Specifically, the US Securities and Exchange Commission (SEC) is currently studying the feasibility of changing the pricing of US securities to dollars and cents from dollars and eighths. 'SEC officials contend that moving to a system that quotes stock prices in dollars and cents would create efficiency in the stock market that eighths and sometimes sixteenths can't permit' (Torres and Salwen, 1991). This paper demonstrates the inefficiencies that result from constraining stocks to trade in eighths of a dollar. It describes the effects on returns and betas; then, it presents empirical evidence consistent with the effects. Systematic differences in the distributions of returns of low and high-priced stocks are documented. The covariance of returns with a market index is shown to vary systematically across stocks of different prices and to depend on the return interval used to estimate market model parameters. The variations are explainable by an observed lag between the returns of low-priced stocks relative to those of high-priced stocks. The lag is partially attributable to trading in eighths. A systematic relationship that varies with share price is observed between market model residual returns and unadjusted returns. This relationship is not eliminated by using longer return intervals alone. The extent of the relationship is reduced when longer return intervals are combined with the use of a market index composed of stocks that are priced similarly to those of the securities being tested. The implications of these results for capital market studies are discussed.     

The Flash Crash: Trading Aggressiveness,Liquidity Supply,and the Impact of Intermarket Sweep Orders

During the Flash Crash on May 6, 2010, a short period of high stock market volatility, some stock prices declined to $0.01, while others increased to $100,000. Examining Intermarket Sweep Orders (ISOs) before, on, and after May 6, we find that ISO use is substantially higher on May 6. For those stocks whose prices fell the most, over 65% of the sell volume comes from ISOs. During the price recovery period for these stocks, about 53% of the buy volume comes from ISOs. We believe that the unusual behavior of ISOs contributed to the sudden drop and recovery of the market.     

Characteristics of stocks that frequently hit price limits: Empirical evidence from Taiwan and Thailand

Daily price limits in the securities markets may affect certain securities more often than other securities. To examine this issue empirically, we examine two stock markets that impose daily price limits (Taiwan Stock Exchange and the Stock Exchange of Thailand). Overall, we find that volatile stocks, actively traded stocks, and small market capitalization stocks hit price limits more often than other stocks. Our findings, therefore, provide new considerations into the current discussions surrounding price limit mechanisms, an important topic in which very little is known.     

Stock price clustering on option expiration dates

This paper presents striking evidence that option trading changes the prices of underlying stocks. In particular, we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices. On each expiration date, the returns of optionable stocks are altered by an average of at least 16.5 basis points, which translates into aggregate market capitalization shifts on the order of $9 billion. We provide evidence that hedge rebalancing by option market makers and stock price manipulation by firm proprietary traders contribute to the clustering.     

The relationship between asset growth and the cross-section of stock returns

There is a large body of literature examining the association between stock characteristics and the cross-section of stock returns in international markets. Recently, Cooper et al. (2008) reported a strong association between total asset growth and stock returns in the US. In this paper, we show that an asset-growth effect also exists in the Australian equity market. Of particular interest, it is present amongst the largest Australian stocks. Over the 1983-2007 period, an equally-weighted portfolio of low-growth Big stocks outperforms a portfolio of high-growth Big stocks by an average 1% per month, equating to nearly 13% per annum. At an individual stock level of analysis, the asset-growth effect remains even after controlling for other variables whose association with the cross-section of returns is well known. Finally, we explicitly test whether asset growth is a priced risk factor using the common two-stage cross-sectional regression methodology. We find no evidence to support a risk-based explanation, thereby lending credence to Cooper et al.’s (2008) suggestion that the asset-growth effect is attributable to mispricing.     

Investor sentiment and stock returns: Some international evidence

We examine whether consumer confidence – as a proxy for individual investor sentiment – affects expected stock returns internationally in 18 industrialized countries. In line with recent evidence for the U.S., we find that sentiment negatively forecasts aggregate stock market returns on average across countries. When sentiment is high, future stock returns tend to be lower and vice versa. This relation also holds for returns of value stocks, growth stocks, small stocks, and for different forecasting horizons. Finally, we employ a cross-sectional perspective and provide evidence that the impact of sentiment on stock returns is higher for countries which have less market integrity and which are culturally more prone to herd-like behavior and overreaction.     

Institutional stock trading on loan market information

One of the most important developments in the corporate loan market over the past decade has been the growing participation of institutional investors. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: Do institutional investors use private information acquired in the loan market to trade in public securities? This paper examines the stock trading of institutional investors whose portfolios also hold loans. Using the Securities and Exchange Commission filings of loan amendments, we identify institutional investors with access to private information disclosed during loan amendments. We then look at abnormal returns on subsequent stock trades. We find that institutional participants in loan renegotiations subsequently trade in the stock of the same company and outperform trades by other managers and trades in other stocks by approximately 5.4% in annualized terms.     

The impact of internet stock message boards on cross-sectional returns of small-capitalization stocks

We examine the impact of more than 2.5 million HotCopper messages on the Australian stock market. HotCopper is the largest online stock message board in Australia and the sample of messages covers over 2000 companies listed on the Australian Securities Exchange (ASX) from January 2003 through December 2008. We exclude messages surrounding public price-sensitive announcements released centrally by the ASX in order to examine the private information content of internet board messages. We find that the number of board messages and message sentiment significantly and positively relate to the contemporaneous returns of underperforming (low ROE, EBIT margin, EPS) small capitalization stocks with high market growth potential (low book-to-market). Posting activity is positively associated with trading volume for small stocks and negatively associated with bid-ask spreads for small and large stocks in the short term. Bullish small stocks outperform bearish ones significantly in respective days and months, exhibiting no return reversals to pre-message board activity levels in subsequent time periods. Large stocks are not found to be affected by message board activity. We conclude that higher message board activity quickly reflects itself into the prices of small capitalization stocks in a highly regulated market like the ASX.     

Credit Scoring and the Availability of Small Business Credit in Low‐ and Moderate‐Income Areas

This paper estimates that credit scoring is associated with about a $3,900 increase in small business lending per sample banking organization, per low‐ and moderate‐income (LMI) area served, and this effect is roughly equivalent to that estimated for higher‐income areas. For our sample, this corresponds to a $536 million increase in small business credit in LMI areas in 1997 than otherwise would have been the case. This effect appears to be driven by increased out‐of‐market lending by banking organizations, as in‐market lending generally declines. Overall, it does not appear that credit scoring has a disparate impact on LMI areas.     

Changes in Expected Security Returns,Risk, and the Level of Interest Rates

Regressions of security returns on treasury bill rates provide insight about the behavior of risk in rational asset pricing models. The information in one-month bill rates implies time variation in the conditional covariances of portfolios of stocks and fixed-income securities with benchmark pricing variables, over extended samples and within five-year subperiods. There is evidence of changes in conditional “betas” associated with interest rates. Consumption and stock market data are examined as proxies for marginal utility, in a general framework for asset pricing with time-varying conditional covariances.     

Does Fair Value Accounting Exacerbate the Procyclicality of Bank Lending?

This study investigates whether fair value accounting contributes to the procyclicality of bank lending. Using banks’ approval/denial decisions on residential mortgage applications to capture banks’ supply of credit, I find no evidence that fair value accounting has procyclical effects on bank lending over the past two business cycles. I further identify two reasons for this result. First, the main accounting item distinguishing fair value accounting from historical cost accounting—unrealized gains and losses on available‐for‐sale securities—does not affect lending decisions. Second, unrealized gains and losses on available‐for‐sale securities are not procyclical, as the risk‐free interest rate rises during some expansionary periods, resulting in unrealized losses, while the risk‐free interest rate (and sometimes the default spread) falls during some recessionary periods, resulting in unrealized gains.