Credible discovery,settlement, and negative expected value suits

We introduce discovery into a model of settlement and negative expected value (NEV) suits under asymmetric information. The option to conduct discovery has several important effects. First, because discovery is cheaper than litigation, it reduces the defendant's incentive to settle under asymmetric information. Second, discovery must be credible. Because discovery is more valuable the greater the uncertainty it resolves, this introduces a credibility constraint on pre‐discovery settlement offers. This can further reduce the probability and size of a defendant's pre‐discovery settlement offer. Lastly, discovery reduces the ability of NEV plaintiffs to use asymmetric information to extract significant settlements from defendants.     

Price Discovery and Trading After Hours

We examine the effects of trading after hours on the amountand timing of price discovery over the 24-hour day. A high volumeof liquidity trade facilitates price discovery. Thus pricesare more efficient and more information is revealed per hourduring the trading day than after hours. However, the low tradingvolume after hours generates significant, albeit inefficient,price discovery. Individual trades contain more informationafter hours than during the day. Because information asymmetrydeclines over the day, price changes are larger, reflect moreprivate information, and are less noisy before the open thanafter the close.     

A comparison of trading and non-trading mechanisms for price discovery

This paper compares trading and non-trading mechanisms for price discovery during the Nasdaq pre-open and examines whether prices discovered though non-trading mechanisms are less efficient or reveal less information than prices discovered through trading. As Nasdaq pre-open trading volume increased, the opening price became more efficient and price discovery shifted from the opening trade to the pre-open. Price discovery shifted from the trading day to the pre-open only for the highest-volume stocks. These results suggest that pre-open trading contributes to the efficiency of the opening price, but that a critical threshold of trading volume is required to increase the amount of information in the opening price.     

Stock and option market divergence in the presence of noisy information

We examine market behavior of the stock and option markets upon the arrival of noisy information in the form of CNBC’s Mad Money recommendations. If stock and option markets are not equally efficient, they should respond differently to noisy information, with the less efficient market more susceptible to noise. We find that the stock market is less efficient than the option market. The abnormal difference between option-implied and actual stock returns is negative and significant upon exposure to noisy information. This difference may yield an economically significant monthly trading profit of up to 5%. We conclude that the stock market is more susceptible to noisy information than the option market and is therefore less efficient.     

Automation, speed, and stock market quality: The NYSE's Hybrid

Automation and trading speed are increasingly important aspects of competition among financial markets. Yet we know little about how changing a market's automation and speed affects the cost of immediacy and price discovery, two key dimensions of market quality. At the end of 2006 the New York Stock Exchange introduced its Hybrid Market, increasing automation and reducing the execution time for market orders from 10 seconds to less than one second. We find that the change raises the cost of immediacy (bid-ask spreads) because of increased adverse selection and reduces the noise in prices, making prices more efficient.     

Proprietary costs and sealing documents in patent litigation

We study whether the sealing of a defendant’s judicial records during a patent lawsuit filing correlates with the defendant’s level of competition and disclosure. Courts permit sealing of judicial records when competitive damage outweighs the public interest in access to documents and records. We find that defendants with sealed judicial records have higher research and development (R&D), lower industry sales concentration, and more references to competition in their annual reports than defendants without sealed judicial records. We observe faster mean reversion of return on net operating assets when courts seal defendant records. The results suggest that sealing relates to archival measures of competition. Finally, consistent with proprietary costs restraining disclosure, we find that defendants with sealed judicial records are less likely to issue management forecasts, file 8-Ks less frequently, and have longer and less readable 10-Ks.     

Price discovery in tick time

This paper develops a tick time model for the quote setting dynamics on Nasdaq. The model decomposes quotes into an efficient price, asymmetric information and noise. Both the evolution of the efficient price and the information contents of quotes depend on quote durations. New measures for the contribution to price discovery are defined within this model. When aggregated to fixed calendar time intervals, they relate closely to Hasbrouck [Hasbrouck, Joel, 1995, One security, many markets: determining the contribution to price discovery, Journal of Finance 50, 1175–1199] information shares. Empirical results for 20 Nasdaq stocks indicate that ECNs, in particular Island, contribute most to price discovery for active stocks. For less active stocks, wholesale market makers contribute most.     

Firm growth and efficiency in the banking industry: A new test of the efficient structure hypothesis

In this paper we propose a new test of the efficient structure (ES) hypothesis, which predicts that efficient firms come out ahead in competition and grow as a result. Our test has significant advantages over existing ones, because it is more direct, and can jointly test the so-called quiet-life hypothesis, which predicts that in a concentrated market firms do not minimize costs. We then apply this test to large banks in Japan. Consistent with the ES hypothesis, we find that more efficient banks become larger. We also find that market concentration reduces banks’ efficiency, which supports the quiet-life hypothesis. These findings imply that there is an intriguing growth–efficiency dynamic throughout banks’ life cycle, although our findings also suggest that the ES hypothesis dominates the quiet-life hypothesis in terms of economic impact.     

Time-varying evidence of efficiency,decoupling, and diversification of conventional and Islamic stocks

This study investigates the efficiency of conventional and Islamic stock markets and their diversification potential by using multifractal de-trended fluctuation analysis (MF-DFA), wavelet squared coherence (WTC) and wavelet Value-at-Risk (VaR). Evidence from regional and country-level markets indicates Islamic stocks are less efficient than conventional ones in the short term, however more efficient in the medium term. Conventional stocks in the UK, Japan, and emerging markets are more efficient than the Islamic ones in the long term, whereas those from the US and Europe are less efficient. The wavelet VaR shows that conventional stock markets are at least as risky as the Islamic ones.     

The Stock Price-Volume Linkage on the Toronto Stock Exchange: Before and After Automation

This paper investigates the information content of trading volume on the Toronto Stock Exchange before and after the move towards fully electronic trading. It is argued that if price discovery improves under electronic trading, the predictive power of volume should be less significant. The empirical analysis supports more accurate price discovery under electronic trading. Results from both the structural and vector autoregression models indicate that the predictive power of volume for price variability disappears after full automation.     

Price discovery of cross-listed firms

This paper examines the contribution of cross-listing to price discovery for a unique and comprehensive sample of firms listed abroad. Using an extended measure of the common factor weight, we find that foreign market contribution to price discovery is more important for multiple-listed firms compared to cross-listed ones. Our results also show that US exchanges are more conductive to price discovery than do foreign European markets. On a univariate regression, we find new evidence that order driven markets and those which are more integrated with the world contribute significantly to price discovery of stocks listed abroad. On a multivariate regression, information asymmetry measures seem to have the most important effect on foreign market contribution to price determination.     

Optimal public funding for research: a theoretical analysis

This article studies how a government should distribute funds among research institutions and how it should allocate them to basic and applied research. Institutions differ in reputation and efficiency and have an information advantage. The government should award funding for basic research to induce the most productive institutions to carry out more applied research than they would like. Institutions with better reputation a do more research than otherwise identical ones, and applied research is inefficiently concentrated in the most efficient high‐reputation institutions. The article provides theoretical support for a dual‐channel funding mechanism but not for full economic costing.     

Secrecy versus patenting

We develop an equilibrium search model of innovation with the possibility of multiple independent discovery. We distinguish innovations from ideas, and we view patents as probabilistic property rights that are constrained by the innovators' option to keep the innovation secret. We find that the patent system can simultaneously stimulate innovation, information disclosure and welfare. An optimal patent may provide more or less protection than secrecy, and in many cases, it provides less, suggesting that its main function is information spreading rather than rewarding the costs of the innovative activity.     

Shareholder coordination and stock price informativeness

We show that firm‐specific information is more likely to be incorporated into stock prices when firms have stronger shareholder coordination. The premise of our work is that geographic proximity reduces communication costs among shareholders, thereby leading to better coordination. The positive coordination‐informativeness relation is driven mainly by shareholder coordination among dedicated and independent institutions. We further show that the positive effect is more pronounced for firms with weaker governance mechanisms, suggesting that shareholder coordination could serve as a substitute conduit of price discovery. Lastly, we propose that shareholder coordination improves stock price informativeness through the channel of enhanced voluntary disclosure quality.     

The price discovery role of day traders in futures market: Evidence from different types of day traders

Using proprietary account-level transaction data in the futures market where day traders are self-declared ex ante, this study investigates whether day traders enhance price discovery at the market level. From a natural classification of day traders, we find that heterogeneous day traders have differential effects on price discovery. Self-declared day traders, who benefit from low margin requirement, do not improve price discovery measured by information share. In contrast, non-declared traders, who are not self-declared as day traders, improve price discovery. Their positive impacts on price discovery are particularly significant during periods of high volatility and arrival of new information. Overall, a margin stimulating policy may encourage more day trading, but may also attract overconfident investors, especially inexperienced ones, and who do not enhance price discovery.     

Price discovery on traded inflation expectations: does the financial crisis matter?

We analyze contributions of different markets, related by an approximate arbitrage relationship, to price discovery on traded inflation expectations and how it changed during the financial crisis. We use a new high-frequency data-set on inflation-indexed and nominal government bonds as well as inflation swaps to calculate information shares of break-even inflation rates in the euro area and the USA. In the euro area, for maturities up to 5 years new information comes from both the swap and the bond markets. For longer maturities, the swap market provides less and less information in the euro area. In the USA, the bond market dominates the price discovery process for all maturities. The severe financial crisis that spread out in Autumn 2008 drove a wedge between bond and swap break-even inflation rates in both currencies. Price discovery ceased to take place on the swap market. Disruptions coming from the short-end of the market even separated price formation on both segments for maturities of up to 6 years in the USA. Against the backdrop of the most severe financial crisis in decades, contributions to price formation concentrated a lot more on the presumably safest financial instrument: government bonds.     

Return Volatility,Trading Imbalance and the Information Content of Volume

In this paper, we examine the relationship between volume and return volatility using the transaction data. We introduce transaction and volume imbalance measures to capture the information content of trades. These two information measures are shown to have a strong explanatory power for return volatility and contain incremental information about the asset values over and above that conveyed by the size and frequency of trades. Also, return volatility is significantly correlated with the percentage of trading volume taking place at NYSE. This result suggests that NYSE trades are more informative and contribute more to price discovery. There is evidence that price discovery concentrates in more heavily traded stocks, particularly the Dow Jones Stocks. Finally, return volatility is found to be persistent at the intraday level. The persistence level is higher for less frequently traded stocks. Return volatility also exhibits temporal variations. In particular, return volatility is significantly higher in the opening half-hour for less frequently traded stocks. Thus, stocks with different frequencies of trades may follow different volatility processes.     

An empirical study of bank efficiency in China after WTO accession

This paper documents the technical efficiency of Chinese banks over 1999–2010. With stochastic frontier analysis, we find that Chinese banks are about 18% more efficient in generating lending assets than profits. We also observe an upward trend of bank efficiency after China's entry to WTO in 2001. The improvement of bank efficiency is most prominent for the largest banks with substantial state ownership. We also find that majority state-owned banks are least efficient; well capitalized banks are less efficient; bank efficiency decreases with bank size at the lower end, but banks gain efficiency and realize economies of scale when bank size grows large enough; more fee-generating business reduces efficiency; better management improves efficiency.     

Do foreigners facilitate information transmission in emerging markets?

Using the degree of accessibility of foreign investors to emerging stock markets, or investibility, as a proxy for the extent of foreign investments, we assess whether investibility has a significant influence on the diffusion of global market information across stocks in emerging markets. We show that greater investibility reduces price delay to global market information. We also find that returns of highly investible stocks lead those of noninvestible stocks because they incorporate global information more quickly. These results are consistent with the idea that financial liberalization in the form of greater investibility yields informationally more efficient stock prices in emerging markets.     

EVALUATING THE EFFICIENCY OF NONPROFIT ORGANIZATIONS: AN APPLICATION OF DATA ENVELOPMENT ANALYSIS TO THE PUBLIC HEALTH SERVICE

In this paper we have tried to evaluate the usefulness of the DEA model as a management tool when applied to the measurement of the efficiency of health centres. We have chosen the DEA model because it does not need prior specifications. This could be very useful when we lack data on costs. The overall evaluation of a number of health centres provides information on the distinctive features and comparative advantages of the most efficient ones. The information gathered could also be of great use in the selection of those centres in which operational audits should be carried out.