Adaptive Traders and the Design of Financial Markets

This paper studies a financial market populated by adaptive traders. Learning is modeled following Camerer and Ho (1999) . A call market and a Walrasian tatonnement are compared in an environment in which both institutions have the same Nash and competitive equilibrium outcomes. When traders learn via a belief‐based model, equilibrium is discovered in both types of markets. In contrast, when traders learn via a reinforcement‐based model, convergence to equilibrium is achieved in the Walrasian tatonnement but not in the call market. This paper suggests that market mechanisms can be designed to foster traders' learning of equilibrium strategies.     

A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets

We model a market populated by two groups of boundedly rational agents: "newswatchers" and "momentum traders." Each newswatcher observes some private information, but fails to extract other newswatchers' information from prices. If information diffuses gradually across the population, prices underreact in the short run. The underreaction means that the momentum traders can profit by trend-chasing. However, if they can only implement simple (i.e., univariate) strategies, their attempts at arbitrage must inevitably lead to overreaction at long horizons. In addition to providing a unified account of under- and overreactions, the model generates several other distinctive implications.     

Financial Markets Where Traders Neglect the Informational Content of Prices

We model a financial market where some traders of a risky asset do not fully appreciate what prices convey about others' private information. Markets comprising solely such “cursed” traders generate more trade than those comprising solely rationals. Because rationals arbitrage away distortions caused by cursed traders, mixed markets can generate even more trade. Per‐trader volume in cursed markets increases with market size; volume may instead disappear when traders infer others' information from prices, even when they dismiss it as noisier than their own. Making private information public raises rational and “dismissive” volume, but reduces cursed volume given moderate noninformational trading motives.     

A Simple Test of Momentum in Foreign Exchange Markets

This study proposes a new method for testing for the presence of momentum in nominal exchange rates, using a probabilistic approach. Using data for eight emerging economies, we show evidence of exchange rate inertia; however, the presence of momentum is asymmetric, being stronger in moments of currency depreciation than in moments of appreciation. This behavior may be associated with central bank intervention.     

Earnings Metrics,Information Processing,and Price Efficiency in Laboratory Markets

An enduring issue in financial reporting is whether and how salient summary measures of firm performance (“earnings metrics”) affect market price efficiency. In laboratory markets, we test the effects of salient earnings metrics, which vary in how they combine persistent and transitory elements, on investor information search, beliefs about value, offers to trade, and market price efficiency. We find that including transitory elements in salient earnings metrics causes traders to search unnecessarily for further information about these elements and to overestimate their effect on fundamental value relative to a rational benchmark. In contrast, separately displaying persistent elements in earnings increases the accuracy of traders’ value estimates. Prices generally reflect traders’ beliefs about value, and prices are most efficient when transitory elements are excluded from earnings metrics entirely. Our study contributes to research on salience effects in financial reporting by showing that including transitory elements in salient earnings metrics causes inefficient information search and biased beliefs about value that can aggregate to affect market prices. We also contribute to research in experimental markets by showing that redundant disclosure is not always beneficial; redundant disclosure of transitory earnings elements, in particular, appears to have negative consequences for investor behavior and market efficiency.     

基于牛市和熊市不同周期的股票市场动量效应研究

在参考国外研究方法的基础上,以周作为检验周期,将1997年6月至2001年6月的股市作为牛市,2001年6月至2005年6月的股市作为熊市,然后分别检验股市在这两个不同时期的动量效应.研究发现,赢家组合在牛市中存在着正的动量效应,输家组合在熊市中存在着负的动量效应.而牛市中的输家组合和熊市中的赢家组合都存在着价格的反转.     

欧洲股票市场的规模和动因:基于不同β系数的资本资产定价模型实证研究

我们选用在13个欧洲股市上市的证券,形成规模和动因组合.我们不仅发现规模溢价的证据,还发现8个样本市场存在重大动因收益率.这些收益率可能不构成异常现象,因为它们与不同β值的资本资产定价模型一致.我们还发现,系统风险与经济周期有关.此外,研究结果显示,虽然规模和动因收益率显著,但是难以在中、短期利用它们,因为在我们的样本...     

Time-Varying Arrival Rates of Informed and Uninformed Trades

We propose a dynamic econometric microstructure model of trading,and we investigate how the dynamics of trades and trade compositioninteract with the evolution of market liquidity, market depth,and order flow. We estimate a bivariate generalized autoregressiveintensity process for the arrival rates of informed and uninformedtrades for 16 actively traded stocks over 15 years of transactiondata. Our results show that both informed and uninformed tradesare highly persistent, but that the uninformed arrival forecastsrespond negatively to past forecasts of the informed intensity.Our estimation generates daily conditional arrival rates ofinformed and uninformed trades, which we use to construct forecastsof the probability of information-based trade (PIN). These forecastsare used in turn to forecast market liquidity as measured bybid-ask spreads and the price impact of orders. We observe thatPINs vary across assets and over time, and most importantlythat they are correlated across assets. Our analysis shows thatone principal component explains much of the daily variationin PINs and that this systemic liquidity factor may be importantfor asset pricing. We also find that PINs tend to rise beforeearnings announcement days and decline afterwards.     

基于残差收益的动量或反转效应:来自中国A股市场的经验证据

因不能有效反映股票盈利的相对强弱,基于总收益排序的动量或反转组合,通常包含大量高Be-ta值和小市值股票,承担着较大风险。为此,本文采用风险调整后的收益评价,即基于残差收益排序,考察中国A股市场月度数据的动量或反转效应,结果发现:在全样本阶段存在显著的残差反转效应,不存在残差动量效应,这在股权分置改革之后更明显;相对于总收益反转组合,残差反转组合不仅具有更高的显著收益和Sharpe比率,还具有较小的系统风险,并受公司规模因素影响较小。     

The Reversal of the Monday Effect: New Evidence from US Equity Markets

This article re-examines the Monday effect in the US stock market from 1964–1999 using daily returns from three large-cap indexes and two small-cap indexes. In the period before 1987, Monday returns are significantly negative in all five US stock indexes, confirming previous empirical findings. In the post-1987 period, we uncover a significant reversal of the Monday effect in the large-cap indexes (NYSE, S&38;P500 and DJCOMP), since Monday returns are significantly positive. Furthermore, significant differences in the persistence and reversal of the Monday effect are found between large-cap and small-cap stock indexes.     

Momentum,Reversals, and Fund Manager Overconfidence

This paper examines the role of investor overconfidence and self‐attribution bias in explaining the momentum effect. We develop a novel measure of overconfidence based on characteristics and trading patterns of US equity mutual fund managers. Stocks held by more overconfident managers experience greater momentum profits and stronger return reversals than stocks held by less overconfident managers. The difference in momentum profits is not compensation for risk nor is it attributable to stock characteristics that influence momentum. Our results are consistent with Daniel, Hirshleifer, and Subrahmanyam (1998) who argue that momentum results from delayed overreaction caused by overconfidence and biased self‐attribution.     

Momentum,contrarian, and the January seasonality

This paper reexamines the apparent success of two prominent stock trading strategies: long-term contrarian and intermediate-term momentum. The paper demonstrates that long-term contrarian is entirely attributable to the classic January size effect, rather than to investor overreaction, as argued by De Bondt and Thaler (1985). Further, the paper also resolves the Novy-Marx (2011) concern about whether return autocorrelation “is really momentum” by demonstrating that the superior performance of intermediate-term momentum is due to strong January seasonality in the cross-section of returns. The implications are that long-term contrarian must be considered largely illusory, and intermediate-term momentum must take account of annual seasonalities in returns.     

Volume, Volatility, Price, and Profit When All Traders Are Above Average

People are overconfident. Overconfidence affects financial markets. How depends on who in the market is overconfident and on how information is distributed. This paper examines markets in which price-taking traders, a strategic-trading insider, and risk-averse marketmakers are overconfident. Overconfidence increases expected trading volume, increases market depth, and decreases the expected utility of overconfident traders. Its effect on volatility and price quality depend on who is overconfident. Overconfident traders can cause markets to underreact to the information of rational traders. Markets also underreact to abstract, statistical, and highly relevant information, and they overreact to salient, anecdotal, and less relevant information.     

Momentum, Business Cycle, and Time-varying Expected Returns

A growing number of researchers argue that time-series patterns in returns are due to investor irrationality and thus can be translated into abnormal profits. Continuation of short-term returns or momentum is one such pattern that has defied any rational explanation and is at odds with market efficiency. This paper shows that profits to momentum strategies can be explained by a set of lagged macroeconomic variables and payoffs to momentum strategies disappear once stock returns are adjusted for their predictability based on these macroeconomic variables. Our results provide a possible role for time-varying expected returns as an explanation for momentum payoffs.     

Comment on Forward Markets,Stock Markets,and the Theory of the Firm

In a recent article, MacMinn [5] argues that the presence of forward markets eliminates the incentives of the firm's manager to choose production levels that maximize firm value. In this comment, we show that his results do not depend on the presence of forward markets. The critical assumptions are that the manager is endowed with money rather than stock in the firm and that there is no competitive labor market for managers. In addition, his results require time-inconsistent behavior on the part of the firm's manager.     

Law,Stock Markets,and Innovation

We study a broad sample of firms across 32 countries and find that strong shareholder protections and better access to stock market financing lead to substantially higher long‐run rates of R&D investment, particularly in small firms, but are unimportant for fixed capital investment. Credit market development has a modest impact on fixed investment but no impact on R&D. These findings connect law and stock markets with innovative activities key to economic growth, and show that legal rules and financial developments affecting the availability of external equity financing are particularly important for risky, intangible investments not easily financed with debt.     

公司治理结构、盈余管理动机与长期资产减值转回——来自我国上市公司的经验证据

本文在新《资产减值准则》的研究框架下,结合公司治理理论,对我国上市公司的公司治理特征、盈余管理动机与长期资产减值转回相互关系进行了实证分析。本文以2001年至2004年所有A股上市公司为样本,实证研究发现:(1)董事会和总经理两职合一、管理层薪酬外部竞争优势弱化、未设置独立审计委员会的公司越倾向于长期资产减值转回进行盈余管理;(2)具有扭亏动机、配股动机的公司越倾向进行长期资产减值转回,具有大清洗动机和利润平滑动机的公司越倾向长期资产减值不转回;(3)未来收益能力和经济环境不影响长期资产减值转回。文章还对政府经济管理部门、上市公司监管部门、上市公司利益相关者及上市公司管理层提出了建议。     

Macroeconomic Expectations and the Size,Value, and Momentum Factors

When examining the sources of risk associated with priced factors, the prior literature often uses macroeconomic realizations to proxy for changes in expectations. However, realizations can be biased, so instead we use changes in macroeconomic forecasts and macroeconomic news surprises. The sensitivity of common factors to macroeconomic risks is not robust, and generally economically and statistically insignificant. Sometimes the factors even hedge risk. Importantly, the weak relation between the factors and risks is not the result of low powered tests. These findings are inconsistent with the notion that the factors are priced because they proxy for the macroeconomic risks examined.     

Liquidity, Transaction Costs, and Reintermediation in Electronic Markets

Relationships between trading cost, technology, and the nature of intermediation in the trading services industry are discussed. Electronic markets are linked to reductions in trading costs. Lower explicit costs are related to system development and operating costs. Electronic order book information is identified as a means of realizing implicit cost savings. The concept of liquidity management in electronic environments is introduced, and its potential is empirically illustrated. The empirical results suggest new roles for brokerage and exchange operations, and competition between the two. Competitive advantage with respect to the provision of liquidity management services is compared across types of intermediaries.