Informed Options Trading Prior to Dividend Change Announcements

This paper investigates the information content of options trading prior to dividend change announcements. I find a positive (negative) relation between pre‐announcement abnormal implied volatility (IV) spread (abnormal IV skew) and cumulative abnormal stock returns around dividend change announcements. The predictive power of informed options trading is stronger for announcements of dividend reduction and when the options market is more liquid relative to the stock market and weaker when information has already been incorporated in the stock market. The predictability of informed options trading is robust to a placebo test and alternative measures of informed options trading. Overall results suggest that informed options trading predicts dividend change announcement returns.     

Individuals’ Trading Prior to Earnings Announcements

This paper investigates the relationship between individuals’ net trading and stock price movements before and after annual earnings announcements for the Taiwan Stock Exchange. We conduct an event study on the effects of pre‐event individual trade imbalances on pre‐ and post‐announcement abnormal returns. With a unique and comprehensive dataset, we accurately classify executed orders by aggressiveness of order price. The evidence indicates that while individuals, as a group, are not informed about impending earnings announcements, individuals who place aggressive orders are informed as their net trading coincides with contemporaneous and future stock returns. Aggressive individuals lose their edge during the financial crisis. More importantly, the advantage (disadvantage) for individuals who adopt aggressive (passive) orders weakens when foreign institutions own concentrated equity in firms. We also find that net individual trading contains information about abnormal returns that either past returns or volume does not subsume. Controlling for past returns, trading volume and volatility, or using an alternative measure of net individual trading does not change our conclusions.     

Informed Trading Around Earnings Announcements: Another Look

This study is an empirical test of the Easley, O'Hara, and Srinivas (1998) multimarket sequential trade model of stock and option markets. We employ two approaches to determine the information content of signed stock and option trades executed around quarterly earnings announcements. The first approach expands the vector autoregression (VAR) technique of Hasbrouck (1991a) to include signed option trade volumes and inter‐trade durations. Estimates from the VAR models provide insight into whether both equity and option trades are viewed as informative by the equity specialist. The second approach focuses on the information content of the earnings releases to determine whether signed equity and option trades executed prior to the announcements are informed. Results indicate that although informed traders prefer to transact in both markets around earnings announcements, option market transactions contain no incremental information.     

Short-Selling Prior to Earnings Announcements

This paper examines short‐sales transactions in the five days prior to earnings announcements of 913 Nasdaq‐listed firms. The tests provide evidence of informed trading in pre‐announcement short‐selling because they reveal that abnormal short‐selling is significantly linked to post‐announcement stock returns. Also, the tests indicate that short‐sellers typically are more active in stocks with low book‐to‐market valuations or low SUEs. The levels of pre‐announcement short‐selling, however, mostly appear to reflect firm‐specific information rather than these fundamental financial characteristics. We believe that these results should encourage financial market regulators to consider providing more extensive and timely disclosures of short‐selling to investors.     

Asymmetric Trading Costs Prior to Earnings Announcements: Implications for Price Discovery and Returns

We show that the cost of trading on negative news, relative to positive news, increases before earnings announcements. Our evidence suggests that this asymmetry is due to financial intermediaries reducing their exposure to announcement risks by providing liquidity asymmetrically. This asymmetry creates a predictable upward bias in prices that increases preannouncement, and subsequently reverses, confounding short‐window announcement returns as measures of earnings news and risk premia. These findings provide an alternative explanation for asymmetric return reactions to firms' earnings news, and help explain puzzling prior evidence that announcement risk premia precede the actual announcements. Our study informs methods for research centering on earnings announcements and offers a possible explanation for patterns in returns around anticipated periods of heightened inventory risks, including alternative firm‐level, industry‐level, and macroeconomic information events.     

在企业债市场推行做市商制度的探讨

推行做市商制度对投资者、券商、交易所和监管部门等市场主体将产生较大影响.我国推行做市商制度应解决法律制度约束、市场结构、监管能力和微观主体素质和实力等问题.可考虑选择某些特殊交易品种(如上市企业债券)推行做市商制度,同时应进行制度、规则、金融衍生产品开发、交易结算系统改造和监管等一系列准备工作.     

Management Earnings Forecasts,Earnings Announcements,and Institutional Trading in China

Abstract:

In this study, we investigate the trading behavior of institutional investors in China according to management earnings forecasts (MEFs) and earnings announcements (EAs). MEFs are mandatory under the stringent regulatory framework in China. We find evidence that both MEFs and EAs have an effect on the market. However, MEFs have a bigger effect on the market than do EAs. According to a sample of semiannual observations of firms from 2003 to 2008, we find that changes in the stock ownership of institutions are positively associated with EAs but not significantly associated with MEFs. When we further examine the relations between institutional characteristics and trading strategies, we find that growth funds exploit the arbitrage opportunity of MEFs.     

Earnings Volatility, Cash Flow Volatility, and Informed Trading

I examine whether earnings that are smoother or more volatile than cash flows provide or garble information. Consistent with theories that predict more informed trading when public information is less informative, I find that bid-ask spreads and the probability of informed trading are higher both when earnings are smoother than cash flows and also when earnings are more volatile than cash flows. Additional tests suggest that managers' discretionary choices that lead to smoother or more volatile earnings than cash flows garble information, on average. However, I find that informed trading is attenuated in settings in which theory suggests that discretionary smoothing or volatizing of earnings is likely to be informative.     

Insider Trading after Repurchase Tender Offer Announcements: Timing versus Informed Trading

Abnormally high net insider selling is commonly observed after repurchase tender offer (RTO) announcements although, on average, firms experience positive abnormal returns in the years after the repurchases. We explore two potential explanations: liquidity trade timing and informed trading. Consistent with the notion that fixed price RTOs are more likely than Dutch-auction RTOs to signal undervaluation, the results suggest that insider selling after fixed price RTO announcements are driven largely by insiders who time their trades with the repurchase announcements. In contrast, selling after Dutch-auction RTOs seems to be driven primarily by informed traders who exploit mispricing associated with the repurchase announcements.     

Individual Investor Trading and Return Patterns around Earnings Announcements

This paper provides evidence of informed trading by individual investors around earnings announcements using a unique data set of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose abnormal returns following the event into information and liquidity provision components, and show that about half of the returns can be attributed to private information. We also find that individuals trade in both return‐contrarian and news‐contrarian manners after earnings announcements. The latter behavior has the potential to slow the adjustment of prices to earnings news.     

Daily Closing Inside Spreads and Trading Volumes Around Earnings Announcements

This paper examines the determinants of inside spreads and their behaviour around corporate earning announcement dates, for a sample of UK firms over the period 1986–94. The paper finds that closing daily inside spreads are affected by order processing costs (proxied by trading volumes), inventory control costs (trading volumes and return variability) and asymmetric information (unusually high trading volumes). Inside spreads start to narrow 15 days before an earnings announcement, and narrow further by the end of the announcement day. We also identify a puzzling phenomenon. There is only a 'sluggish' recovery of spreads after the announcement: inside spreads continue to remain at relatively narrow levels, and take up to 90 days to recover to their pre–announcement width.     

Informed Trading Intensity

We train a machine learning method on a class of informed trades to develop a new measure of informed trading, informed trading intensity (ITI). ITI increases before earnings, mergers and acquisitions, and news announcements, and has implications for return reversal and asset pricing. ITI is effective because it captures nonlinearities and interactions between informed trading, volume, and volatility. This data-driven approach can shed light on the economics of informed trading, including impatient informed trading, commonality in informed trading, and models of informed trading. Overall, learning from informed trading data can generate an effective informed trading measure.     

Does Shareholder Composition Matter? Evidence from the Market Reaction to Corporate Earnings Announcements

We examine whether institutional ownership composition is related to parameters of the market reaction to negative earnings announcements. When firms report earnings below analysts' expectations, the stock price response is more negative for firms with higher levels of ownership by momentum or aggressive growth investors. There is no evidence, however, that these institutions cause an “overreaction” to earnings news. Ownership structure is also related to trading volume and to stock price volatility on days around earnings announcements. Our findings are consistent with the idea that the composition of institutional shareholders effects stock price behavior around the release of corporate information.     

Relation Between Predisclosure Information Asymmetry and Trading Volume Reaction Around Quarterly Earnings Announcements

This study investigates the effects of differences in predisclosure information asymmetry on trading volume reaction during quarterly earnings announcements. The analyses show that trading volume reaction to quarterly earnings announcements is positively related to the level of predisclosure information asymmetry and to the magnitude of the price reaction to the announcements. These results are consistent with Kim and Verrecchia's (1991a) theoretical trading volume proposition, and with Atiase and Bamber's (1994) tests of the proposition based on annual earnings announcements. This study also provides evidence on the relation of predisclosure information asymmetry and trading volume before and after quarterly earnings announcements.     

Aggregate Market Reaction to Earnings Announcements

This analysis identifies a distinct immediate announcement period negative relation between earnings announcement surprises and aggregate market returns. Such a relation implies that market participants use earnings information in forming expectations about expected aggregate discount rates and, specifically, that good earnings news is associated with a positive shock to required returns. Consistent with this interpretation we find that Treasury bond rates and implied future inflation expectations respond directly to earnings news. We also find some evidence that the negative relation between earnings news and market return persists beyond the immediate announcement period, suggesting that market participants do not immediately fully impound these future market return implications of aggregate earnings news.     

发展企业债券市场的若干问题探讨

在我国发展非政府债券市场问题上，目前存在一个争论：我国是发展企业债券还是公司债券?一是因为在发达资本市场国家发行的是公司债券，而我国自20世纪80年代中期发展资本市场以来发行的都是企业债券；二是就我国有关法律法规而言，《公司法》和《企业债券管理条例》分别……     

How Informed Are Actively Trading Institutional Investors? Evidence from Their Trading Behavior before a Break in a String of Consecutive Earnings Increases

We examine whether transient institutional investors (i.e., institutions that trade actively to maximize short‐term profits) have information that allows them to predict a break in a string of consecutive quarterly earnings increases and thereby avoid the economically significant negative stock price response associated with the break announcement. We show that transient institutions predict the break at least one quarter in advance of the break quarter. We also provide evidence that is consistent with transient institutions obtaining information regarding the impending break from private communications with management.     

知情交易概率测算在内幕交易监管中的应用

内幕交易定义侧重信息分布状态,知情交易定义侧重信息认知状态,在立法和监管层面,内幕交易包含知情交易的内涵。信息优势是内幕交易监管困境的根源所在,知情交易概率模型从是否拥有信息的两种不同交易行为模式出发．有助于判断潜在的内幕交易行为,根据选取时间段变量、事件变量和财务指标变量的不同,为内幕交易监管选取重点目标提供参考。在监管实务操作中。强化信息核心、改革收盘机制、主张模糊界定等是必要的手段。     

Hedging Corporate Bonds

We examine Treasury bond and stock index futures, the swap curve and two types of hypothetical corporate bond assets as alternative hedging instruments for portfolios of corporate bonds. Conducting ex post and ex ante tests we find evidence that credit quality and maturity are important sources of basis risk when hedging corporate bonds whose credit rating are below triple A. We conclude that a new corporate hedging instrument may be useful for those wishing to hedge corporate bond portfolios provided that transaction costs are not too high relative to existing futures contracts.