The immediate price impact of trades on the Australian Stock Exchange

We study the immediate price impact of a single trade executed in the Australian Stock Exchange (ASX). By ordering the top 300 stocks on the ASX in order of their free float market capitalization, a clear pattern emerges, with higher cap stocks experiencing lower price impact than lower cap stocks for the same traded volume. We investigate this relationship in detail, and show that the price impact and liquidity scale as a power of the market capitalization. This relationship is used to obtain a single market impact curve which shows average price shift as a function of volume traded. We obtain similar results for every year from 2001 to 2004.     

Active investment manager portfolios and preferences for stock characteristics

The present study investigates the stock characteristic preferences of institutional Australian equity managers. In aggregate we find that active managers exhibit preferences for stocks exhibiting high‐price variance, large market capitalization, low transaction costs, value‐oriented characteristics, greater levels of analyst coverage and lower variability in analyst earnings forecasts. We observe stronger preferences for higher volatility, value stocks and wider analyst coverage among smaller stocks. We also find that smaller investment managers prefer securities with higher market capitalization and analyst coverage (including low variation in the forecasts of these analysts). We also document that industry effects play an important role in portfolio construction.     

Multiple duration analyses of dynamic limit order placement strategies and aggressiveness in a low-latency market environment

This study examines dynamic order placement strategies in a low-latency environment together with limit orders' aggressiveness by a new approach which utilises survival analysis with a multiple-spell duration model. Two samples are considered, including the period immediately followed Australian Securities Exchange (ASX)’s migration to Integrated Trading System (ITS) and the period subsequent to the launch of ASX Trade. We find the evidence supporting both the ‘cost of immediacy hypothesis' and the ‘chasing hypothesis' as in Hasbrouck and Saar (2009). Furthermore, several distinctions in the results are found between the samples of ITS period and ASX Trade period as well as between the samples of small-cap stocks and large-cap stocks. The findings of this study are beneficial not only for high-frequency traders in forming dynamic order placement strategies in a low-latency stock market environment, but also for market regulators in helping their attempt to improve regulations for stock exchanges.     

Stock exchange demutualization,self-listing and performance: The case of the Australian Stock Exchange

This paper examines the effects of the recent spate of financial exchange mutual-to-stock conversion phenomenon on the performance of listed exchanges and the quality of the stock market using the Australian Stock Exchange (ASX) as a case study. We find that the ASX stock significantly outperformed the stock index and the control group on a market-adjusted return basis. The stock market performance is driven by strong operating performance. The profitability ratios of the ASX have significantly improved in the five years following the demutualization and self-listing. The performance improvements remain significant even after controlling for growth in the Australian economy. From a market quality perspective, we document evidence of increased trading activity by foreign investors after ASX’s demutualization and self-listing. Interestingly, we also find that bid-ask spreads of the stock market have narrowed in the post-conversion period. In particular, small-cap firms have become more liquid. The results show that stock exchange conversion from mutual to publicly traded exchange is not only value enhancing for the exchange and its shareholders, but it is also beneficial for the stock market as a whole.     

Accounting conservatism and voluntary corporate governance mechanisms by Australian firms

This study examines the relationship between voluntary adoption of selected corporate governance mechanisms and accounting conservatism for a sample of firms listed on the Australian Securities Exchange (ASX) over the 11‐year period prior to the promulgation of the ASX Corporate Governance Council Good Governance Principles and Best Practice Recommendations in 2003. Using four accounting and market‐based accounting conservatism measures, our results provide evidence of both conditional and unconditional conservatism in accounting reporting for Australian firms. We find that voluntary audit committee formation, increasing board independence and decreasing board size are positively associated with unconditional accounting conservatism and negatively related to the degree of conditional conservatism. Our results support the contention that firms voluntarily adopting perceived best practice corporate governance mechanisms employ unconditional accounting conservatism as a complimentary agency control device and are consistent with the observed negative association between the unconditional and conditional forms of accounting conservatism practice.     

Commonality in liquidity: Evidence from the Australian Stock Exchange

Several studies have reported strong evidence of commonality in liquidity in US markets. The present study uses the research design of Chordia et al. (2000) to examine commonality in liquidity for a broad sample of stocks listed on the Australian Stock Exchange (ASX). In contrast to previous research, there is some evidence of market‐wide commonality in liquidity for ASX stocks, but it is less significant and less pervasive than that observed in other markets. These results are consistent with explanations based on differences in market structure between the USA and Australia.     

Does good corporate governance reduce information asymmetry around quarterly earnings announcements?

We examine the relationship between the quality of corporate governance and information asymmetry in the equity market around quarterly earnings announcements. We use the change in market liquidity (i.e., bid–ask spreads and depths) around the announcements as a proxy for information asymmetry. We use principal components analysis to identify three factors, board independence, board structure and board activity, that capture the information in the eight individual corporate governance variables we examine. We then use ordinary least squares and two-stage least squares to estimate the relations between market liquidity changes and the following four explanatory variables: directors’ and officers’ percentage stock holdings, board independence, board structure, and board activity. Our results indicate that changes in bid–ask spreads at the time of earnings announcements are significantly negatively related to board independence, board activity, and the percentage stock holdings of directors and officers. We also find that depth changes are significantly positively related to board structure, board activity, and directors’ and officers’ percentage stock holdings. Our results are consistent with the hypothesis that firms with higher levels of corporate governance have lower information asymmetry around quarterly earnings announcements.     

It’s who you know that counts: Board connectedness and CSR performance

We examine whether and how board connections affect the firm's corporate social responsibilities (CSR). Grounded in the agency, resource dependence, and social network theory, our research predicts and finds that board connectedness is positively associated with CSR performance. This result is robust to a quasi-natural experiment, alternative measurement specifications, and an instrumental variable approach. Our findings suggest firms that operate in a complex business environment or require more advising (i.e. where demand for information is greater) benefit more from a well-networked board. Also, firms that are poorly governed, have high stock return volatility, low market capitalization, or low institutional ownership tend to benefit more from the well-connected board when the cost of acquiring information is higher. In addition, we show that independent directors’ abilities to gather information and resources from their networks can facilitate the transmission of information. Collectively, our study documents the informational advantage of a network as the predominant channel that allows a well-connected board to improve a firm’s CSR performance.     

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.     

Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards

Financial press reports claim that Internet stock message boards can move markets. We study the effect of more than 1.5 million messages posted on Yahoo! Finance and Raging Bull about the 45 companies in the Dow Jones Industrial Average and the Dow Jones Internet Index. Bullishness is measured using computational linguistics methods. Wall Street Journal news stories are used as controls. We find that stock messages help predict market volatility. Their effect on stock returns is statistically significant but economically small. Consistent with Harris and Raviv (1993) , disagreement among the posted messages is associated with increased trading volume.     

SMALL FIRM AND VALUE EFFECTS IN THE CANADIAN STOCK MARKET

We examine the relation among average returns, market beta, firm size, and book-to-market value for Canadian stocks during 1975–92. We document a negative relation between average return and the market capitalization of firms, but find no relation between average return and market beta. While the small firm effect is significant during a period of reduced capital gains tax, it is noticeably lower than during the period leading up to the change. We find that average returns are positively related to book-to-market value especially during the period of lower capital gains tax.     

Economic policy uncertainty and stock price crash risk

We examine the impact of economic policy uncertainty (EPU) on firm-specific crash risk. Based on a large sample of Chinese listed firms over the period from 2000 to 2017, we provide empirical evidence that firms are more likely to experience stock price crashes when EPU increases. Cross-sectionally analysis further reveals that the impact of EPU on stock price crash risk is stronger for firms whose returns are more sensitive to EPU. More specifically, young stocks, small stocks, high volatility stocks, and growth stocks, which have higher valuation uncertainty per se, are more sensitive to EPU and are more affected by EPU in terms of crash risk. We further show that EPU is significantly and positively associated with aggregated stock price crash risk at the market level.     

Revealed stock preferences of individual investors: Evidence from Chinese equity markets

We examine the stock preferences of Chinese individual investors as revealed by their executed trades. Results show that their stock preferences vary with wealth levels. Wealthier individuals prefer stocks with high liquidity and volatility, greater state-ownership, high growth potential, and strong past performance. Less wealthy individuals, however, prefer stocks with high beta, high liquidity, poor past performance, low price, and small capitalization. Overall, the investment choices of Chinese individual investors do not necessarily suggest only behavioral biases as existing studies might have implied, but instead, they reveal to some extent the rational investing behavior of Chinese individual investors.     

Are Individual Investors Influenced by the Optimism and Credibility of Stock Spam Recommendations?

This study examines attention‐driven investment decisions using a sample of firms essentially unknown to investors prior to becoming the target of a stock spam campaign. We show that the market reaction to spam varies predictably with the content of the spam message. Spam date returns and volume are significantly higher for stocks targeted by spam emails containing optimistic target price projections bundled with ostensibly credible information quoted from a previously issued company press release. There is also some evidence that disclaimers in spam messages reduce, but do not eliminate, the market response. Attention effects also contribute to spammers’ selection of stocks to target and to spam‐related enforcement actions by the Securities and Exchange Commission.     

Female directors on the board and cost of debt: evidence from Australia

We examine whether the presence of female board members has any impact on the cost of debt among Australian listed companies. We find that female presence on the board is negatively associated with the cost of debt. Most importantly, our findings support the argument of critical mass theory that a certain threshold of gender balance is required for enhancing board effectiveness. Our results are valid irrespective of alternate model specifications and endogeneity issues. Overall, the results provide support to the ASX Corporate Governance Principles and Recommendation for the appointment of female directors on corporate boards.     

The information content of stock split announcements: Do options matter?

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.     

The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms

This paper examines the determinants of thinly capitalized structures of publicly-listed Australian firms. Based on a hand-collected sample of 203 publicly-listed Australian firms over the 2006–2009 period (812 firm-years), our regression results indicate that the thin capitalization position of firms is significantly and positively associated with multinationality, tax haven utilization, withholding taxes and tax uncertainty. Multinationality and the use of tax havens are, in particular, strongly associated with thin capitalization. Our additional regression results provide evidence that shows that corporate governance monitoring mechanisms relating to board of director independence, institutional ownership and big-4 auditor utilization are significantly negatively associated with firms adopting thinly capitalized tax avoidance structures.     

The cross-section of stock returns in an early stock market

Using a new dataset which contains monthly data on 1015 stocks traded on the London Stock Exchange between 1825 and 1870, we investigate the cross section of stock returns in this early capital market. Unique features of this market allow us to evaluate the veracity of several popular explanations of asset pricing behavior. Using portfolio analysis and Fama–MacBeth regressions, we find that stock characteristics such as beta, illiquidity, dividend yield, and past-year return performance are all positively correlated with stock returns. However, market capitalization and past-three-year return performance have no significant correlation with stock returns.     

The impact of mandatory IFRS reporting on institutional trading costs: Evidence from Australia

This study examines the impact of mandatory International Financial Reporting Standards (IFRS) on the market quality of the Australian Securities Exchange (ASX) 200 constituent stocks. Using traditional metrics that are consistent with prior literature (i.e., bid‐ask spreads), the first stage analysis confirms that stock liquidity has improved. However, when the analysis is extended to consider the trading costs incurred by market participants (i.e., execution shortfall), results suggest liquidity has not changed significantly. The paper utilizes rich unique datasets that contain detailed trade information, and findings are robust after controlling for trade difficulty and market conditions. In the era of High Frequency Trading (HFT) and occurrences of ‘fleeting’ liquidity, this paper provides some evidence that while IFRS may have enhanced ‘visible’ bid‐ask spreads, tangible liquidity for market participants, particularly global institutional investors, has not improved significantly.