TRADING OF NASDAQ STOCKS ON THE CHICAGO STOCK EXCHANGE

We use a linear programming model to form two portfolios with approximately equal levels of attributes such as financial leverage. One portfolio comprises stocks that trade exclusively on NASDAQ and the other, stocks that trade on both the Chicago Stock Exchange (CSE) and NASDAQ (CSE/NASDAQ). We find that spreads are lower for the CSE/NASDAQ portfolio, but so is the percentage of quotes at spreads of $0.125. In fact, the lower spreads observed for the CSE/NASDAQ portfolio arise from fewer quotes with spreads of more than $0.25.     

INVESTMENT PERFORMANCE OF COMMON STOCKS IN RELATION TO INSIDER OWNERSHIP

In this paper, the authors empirically examine whether corporations with high degrees of insider ownership enjoy superior returns compared with firms with more diffuse ownership. In addition, the authors evaluate the effects of insider ownership on security returns in relations to the well-known effects of size and earnings yield (or price-earnings) ratios. Results indicate that, in addition to Basu's price-earnings effect, insider ownership is a new statistically significant variable that is associated with abnormal returns. This return anomaly might occur because the market pays an inadequate price for top managements' equity ownership, a firm-specific fundamental variable that has a theoretical foundation in agency theory.     

FURTHER EVIDENCE ON INSIDER TRADING AND THE MERITS OF SECURITIES CLASS ACTIONS

To provide further evidence on the merits of securities class actions, we examine insider transactions immediately before and during the class period, using a larger and newer data set. We show that insiders reduce their stock sales by an abnormal amount immediately before the class period. Alternative measures of insider transactions and analysis of data before the enactment of the Private Securities Litigation Reform Act of 1995 provide consistent results. These new findings indicate that class actions, on average, have merit. Our data also reestablish a previous empirical result that there is no abnormal selling during the class period.     

EXCHANGE LISTINGS AND DELISTINGS: THE ROLE OF INSIDER INFORMATION AND INSIDER TRADING

We examine whether insiders systematically exploit their private information before exchange listings and delistings they are likely to know about before outsiders/investors. Analyzing a comprehensive sample of over-the-counter (OTC) firms, which listed on the New York Stock Exchange (NYSE) or American Stock Exchange (AMEX) during 1977–93, we find evidence that insiders act on their private information of an impending exchange listing by purchasing or postponing the sale of stock on private account. For firms delisting from the NYSE or AMEX, we find that insiders of these firms sell stock on private account before delisting. Overall, the evidence indicates that insiders act on their private information before exchange listings and delistings.     

THE ECONOMIC GAINS OF TRADING STOCKS AROUND HOLIDAYS

I assess the economic gains of strategies that account for the effect of holiday calendar effects on the daily returns and volatility of the 30 stocks in the Dow Jones Industrial Average index. The dynamic strategies use forecasts from stochastic volatility models that distinguish between regular trading days and different types of holidays. More important, I assess the economic value of conditioning on holiday effects and find that a risk-averse investor will pay a high performance fee to switch from a dynamic portfolio strategy that does not account for the effect of holidays on daily conditional expected returns and volatility to a strategy that does. This result is robust to reasonable transaction costs.     

THE EFFECTS OF THE INSIDER TRADING SANCTIONS ACT OF 1984: THE CASE OF SEASONED EQUITY OFFERINGS

Previous empirical research indicates that corporate insiders tend to increase (decrease) their shareholdings before events that increase (decrease) firm value. More recent evidence suggests, however, that passage of the Insider Trading Sanctions Act of 1984 (ITSA) may have deterred this behavior. Our results indicate that before passage of the ITSA, insiders exploited their access to nonpublic information by selling shares before the announcement of equity issues. However, after passage of the ITSA insiders no longer displayed this behavior. We conclude the ITSA has a deterrent effect, which is more heavily concentrated on insiders at the highest level of the firm who are most visible to regulators and other market participants.     

INSIDER TRADING: THE CASE AGAINST THE "VICTIMLESS CRIME" HYPOTHESIS

This paper challenges the long held hypothesis that insider trading is a victimless crime. Using utility maximization analysis, the author examines both the good news and bad news cases. Injury is demonstrated. Separability of the insider's trade from the insider's information monopoly is also examined utilizing the generally accepted market structure analysis. Separability is rejected.     

INSIDER TRADING,REGULATION, AND THE COMPONENTS OF THE BID–ASK SPREAD

In this article we investigate the relation between insider trading regulations and the bid–ask spread. We decompose the spread into its components before and after the enactment of strict new insider trading rules in New Zealand. We find that the enactment led to a significant decrease in the information asymmetry component of the spread, which is observed mainly in illiquid and high prechange information asymmetry companies. These findings are robust to model specification. In addition, we find a decrease in the contribution of information asymmetry to price volatility.     

DEALER BID-ASK SPREADS AND OPTIONS TRADING ON OVER-THE-COUNTER STOCKS

In this study the impact of option listings on bid-ask spreads for over-the-counter stocks is examined. Option listings are hypothesized to impact spreads by affecting the inventory-holding cost and/or the informed risk component of spreads. Univariate tests reveal that the commencement of options trading is accompanied by a statistically significant decline in percentage spreads. In addition, it is found that there is a significant rise in the average daily stock trading volume in the post-option-listing period, while there is no significant change in variance of the underlying stock returns in the short term. Regression results indicate that some stocks experience a decline in spreads even after controlling for changes in inventory-holding costs. The univariate and regression results taken in conjunction indicate a favorable impact of option listings on both the inventory-holding cost and informed-trading risk components of spread determinants. The combined evidence suggests that initiation of options trading enhances the overall liquidity of the underlying stock.     

THE IMPACT OF THE INSIDER TRADING SCANDAL ON THE INFORMATION CONTENT OF THE WALL STREET JOURNAL'S “HEARD ON THE STREET” COLUMN

We examine the impact of a scandal on the information content in the “Heard on the Street” column of the Wall Street Journal. Following the scandal in 1984, the column is found to have a reduced impact on stock prices for both buy and sell recommendations. However, the stock price response to information later published in the column before the publication day is smaller for the post-scandal period. This result suggests that after the scandal, editors and authors may have become more cautious in guarding against information leaks in the column. The scandal does not appear to have changed the impact of the column on trading volume.     

NON-REPRESENTATIVE TRADING FREQUENCIES AND THE DETECTION OF ABNORMAL PERFORMANCE

Numerous studies employ betas computed with the ordinary least squares technique and daily returns. However, betas computed with OLS and daily returns are biased and inconsistent due to nonsynchronous trading periods or differences in trading frequency. The purpose of this study is to evaluate the effect of trading frequency on event studies. Brown and Warner (1985) investigated this and several other problems associated with daily returns and found no effect. However, they did not analyze the trading frequencies of the securities in their sample. This study uses a computer simulation for which trading frequency is an input, and, thus, tests stocks with known trading frequency.     

INSIDER TRADING - A REVIEW OF AUSTRALIAN AND UNITED STATES REGULATION

This paper looks at the regulation of insider trading in the Australian and United States context. Both the common law and statutory positions are outlined and where necessary, deficiencies in the law are pointed out. Several areas of potential reform are discussed by the authors.