Two-period model of insider trading with correlated signals

In this article, we extend the one-period model of Jain and Mirman (1999) for asset trading with two correlated signals to a two period model. We then prove the existence and uniqueness of the Bayesian linear equilibrium. Finally, we perform comparative statics analysis with respect to Kyle (1985). Our findings reveal that adding another correlated signal (the real signal) to the total order flow of Kyle (1985), increases the amount of information incorporated in the stock price at each period and decreases the insider’s expected profits at each period.     

Insider trading in a two-tier real market structure model

This paper investigates the real and financial effects of insider trading in the spirit of Jain and Mirman (2000). Unlike the existing literature, the production of one real good is costly and depends mainly on the price of an intermediate good produced locally by a privately owned firm. The results show that the output level of the final good chosen by the insider as well as the price of the intermediate good set by the privately owned firm are both higher than it would be in the absence of insider trading. Furthermore, the parameters of both real markets affect the stock price. Next, a second insider, operating in the firm producing the final good, is added to the benchmark model. Competition among insiders decreases the production of the final good by the publicly owned firm and the price of the intermediate good with respect to the benchmark model. Moreover, it affects the insiders’ trades and increases the amount of information revealed in the stock price.     

信息披露与内部人股票交易获利策略——以六起内部人股票交易为基础的案例研究

本文以近期A股市场内部人股票交易活跃的六家公司为例,通过考查信息披露与内部人股票交易间的关系,解释内部人股票交易的获利策略。研究发现,在允许内部人交易本公司股票的情况下,信息披露与内部人股票交易关系密切,内部人存在利用私有信息和策略性信息披露两类获利策略。信息权力是内部人股票交易的获利基础,公司业绩是影响内部人股票交易获利策略选择的重要因素,而法律诉讼风险并没有对我国内部人股票交易和信息披露产生明显约束作用。这些发现对完善我国资本市场内部人股票交易行为规范具有一定借鉴意义。     

An investigation of causality between insider transactions and stock returns

Prior research shows that corporate insiders engage in profitable transactions by trading securities of their own firms. The main purpose of this study is to examine whether insider transactions and stock returns have causality relationships at the firm level for a sample of 2,521 firms during the period 1988 to 1998. We find a large impact of stock returns on subsequent insider transactions at both the aggregate and firm levels. The impact appears to be negative which suggests that insiders buy after stock price decreases and sell after stock price increases. Our findings on the predictive content of insider transactions for subsequent stock returns are primarily consistent with prior literature. We observe a positive but weak relationship between insider transactions and future stock returns.     

Option introduction and insider trading in the NASDAQ/NMS equity market

This paper investigates and supports the hypothesis that insiders have an incentive to shift their informed trading activities when options initially are listed for a firm. Firm size is found to be related to the level of insider trading activity. There is a significant decrease in insider equity-market volume for the smallest third of firms, a significant increase in insider-equity market volume for the middle third of firms, and a significant decrease in insider equity-market volume for the largest third of firms. This supports the hypothesis of a difference in the degree of impact on equity volume upon option introduction based upon firm size. This research provides additional evidence of informed trading activities when option introduction, insider trading, and firm size are considered simultaneously.     

重大事件披露、股价异常波动与内幕交易——基于重大信息披露违规公司的经验证据

规范化的信息披露是证券市场正常运转的基石。本文利用重大事件披露违规公司研究信息披露违规背后是否存在股价异常波动与内幕交易现象，并将样本公司按照处分类型和公司类型分类检验。研究表明，总体样本公司的股票存在显著的内幕交易行为，并呈现出牛市背景下的新特征：受到公开谴责的公司股票内幕交易程度显著高于受到公开处罚的公司股票，ST公司股票的内幕交易程度显著高于非ST公司股票。     

Requiem for market discipline and the specter of TBTF in Japanese banking

This study examines the reaction of private market participants to the enhancement of the “Too-Big-To-Fail” (TBTF) doctrine in the Japanese banking sector. The event justifying the use of the “TBTF” label occurred on May 17th, 2003, when the Japanese government decided to bailout Resona Holdings, the 5th largest financial group in the country. By using a sample of all Japanese listed banks and the standard event study methodology, we document significant and positive wealth effects in the stock market accruing to large banks and negative (though non-significant) effects accruing to smaller banks. Besides the effect on bank equity values, we also document a significant abnormal volume of trading on days following the bailout announcement date for the largest banks only. We extend our empirical analysis on stock prices and trading volumes by detecting a significant impact in the Credit Default Swap (CDS) market. This last result allows us to quantify, in a probabilistic sense, the effects of TBTF in addition to uncovering the mere presence of such a regulatory policy.     

Financial analyst coverage for U.S. firms facing foreign competition: Evidence from trade liberalization

This study examines financial analyst coverage for U.S. firms following an increase in foreign product market competition. To capture exogenous shocks to domestic firms' competitive environments, we exploit a quasi‐natural experiment from large import tariff reductions over the 1984 to 2005 period in the manufacturing sector. Using data for the years before and after large tariff reductions, our difference‐in‐differences analysis shows evidence of a significant decrease in analyst coverage for incumbent U.S. firms when they face greater entry threat from foreign competitors. We also find that analysts with less firm‐specific experience and less accurate prior‐period forecasts are more likely to stop following the domestic firm when foreign competition intensifies. Overall, the findings suggest that foreign product market competition from global trade liberalization is an important determinant of financial analysts' coverage decisions.     

Risk aversion,public disclosure,and partially informed outsiders

In this paper, we examine the impact of public disclosure and partially informed outsiders on a risk-averse insider’s trading behavior, market efficiency, and market depth. In our model, under disclosure requirements, except for the final auction, market depth is the same at every auction. When informed outsiders are risk-neutral, in contrast to the case of a risk-averse insider with no informed outsiders, the insider is more concerned about the uncertainty about future price risk. When the number of informed outsiders increases, market liquidity improves, and the insider increases the variance of her random component to conceal her trading strategy. However, since the insider is relatively more risk-averse, she pays less attention to doing this on her own. Besides, the order flow provided by informed outsiders and randomly added by the insider injects additional liquidity into the market. When informed outsiders are risk-averse, compared to risk-neutral informed outsiders, an insider is most concerned about trading risks brought by informed outsiders at the beginning of trading. Furthermore, whether the trader is an insider or informed outsider, the more risk-averse trader has lower expected profits. Moreover, outsiders’ greater risk aversion leads to a smaller market depth.     

Compensation-based stock trading by corporate executive and aggregate management ownership of the firm: Some additional evidence

Managers place a low value on equity-based compensation because it exposes them to the risk of the firm. Such undervaluation and the need to achieve diversification may force a manager to sell his own stock of the firm in response to equity-based awards. In this paper we examine whether such stock selling by an executive depends on the aggregate level of management ownership of the firm. We argue that stock selling occurs at a high level of aggregate ownership where an executive has a low probability of being replaced. Our findings support this “management ownership” argument of compensation-based stock trading. One implication is that the board's effort to minimize agency conflicts becomes less effective once aggregate ownership increases to a certain threshold level. (JEL G30, G32) This research was carried out with the support of the Western New England College research fund.     

业绩预告下的股份减持与内幕交易——会计稳健性是遏制还是助力？

选取2010—2018年沪深A股上市公司为样本,考察业绩预告发布前后大股东是否存在以及如何利用自身信息优势进行股份减持交易,会计稳健性是否以及如何对该内幕交易产生影响。研究结果表明:与强制性业绩预告相比,自愿性业绩预告披露前后发生大股东减持的概率更高,并且会计稳健性会显著抑制自愿性业绩预告披露前后的大股东减持行为。进一步将业绩预告消息区分为好消息和坏消息之后研究发现:坏消息的利空程度越高,大股东在业绩预告之前进行股份减持的规模越大;或者好消息的利好程度越高,大股东在业绩预告之后减持的规模也越大;稳健的财务信息能够抑制公司在隐匿坏消息方面进行的内幕交易,但会加剧公司在隐匿好消息方面进行的内幕交易。     

Stock trading dynamics and pedestrian counterflows: Analogies and differences

This paper contrasts stock trading dynamics with pedestrian counterflow movements. We apply the social force model built on pedestrian movement patterns to examine micro characteristics of the Chinese stock market. Utilizing one-minute high frequency stock trading data of the Shanghai Composite Index between 2014 and 2017, we find that stock trading dynamics under loose, prudent and austerity monetary policies closely resemble pedestrian movement patterns under wide, moderate, and narrow door width, respectively. In addition, we find that stock trading patterns with unbalanced buyers and sellers correspond to pedestrian counterflows with unbalanced flows from one side of the door to the other. Our results also show that stock trading patterns under various trading volumes are similar to pedestrian counterflows with different flow rates. In general, our results indicate that stock trading patterns are influenced by investor behaviors and conflicting interests similar to those present in the social force model of pedestrian counterflows. Thus, examining the behavioral mechanism at play in these self-driven systems will generate important insights for the behavioral foundation of financial markets.     

Brokers’ financial network and stock return

Brokerage firms are usually not only known for trading stocks for their retail clients in return for commission fee but also known for being information distributors of their clients’ investment recommenders. However, only a few studies have examined investors’ trading behaviors within a brokerage firm. This study proposes a financial network model in modeling the information diffusion process of investors within brokerage firms and investigates the potential effect of interconnectedness among brokerage firms on stock returns. We find that the centrality of brokerage firms has strong explanatory power to stock returns even if we control for the Fama–French pricing factors and other characteristics of stock.     

Parametric Value-at-Risk analysis: Evidence from stock indices

We evaluate the performance of several volatility models in estimating one-day-ahead Value-at-Risk (VaR) of seven stock market indices using a number of distributional assumptions. Because all returns series exhibit volatility clustering and long range memory, we examine GARCH-type models including fractionary integrated models under normal, Student-t and skewed Student-t distributions. Consistent with the idea that the accuracy of VaR estimates is sensitive to the adequacy of the volatility model used, we find that AR (1)-FIAPARCH (1,d,1) model, under a skewed Student-t distribution, outperforms all the models that we have considered including widely used ones such as GARCH (1,1) or HYGARCH (1,d,1). The superior performance of the skewed Student-t FIAPARCH model holds for all stock market indices, and for both long and short trading positions. Our findings can be explained by the fact that the skewed Student-t FIAPARCH model can jointly accounts for the salient features of financial time series: fat tails, asymmetry, volatility clustering and long memory. In the same vein, because it fails to account for most of these stylized facts, the RiskMetrics model provides the least accurate VaR estimation. Our results corroborate the calls for the use of more realistic assumptions in financial modeling.     

Connectedness and systemic risk spillovers analysis of Chinese sectors based on tail risk network

This paper investigates the systemic risk spillovers and connectedness in the sectoral tail risk network of Chinese stock market, and explores the transmission mechanism of systemic risk spillovers by block models. Based on conditional value at risk (CoVaR) and single index model (SIM) quantile regression technique, we analyse the tail risk connectedness and find that during market crashes, stock market exposes to more systemic risk and more connectedness. Further, the orthogonal pulse function shows that Herfindahl-Hirschman Index (HHI) of edges has a significant positive effect on systemic risk, but the impact shows a certain lagging feature. Besides, the directional connectedness of sectors shows that systemic risk receivers and transmitters vary across time, and we adopt PageRank index to identify systemically important sector released by utilities and financial sectors. Finally, by block model we find that the tail risk network of Chinese sectors can be divided into four different spillover function blocks. The role of blocks and the spatial spillover transmission path between risk blocks are time-varying. Our results provide useful and positive implications for market participants and policy makers dealing with investment diversification and tracing the paths of risk shock transmission.     

Macroeconomic news and the returns of financial companies

This research is concerned with the response of the NASDAQ Financial 100 index to macroeconomic news. The paper employs the newly developed technique of generalized impulse response analysis to examine how macroeconomic shocks affect the performance of the financial sector. The results identify the magnitude and persistence of the response of financial companies stock returns arising from shocks to the stance of monetary policy, real output, inflation, and risk. The findings add to the literature on the determinants of financial sector stocks and on the relationship between the stock market and the macroeconomy. Copyright © 2002 John Wiley & Sons, Ltd.     

Systemic risk of Chinese financial institutions and asset price bubbles

Although there has not been a large-scale systemic crisis in China, high-risk financial events have occurred continuously in recent years. This research thus creatively analyzes the determinants of systemic risk for Chinese financial institutions from the view of asset price bubbles. First, we identify bubbles in the China stock and real estate markets on the basis of the generalized sup Augmented Dickey-Fuller (GSADF) model and explain the reasons for bubble formations according to the stage of China's economic development and policies implementation. At this stage, considering the differences in economic development levels of different cities, the real estate bubbles in the first, second and third tier cities and the whole country were innovatively identified. Second, on the basis of the DCG-GARCH-CoVaR model to measure the systemic risk of listed financial institutions in China and to classify institutions, the results show that the main source of such risk is the banking sector. Furthermore, by constructing regression models, stock market bubbles and real estate bubbles both positively correlate with systemic risk throughout the sample period. Meanwhile, the impact of bubbles on the systemic risk of different types of financial institutions was taken into account so that regulators prioritized different types of institutions with different characteristics when faced with decisions. Finally, we provide macro-prudential policy advice to regulators in order to weaken the impact of bubbles on financial stability to avoid systemic crises.     

How do quotes and prices evolve around isolated informed trades?

This article investigates the order imbalance and price behavior of trades and quotes around isolated informed trades intraday. Different patterns of order flows around informed trades are documented because of the originating stock exchange, the type of informed trader, the size of the order, and the type of the firm whose shares are traded. The informed trader acts contrarian to prior trades. Informed purchases follow price declines, and sales are after price increases. The informed trade is recognized by the market maker. The purchase is executed at a significantly higher price, while the sale is executed at a significantly lower price. Trades contain more information if the insiders are at small firms. Larger orders and orders by top executives also contain more information. The order imbalance changes around an informed trade. Orders are seller-initiated prior to the purchase and become buyer-initiated after the trade. On the other hand, the order imbalance changes from buyer- to seller-initiated right around insider sales. Reversals in order imbalance are more pronounced for informed trades in small firms, for larger trades, and by top executives. There are important policy implications of the results. The recognition of informed trades by market makers justifies more scrutiny by the Securities and Exchange Commission in order to ensure fair trading.     

管理者激励机制、内部竞争与兼并效应分析

参与兼并企业作为子企业存在于兼并所形成的新企业时,新企业的所有者可能对子企业管理者设置与内部所有子企业利润都相关的激励机制,文章即对这种情形建立了两阶段博弈模型考察横向兼并效应问题。结果表明,当少于市场企业数目50％的企业进行兼并时,新企业所有者将确定导致内部竞争的管理者激励机制,社会福利将会增加;此时,兼并活动对参与兼并企业是有利的,对未参与兼并企业是不利的,从而部分地消除了“兼并悖论”。     

Risk reporting and stock return in the UK: Does market competition Matter?

This study examines the extent to which market competition influences risk reporting practice. It also explores how market competition affects the usefulness of risk reporting. The automated textual analysis measures the level of risk reporting [how much to report] and its tone [how it is reported] of UK FTSE 350 firms. The abnormal stock return is used as a proxy for the usefulness of risk reporting. In contrast to the proprietary cost hypothesis, our results indicate that the level of risk reporting is a positive function of market competition. Besides, UK firms are likely to disseminate more (less) negative (positive) news about their risks when market competition increases. However, after examining the informativeness of this reporting, we provide evidence that the level of reported risk information does not significantly enhance the abnormal stock returns of UK firms. Nevertheless, the tone of the reported risks carries incremental information indicative of a firm’s abnormal stock return, especially when market competition decreases. The findings suggest that firms are likely to alleviate their proprietary costs by framing their reporting of risk information in a way that deters potential competitors from entering their market and that market competition diminishes the perceived informativeness of such reporting. The results provide implications for investors as they should not acknowledge the disclosure of higher risk information when asking for more corporate transparency, as it lacks informativeness. Besides, policymakers may impose extra compulsory requirements on the UK firms to avoid reporting overly optimistic risk news to protect investors and avoid the adverse effects of this reporting.