Double signals or single signal? An investigation of insider trading around share repurchases

We examine directors’ dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors’ purchase activities during the share repurchase period are significantly higher than the expected level while the directors’ sale activities are significantly lower than the expected level. Double signals of share repurchase and directors’ purchases create a stronger signal in conveying undervaluation, while insider sales around share repurchase reduces the undervaluation signal. We find some evidence that is consistent with the free cash flow and signaling arguments for share repurchases.     

Corporate Debt Value,Bond Covenants,and Optimal Capital Structure

This article examines corporate debt values and capital structure in a unified analytical framework. It derives closed-form results for the value of long-term risky debt and yield spreads, and for optimal capital structure, when firm asset value follows a diffusion process with constant volatility. Debt values and optimal leverage are explicitly linked to firm risk, taxes, bankruptcy costs, risk-free interest rates, payout rates, and bond covenants. The results elucidate the different behavior of junk bonds versus investment-grade bonds, and aspects of asset substitution, debt repurchase, and debt renegotiation.     

2008年7月银行间市场运行报告

2008年7月,银行间外汇、货币、债券、利率和汇率衍生品市场整体运行平稳,货币市场利率有所回落、成交量有所下降,买断式回购交易活跃;现券交易和利率互换成交大幅上升,外汇掉期交易小幅增长;美元中间价探底回稳,人民币升值速度显著减缓。     

2008年7月金融形势评述

7月份金融运行的主要特点是：各层次货币供应量平稳增长;贷款增速有所回升;居民、企业资金总体正常,储蓄存款增速继续快速回升;银行间市场人民币交易活跃,市场利率回落;人民币对美元小幅升值。     

Long-run returns following open market share repurchases

Past studies find abnormal returns to buying after repurchase program announcements. We analyze the profitability of trading after both program announcements and individual repurchase trade publication using different trading strategies – market and limit orders. The analysis of trades is possible because of a unique Canadian data set. The highest abnormal returns are earned by companies on their own repurchase trades which benefits the non-tendering shareholders. For the public investor, we find no strategies that, in practice, would earn abnormal returns to buying after program announcements. However, there is qualified evidence of abnormal returns to a limit order strategy following publication of individual repurchase trades.     

A reexamination of the value of tax options

This article reexamines the value of tax trading when the taxrate on long-term realizations is less than that on short-termrealizations. In particular, the value of the option to realizelong-term capital gains and repurchase stock in order to increaseone's tax basis and restart the option to realize future lossesshort term is examined empirically. Our estimate of the incrementalvalue of restarting, which is based on the results of simulationsof several alternative tax trading policies over a large numberof independent return sequences, is generally much smaller thanthat reported by Constantinides (1984). The incremental valueof restarting is shown to depend critically on the particularpattern of realized returns and the assumed tax treatment ofunrealized capital gains at the end of the simulation period.The effects of stock price volatility, transaction costs, portfoliooffset rules, and realization cutoff levels on the value oftax trading are also investigated.     

The optimal trading and pricing of securities with asymmetric capital gains taxes and transaction costs

This article explores the optimal trading and pricing of taxablesecurities with asymmetric capital gains taxes and transactioncosts. In the long-term region, investors realize all gainsbelow some critical cutoff level, which we derive analytically.In the short-term region, investors defer all gains and, dependingupon the time remaining in the short-term region, may also defersmall losses. Contrary to common intuition, deferral of short-termlosses can be optimal even without transaction costs. The valueof tax timing is considerably higher under the optimal tradingstrategy than under alternative strategies previously analyzed.The impact of offset rules is also explored.     

Capital structure,equity mispricing,and stock repurchases

We evaluate motives for share repurchases using a unified framework where a firm has a target capital structure and has equity that can be mispriced. We document that capital structure adjustments are a value-increasing motive for repurchases and that the extent to which adjusting capital structure through a repurchase creates value depends on the undervaluation of the firm. Underlevered and undervalued firms enjoy the greatest economic gains from a repurchase, as evidenced by the stock price reaction to the repurchase announcement, and these firms are more likely to announce a share repurchase program.     

Optimal stock trading with personal taxes: Implications for prices and the abnormal January returns

The tax law confers upon the investor a timing option - to realize capital losses and defer capital gains. With the tax rate on long term gains and losses being about half the short term rate, the law provides a second timing option - to realize losses short term and gains long term, if at all. Our theory and simulation over the 1962–1977 period establish that taxable investors should realize long term gains in high variance stocks and repurchase stock in order to realize potential future losses short term. Tax trading does not explain the small-firm anomaly but predicts a seasonal pattern in trading volume which maps into a seasonal pattern in stock prices, the January anomaly, only if investors are irrational or ignorant of the price seasonality.     

Presidential Address: Sophisticated Investors and Market Efficiency

Stock‐market trading is increasingly dominated by sophisticated professionals, as opposed to individual investors. Will this trend ultimately lead to greater market efficiency? I consider two complicating factors. The first is crowding—the fact that, for a wide range of “unanchored” strategies, an arbitrageur cannot know how many of his peers are simultaneously entering the same trade. The second is leverage—when an arbitrageur chooses a privately optimal leverage ratio, he may create a fire‐sale externality that raises the likelihood of a severe crash. In some cases, capital regulation may be helpful in dealing with the latter problem.     

Arbitraging Arbitrageurs

This paper develops a theory of strategic trading in markets with large arbitrageurs. If arbitrageurs are not well capitalized, capital constraints make their trades predictable. Other market participants can exploit this by trading against them. Competitors may find it optimal to lend to arbitrageurs that are financially fragile; additional capital makes the arbitrageurs more viable, and lenders can reap profits from trading against them for a longer time. The strategic behavior of these market participants has implications for the functioning of financial markets. Strategic trading may produce significant price distortions, increase price manipulation, and trigger forced liquidations of large traders.     

What do insiders know? Evidence from insider trading around share repurchases and SEOs

We examine the nature of information contained in insider trades prior to corporate events. Insiders' net buying increases before open market share repurchase announcements and decreases before seasoned equity offers. Higher insider net buying is associated with better post-event operating performance, a reduction in undervaluation, and, for repurchases, lower post-event cost of capital. Insider trading also predicts announcement returns and long-term abnormal returns following events. Overall, our results suggest that insider trades before corporate events contain information about changes both in fundamentals and in investor sentiment.     

Managers' Trading Around Stock Repurchases

We analyze personal open market trades by managers around stock repurchases by tender offer. With the exception of Dutch auction offers, managers trade their firm's shares prior to repurchase announcements as though repurchases convey favorable inside information to outsiders. Prior to fixed price repurchase offers that do not follow takeover-related events, managers increase their buying and reduce their selling of their firm's shares. Prior to repurchases that follow takeover-related events, only a decrease in selling is found. No abnormal trading precedes Dutch auction repurchase offers.     

全流通背景下大股东交易与市场效率研究——基于信息优势的视角

全流通背景下大股东交易问题日益成为关注的焦点。以2007年至2010年A股市场大股东交易作为研究对象,验证了不同类型大股东交易利用信息优势程度及其对市场效率的影响。研究表明控股股东具有明显信息优势,其交易行为具有信息传递功能,可以缓解与外部投资者之间的信息不对称,同时控股股东的逆向投资也一定程度上能够提高股票市场定价功能;而非控股股东信息优势不明显,其交易行为更多地受市场波动性影响,对市场稳定性的冲击较大。     

Screening,Market Signalling,and Capital Structure Theory

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt-equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.     

Capital Gains Taxes and Equity Trading: Empirical Evidence

Individual investors have an incentive to defer selling appreciated stock until it qualifies for tax‐favored, long‐term capital gains treatment. Shackelford and Verrecchia [2002] show that these incentives can affect equity trading around public disclosures. This article provides some empirical support for their theory with evidence of price increases and equity constrictions around announcements of quarterly earnings and additions to the S&P 500 index. We find share returns rise and trading volume falls with the incremental taxes saved by deferring the sale of appreciated property. The price increases, however, are temporary, reversing in subsequent trading days. The results are consistent with buyers believing the compensation to sell before long‐term qualification (through higher prices) is less costly than holding an inappropriately weighted portfolio. This finding—that personal capital gains taxes affect equity trading—adds to a growing literature that challenges longstanding assumptions that firm value is independent of shareholders and their taxes.     

Arbitrage With Holding Costs: A Utility-Based Approach

Unit time costs, or holding costs, are incurred in many arbitrage contexts. Examples include losing the use of short sale proceeds and lending funds at below market rates in reverse repurchase agreements. This paper analyzes the investment problem of a risk averse arbitrageur who faces holding costs. The model allows prices to deviate from “fundamental” values without allowing for riskless arbitrage opportunities. After characterizing an arbitrageur's optimal strategy, the model is examined in the context of the Treasury market. The analysis reveals that holding costs are an important friction in this market and that they can significantly affect arbitrageur behavior.     

护盘式股份回购的弊端及风险防控机制探究——兼评《公司法》第142条第六项

护盘是上市公司回购股份的重要理由之一,2018年10月我国《公司法》第142条专项修改明确护盘式回购的合法性,是资本市场基础制度改革的重要一步。同时尤需注意护盘式回购的固有弊端,主要集中于市场秩序与债权人及中小股东合法权益的保护。本文旨在深入分析护盘式回购存在问题,结合我国立法变迁及市场回应,通过比较借鉴域外护盘式回购及安定操作的法律规制技术,进一步探讨如何从现有法规制度层面最大化防控其风险并有效保证护盘功能的发挥,促进资本市场的发展进步。     

Ex-dividend day trading: Who,how, and why? : Evidence from the Finnish market

This study examines the ex-dividend day trading behavior of all investors in the Finnish stock market. Consistent with dynamic dividend clientele theories, investors with a preference for dividend income buy shares cum-dividend and sell ex-dividend; the reverse is true for investors with the opposite preference. Investors also engage in overnight arbitrage, earning on average a 2% overnight return on their invested capital. Trades at the investor-level reveal that idiosyncratic risk is an important determinant in the choice of stock for short-term ex-day trading. Furthermore, transaction costs and dividend yield jointly determine whether the volume of short-term trading activity is nonzero.