Lost in translation: Delayed ex-dividend price adjustments of Hong Kong ADRs

Previous research documents that Hong Kong stocks have a full ex-dividend price adjustment consistent with dividends and capital gains being tax free. We examine ex-dividend price behavior of Hong Kong ADRs to assess the impact of differing tax environments in US and Hong Kong. These ADRs typically go ex-dividend before their underlying stock. They experience significant abnormal returns of 1.16% on their ex-day; the average ex-day price drop is only 30% of the dividend. However, ADR prices drop when the underlying stock goes ex-dividend subsequently. The cumulative ADR price drop is equal to the dividend. Thus, the ADR ex-dividend adjustment resembles that of the underlying stock, consistent with home country tax laws governing ADR price behavior. Neither liquidity nor transaction costs can explain the anomalous delayed ex-dividend adjustment of ADRs.     

Ex-dividend returns: The Mexican puzzle

We study ex-dividend returns in Mexico, where an imputation system entitles individual investors to a net dividend tax credit. Based on taxation, we expect ex-day abnormal returns to be negative or at most zero in Mexico. However, they are significantly positive. Because ex-day returns are positive even for stocks restricted to Mexican nationals, they are not attributable to foreign stockholders’ tax considerations. None of the market microstructure-based hypothesis in the literature can explain these positive ex-day returns. Ex-day returns in Mexico are a puzzle.     

Reduction of Constraints on Arbitrage Trading and Market Efficiency: An Examination of Ex-Day Returns in Hong Kong after Introduction of Electronic Settlement

Previous research documents positive ex-dividend day returns in excess of one percent in the unique institutional setting of Hong Kong, where neither dividends nor capital gains are taxed. Short-term arbitrage trades around the ex-day were hampered by physical settlement procedures. After the recent switch to an electronic settlement system, which enables such trades, ex-day abnormal returns have declined to an insignificant 0.17 percent. This drop is more pronounced for high-yield stocks, which are more likely to attract dividend capture trading. The evidence points to the crucial role of short-term traders in ensuring the pricing efficiency of financial markets.     

Operating Performance and Stock Returns of Firms Calling Convertible Preferred Stocks

Abstract:   Using methodologies developed by Barber and Lyon (1996 and 1997 ), we examine the long‐run operating performance and stock returns of firms around in‐the‐money calls of convertible preferred stock. Our study intends to be a direct test of the hypothesis that managers call in‐the‐money convertibles when they view a decline in the firms' performance. We find no evidence that calling firms underperform non‐calling benchmark firms. On the contrary, we find mild evidence that the post‐call operating performance of calling firms is better than a carefully selected group of benchmark firms and call firms' post‐call stock returns are no worse than benchmark firms.     

THE VALUATION EFFECTS OF OUT-OF-THE-MONEY CALLS OF CONVERTIBLE SECURITIES

We examine the valuation effects of out-of-the-money calls of convertible securities. In general, out-of-the-money calls generate positive abnormal stock returns. These returns are higher when the call price exceeds the market value of the called securities (positive premium calls), compared with when the market value exceeds the call price (negative premium calls). Furthermore, Value Line Investment Survey net operating income forecasts are significantly higher after call announcements for positive premium calls, while the revision is insignificant for negative premium calls. The results are consistent with the hypothesis that positive premium calls signal positive information.     

WHAT'S IN A NICKNAME? PRICE AND VOLUME EFFECTS OF A PURE TICKER SYMBOL CHANGE

We examine the effect of a voluntary change in ticker symbol without other contemporaneous corporate events such as a name change. We find significant declines in trading volume and prices on the effective date of the ticker change. We segment the sample by exchange listing, share turnover activity, and subperiod. We observe declines in trading volume in all subsamples and negative abnormal returns in recent years.     

CONVERTIBLE DEBT AND INVESTMENT INCENTIVES

In this paper we examine the effect of convertible debt on the investment incentives facing stockholders. The effect depends critically on the value of existing assets relative to the firm's investment requirements. With a restrictive dividend covenant, convertible debt mitigates the overinvestment incentive associated with risky debt but exacerbates the underinvestment incentive at higher values of existing assets. A less-restrictive dividend covenant exacerbates overinvestment under straight debt financing but reduces the underinvestment incentive induced by the conversion feature. In this context, a convertible debt contract with a less-restrictive dividend covenant maximizes firm value.     

Return Linkages between Dual Listings under Arbitrage Restrictions: A Study of Indian Stocks and Their London Global Depositary Receipts

We examine the linkages between returns on Indian global depositary receipts (GDRs) in London and their underlying stocks in India. GDR returns are sensitive to returns observed earlier in India. This sensitivity is more pronounced for more liquid GDRs. Although arbitrage is not feasible for GDRs that sell at a premium, these GDRs are, nevertheless, sensitive to Indian returns. The sensitivity is greater for GDRs selling at a discount, where costly arbitrage is feasible. GDR returns have a significant but small effect on subsequent returns of the underlying stocks, with more liquid GDRs having a slightly greater impact.     

Stock reaction to dividend savings of convertible preferred calls: Free cash flow or price pressure effects?

Calls of in-the-money convertible preferred stock typically induce dividend savings for the firm, since preferred dividends exceed common stock dividends. Prior research finds that these savings are negatively related to stock returns at call announcement and argues that the market expects managers to abuse the increased free cash flow. This paper finds that dividend savings are closely related to call size, suggesting other explanations. Larger calls experience a more negative announcement reaction. Consistent with temporary liquidity effects, there is a price reversal during the conversion period, which is greater for larger calls.     

Impact of Liquidity on the Futures‐Cash Basis: Evidence from the Indian Market

Arbitragers’ activities are constrained by market liquidity. In turn, arbitrage activity may trigger order imbalances adversely affecting liquidity. We examine this issue by analyzing the link between the futures‐cash basis and bid–ask spreads using intraday data on single stock futures (SSFs) contracts on Indian stocks. In contrast to other countries, the SSF market in India is very active due to retail investors’ prior experience with the badla system, a form of forward markets. The analysis reveals two‐way Granger causality between the basis and spreads in both the futures and cash markets. Evidence for spreads Granger‐causing basis is stronger for stocks with higher volume and SSFs that are relatively more active than underlying stocks. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:266–298, 2013