In Search of Concepts: The Effects of Speculative Demand on Stock Returns
Owain ap Gwilym, Iftekhar Hasan, Qingwei Wang, Ru Xie
European Financial Management,
Nr. 3,
2016
Abstract
Using a novel proxy of investors' speculative demand constructed from online search interest in investment concepts, we examine how speculative demand affects the returns of Chinese stocks. We find that speculative demand increases following high market returns and predicts subsequent return reversals. Moreover, the speculative demand explains more variation in subsequent returns of A shares (more populated by retail investors) than B shares (less populated by retail investors). Our findings support the recently developed attention theory.
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Legal Insider Trading and Stock Market Liquidity
Hans Degryse, Frank de Jong, Jérémie Lefebvre
De Economist,
Nr. 1,
2016
Abstract
This paper assesses the impact of legal trades by corporate insiders on the liquidity of the firm’s stock. For this purpose, we analyze two liquidity measures and one information asymmetry measure. The analysis allows us to study as well the effect of a change in insider trading regulation, namely the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC) on the Dutch stock market. The first set of results shows that, in accordance with theories of asymmetric information, the intensity of legal insider trading in a given company is positively related to the bid-ask spread and to the information asymmetry measure. We also find that the Market Abuse Directive did not reduce significantly this effect. Secondly, analyzing liquidity and information asymmetry around the days of legal insider trading, we find that small and large capitalization stocks see their bid-ask spread and the permanent price impact increase when insiders trade. For mid-cap stocks, only the permanent price impact increases. Finally, we could not detect a significant improvement of these results following the change in regulation.
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The Impact of Dark Trading and Visible Fragmentation on Market Quality
Hans Degryse, Frank de Jong, Vincent van Kervel
Review of Finance,
Nr. 4,
2015
Abstract
Two important characteristics of current equity markets are the large number of competing trading venues with publicly displayed order books and the substantial fraction of dark trading, which takes place outside such visible order books. This article evaluates the impact on liquidity of dark trading and fragmentation in visible order books. Dark trading has a detrimental effect on liquidity. Visible fragmentation improves liquidity aggregated over all visible trading venues but lowers liquidity at the traditional market, meaning that the benefits of fragmentation are not enjoyed by investors who choose to send orders only to the traditional market.
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The Regional Distribution of Foreign Investment in Russia: Are Russians more Appealing to Multinationals as Consumers or as Natural Resource Holders?
K. Gonchar, Philipp Marek
Economics of Transition and Institutional Change,
Nr. 4,
2014
Abstract
This article conducts a plant-level study of the factors affecting foreign direct investment (FDI) inflow to a large opening economy endowed with specific factor advantages. We conclude that the distribution of FDI in Russian regions depends on market access and can be most notably described by the knowledge-capital framework. Factor endowments built by natural resources are more successful in explaining the location decisions of export–platform affiliates. The impact of natural resources depends on how the availability of these resources is measured. The results reject the crowding out effects of resource FDI and prove co-location mode, when service investments are attracted to resource-rich regions. Labour cost advantages better explain the preferences of non-trading service affiliates.
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An Empirical Analysis of Legal Insider Trading in The Netherlands
Frank de Jong, Jérémie Lefebvre, Hans Degryse
De Economist,
Nr. 1,
2014
Abstract
In this paper, we employ a registry of legal insider trading for Dutch listed firms to investigate the information content of trades by corporate insiders. Using a standard event-study methodology, we examine short-term stock price behavior around trades. We find that purchases are followed by economically large abnormal returns. This result is strongest for purchases by top executives and for small market capitalization firms, which is consistent with the hypothesis that legal insider trading is an important channel through which information flows to the market. We analyze also the impact of the implementation of the Market Abuse Directive (European Union Directive 2003/6/EC), which strengthens the existing regulation in the Netherlands. We show that the new regulation reduced the information content of sales by top executives.
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Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns around the World: Discussion of Correa, Lee, Sapriza, and Suarez
Reint E. Gropp
Journal of Money, Credit and Banking,
s1
2014
Abstract
In the years leading up to the 2008–09 financial crisis, many banks around the world greatly expanded their balance sheets to take advantage of cheap and abundantly available funding. Access to international funding markets, in particular, made it possible for banks to reach a size that in some cases was a large multiple of their home countries’ gross domestic product (GDP). In Iceland, for example, assets of the banking system reached up to 900% of GDP in 2007. Similarly, by the end of 2008, assets in UK and Swiss banks exceeded 500% of their countries’ GDPs, respectively. Banks may also have grown rapidly because they may have wanted to reach too-big-to-fail status in their country, implying even lower funding cost (Penas and Unal 2004).
The depth and severity of the 2008–09 financial crisis and the subsequent debt crisis in Europe, however, have cast doubts on the ability of governments to bail out banks when they experience severe difficulties, in particular, in financially fragile environments and faced with large budget imbalances. This has resulted in as what some observers have dubbed a “doom loop”: the combination of weak public finances and weak banks results in a vicious cycle, in which the funding cost of banks increases, as the ability of governments to bail out banks is called into question, in turn increasing the funding cost of these banks and making the likelihood that the government will actually have to step in even higher, which in turn increases funding cost to the government and so forth.
Against this background, the paper by Correa et al. (2014) explores the link between sovereign rating changes and bank stock returns. They show large negative reactions of stock returns in response to sovereign ratings downgrades for banks that are expected to receive government support in case of failure. They find the strongest effects in developed economies, where the credibility of government bail outs is higher ex ante, while the effects are smaller in developing and emerging economies. In my view, the paper makes a number of important contributions to the extant literature.
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An Options-based Approach to Forecast Competing Bids: Evidence for Canadian Takeover Battles
Stefan Eichler, Dominik Maltritz
Applied Economics,
Nr. 34,
2013
Abstract
During takeover battles, a tender offer provides a call option right to the target’s shareholders: it guarantees the offered price but maintains the chance of a higher offer. We present an options-based approach to estimate the probability and expected value of higher competing takeover bids using target stock price data. Analysing Canadian takeover battles in the period 1997 to 2007 we find that during the 5 trading days prior to the occurrence of an increased takeover bid, the estimated probability of a higher bid exceeds 80% on average and the expected value of a potential competing bid almost matches the realized value.
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What Drives Banking Sector Fragility in the Eurozone? Evidence from Stock Market Data
Stefan Eichler, Karol Sobanski
Journal of Common Market Studies,
Nr. 4,
2012
Abstract
This article explores the determinants of banking sector fragility in the eurozone. For this purpose, a stock-market-based banking sector fragility indicator is calculated for eight member countries from 1999 to 2009 using the Merton model (1974). Using a panel framework, it is found that the macroeconomic environment, the structure of the banking sector and the intensity of banking regulation all have an effect on banking sector fragility in the eurozone.
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