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This study analyzes the impact of the information environment (IE) and credit default swap (CDS) transaction costs on information transmission between the stock and CDS markets. Using the daily regression analysis on the Korean firm’s stock and CDS data from 2004 to 2023, the results show that companies with superior IE in the stock market exhibit a larger and more sensitive total information flow from the stock market to the CDS market. Companies with lower transaction costs in the CDS market demonstrate faster information flow. In the case of companies with superior IE, fundamental information is reflected in stock prices with high weight and thus the CDS spreads change reflecting information about stock prices. According to this study’s findings, the primary factor influencing the information flow from the stock market to the CDS market is the information environment of the company in the stock market, rather than transaction costs in the CDS market.

The positive illiquidity–return relationship (so-called liquidity premium) is a well-established pattern in international developed stock markets. The magnitude of liquidity premium should increase with market illiquidity. Existing studies, however, do not confirm this conjecture with regard to frontier markets. This may result from applying different approaches to the investors' holding period. The paper aims to identify the role of the holding period in shaping the illiquidity–return relationship in emerging and frontier stock markets, which are arguably considered illiquid.

The authors utilise the data on stocks listed on fourteen exchanges in Central and Eastern Europe. The authors regress stock returns on liquidity measures variously transformed to reflect the clientele effect in a liquidity–return relationship.

The authors show that the investors' holding period moderates the illiquidity–return relationship in CEE markets and also show that the liquidity premium in these markets is statistically and economically relevant.

The findings may be of great interest to investors, companies and regulators. Investors and companies should take liquidity into account when making decisions; regulators should employ liquidity-enhancing actions to decrease companies' cost of capital and expand firms' investment opportunities, which will improve growth perspectives for the entire economy.

These findings enrich the understanding of the role that the investors' holding period plays in the illiquidity–return relationship in CEE markets. To the best knowledge, this is the first study which investigates the effect of holding period on liquidity premium in emerging and frontier markets.

This paper empirically examines whether the order of liability and preferred stock accounts presented on the balance sheet is consistent with how the stock market values their riskiness.

This paper measures a firm’s riskiness with idiosyncratic risk and employs the first-difference design to test the relation between idiosyncratic risk and the order of current liabilities, noncurrent liabilities and preferred stock, respectively. Further, the paper tests whether operating liabilities are viewed as riskier than financial liabilities. Finally, the authors partition their sample based on the degree of financial distress and investigate whether the results differ between the two subsamples.

The paper finds that current liabilities are viewed as riskier than noncurrent liabilities and preferred stock is viewed as less risky than current and noncurrent liabilities, consistent with the ordering on the balance sheet. Further, the paper finds that operating liabilities are viewed as riskier than financial liabilities. Finally, the authors find that total liabilities and preferred stock (redeemable and convertible classes) are viewed as riskier for distressed firms than for nondistressed firms.

The authors thoroughly investigate the riskiness of several classes of claims and document that the classification of liabilities and preferred stock classes is relevant to common stockholders for assessing their associated risk.

We explore the impact of equity liquidity on a firm’s dynamic leverage adjustments and the moderating impacts of leverage deviation and target instability on the link between equity liquidity and dynamic leverage in the UK market.

In applying the two-step system GMM, we estimate our model by exploring suitable instruments for the dynamic variable(s), i.e. lagged values of the dynamic term(s).

Our analyses document that a firm’s equity liquidity has a positive impact on the speed of adjustment (SOA) of its leverage ratio back to the target ratio in the UK market. We also demonstrate that the positive relationship between liquidity and SOA is more pronounced for firms whose current position is relatively close to their target leverage ratio and whose target ratio is relatively stable.

This study provides important implications for both firms’ managers and investors. Particularly, firms’ managers who wish to increase the leverage SOA to enhance firms’ value need to give great attention to their equity liquidity. Investors who want to evaluate firms’ performance could also consider their equity liquidity and leverage SOA.

We are the first to enrich the literature on leverage adjustments by identifying equity liquidity as a new determinant of SOA in a single developed country with many differences in the structure and development of capital markets, ownership concentration and institutional characteristics. We also provide new empirical evidence of the joint effect of equity liquidity, leverage deviation and target instability on leverage SOA.

This paper aims to investigate the impact of day trading on market quality on the Taiwan stock market with the implementation of a unique policy change. This paper examines 396 listed stocks from June 2015 to October 2016, a period when the stock market in Taiwan officially approved selected stocks for day trading for all investors. Within the sample period, the empirical findings show that day trading increases the bid–ask spread, price depth and stock volatility, indicating that day trading activities not only cause higher transaction costs and trading risk but also raise the market’s ability to absorb price impact. This paper considers two-stage regression and tests the exogenous shock because of further relaxation for day trading to deal with the possible endogenous problem and the main findings remain consistent. Since early 2014, the Taiwan stock market has been experiencing a distinct growth in trading volume after unwinding the day trading; however, the results show that the impacts of stock day trading on market quality are not all positive.

The National Pension Service (NPS) of Korea suddenly announced that they would suspend their stock lending business from October 22, 2018. Using this ideal setting, the authors investigate the effects of this suspension on market quality and short-selling activities. The authors find that stock return does not increase after the suspension of stock lending for both the KOSPI and KOSDAQ markets. However, the returns of stocks with NPS ownership decline less than those without NPS ownership. The authors also find that the institutional and foreign investors' short sales did not increase in both markets after the lending business suspension by the NPS. In addition, the effect of suspension of stock lending on market quality is mixed, so the authors cannot conclude that market quality has improved. Overall, the authors’ results indicate that the stock market, especially for short-sales activity, has not been affected by the suspension of the stock lending service by the NPS.

This study examines the bid/ask spread and its components in the KOSPI200 options market under the framework of the cross-market model, which utilizes the order flow information of both KOSPI200 futures and options markets. We also compare the results by the single-market model (MRR model; Madhavan et al., 1997) and by the cross-market model (Ryu (2011)’s extension). This comparison suggests that the cross-market approach can mitigate the underestimation of the permanent spread component of OTM options and the overestimation of the component of ITM options, which are often detected when we directly apply the single market model into the KOSPI200 options market where the ITM options are relatively illiquid while the OTM options are extremely liquid. We also find that the effect of the order flow information of the futures market on the option spread and its permanent spread component will vary depending on the option moneyness and the intraday time period. This implies that the order flow of the futures market has more significant effects if the degree of informed trading is relatively high.

This study examines the effect of the informational content of local credit rating announcements in emerging markets on the liquidity of their bond markets. This study analyses the liquidity of bonds in various emerging bond markets using a sample of nine countries: Argentina, Mexico, Peru, Hungary, Poland, Spain, Turkey, Hong Kong and Greece. The sample includes daily data on sovereign bonds that go from July 2009 to July 2017. The main focus is on the period before and after the sovereign debt crisis. This study notes that the bond liquidity is affected due to the sign of the rating granted by the rating agencies for each country.

This study aims to question the sources of liquidity problem of sovereign bonds issued by the emerging countries. The study’s database consists of daily data of all nine emerging countries for the period from July 2009 to July 2017. Panel data were collected from the Datastream database.

This study first directly tests the information content of bond ratings announcements and their effect on bond market liquidity. Next, the impact of rating changes on sovereign bond liquidity around the rating announcements is studied. Rating changes can affect sovereign bond's price, trading and liquidity around the announcement date. In particular the rating changes that move the bonds out of the investment grade category can elicit selling pressure or even fire sale of the fallen angels.

This research aims to present data on the prices of sovereign bonds that react to changes in credit rating by studying the price movements around the announcement of changes in credit rating. The literature is very rich in studies on credit rating changes on stocks and corporate bonds, but this study is perhaps the first attempt on sovereign bonds.

This paper aims to examine the extent of price clustering in a selection of Islamic stocks listed in Indonesia, Malaysia and Pakistan and also investigates the determinants of the phenomenon at the firm level.

The author test the uniformity of price distribution in the selected securities. Then, the determinants of price clustering were investigated through multivariate analysis based on a binary logistic regression model. Following the arguments of Narayan et al. (2011), who emphasize the importance of considering firm heterogeneity when studying the phenomenon, the author conducts the empirical study at the firm level.

The evidence indicates that Islamic stocks show a mild level of price clustering. Only half of the stocks under analysis rejected the uniformity test in the distribution of prices. In these cases, investors exhibited a preference for prices ending at zero and five. The evidence does not confirm the cultural clustering theories. Price clustering is found to be positively associated with price level and relative bid-ask spread. Overall, the negotiation hypothesis, which predicts that investors prefer round prices to minimize the costs associated with negotiations, best explains most of our results.

The existence of price clustering is difficult to reconcile with the prediction of the efficient market hypothesis that prices should follow a random walk. Moreover, the evidence indicates that Muslim investors share a preference for round prices in some settings, under the assumption that Islamic stocks are mostly traded by Muslim investors.

To the author’s best knowledge, this is the first study to address the subject of price clustering in Islamic stocks.

This study examines the impacts of the KTB futures options, newly introduced at the Korea Futures Exchange (KOFEX) on May, 2002, on the intraday volatility and liquidity of the KTB futures markets for the period from January 17, 2002, to August 30, 2002. The results show that the volatility of the KTB futures appears to have increased since the inception of the KTB futures options. However, the increase in volatility largely disappears after controlling for the effects of volume, time-to-maturity, day-of-the-week, and bid-ask bounce. There is some mixed evidence regarding the impact on the liquidity of the KTB futures markets, in the sense that the trading volume has increased significantly whereas the bid-ask spreads have widened too. The KTB futures price changes are more likely to lead the price changes of the KTB futures options by about 15 minutes, which is probably due to the infrequent trading problem on the part of the KTB futures options. Finally, though infrequently traded, the put-futures parity condition is rarely violated, and thus is difficult to be exploited for arbitrage transactions, indicating that the two markets are closely linked each other.