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This paper aims to investigate pre-disclosure information leakage by block traders and market reactions to disclosures of off-hours block trading compared to off-market trading.
Abstract
Purpose
This paper aims to investigate pre-disclosure information leakage by block traders and market reactions to disclosures of off-hours block trading compared to off-market trading.
Design/methodology/approach
Stock responses were analyzed based on timely disclosures regarding Korean firms’ decisions to dispose of their own shares to improve their financial structures.
Findings
The results showed that pre-disclosure abnormal returns were generated in off-hours block trading. In contrast, on disclosure days, the returns for off-hours block trading were significantly lower than those for off-market trading. It was consistent with prior studies, indicating that block traders were related to information leakage and caused moral hazard problems.
Originality/value
The comparison between off-hours block trading and off-market trading provides important insights regarding block traders’ behavior. This study’s findings on the leakage of information from block traders indicate the need for firms to exercise caution when using block traders.
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– This study aims to survey supervisory requirements and expectations for counterparty credit risk (CCR).
Abstract
Purpose
This study aims to survey supervisory requirements and expectations for counterparty credit risk (CCR).
Design/methodology/approach
In this paper, a survey of CCR including the following elements has been performed. First, various concepts in CCR measurement and management, including prevalent practices, definitions and conceptual issues have been introduced. Then, various supervisory requirements and expectations with respect to CCR have been summarized. This study has multiple areas of relevance and may be extended in various ways. Risk managers, traders and regulators may find this to be a valuable reference. Directions for future research could include empirical analysis, development of a theoretical framework and a comparative analysis of systems for analyzing and regulating CCR.
Findings
Some of the thoughts regarding the concept of risk will be considered and surveyed, and then how these apply to CCR will be considered. A classical dichotomy exists in the literature, the earliest exposition upon which is credited to Knight (1921), who defines uncertainty is when it is not possible to measure a probability distribution or it is unknown. This is contrasted with the situation where either the probability distribution is known, or knowable through repeated experimentation. Arguably, in economic and finance (and more broadly in the social or natural as opposed to the physical or mathematical sciences), the former is a more realistic scenario that is being contending with (e.g. a fair vs loaded die, or die with unknown number of sides.) The authors are forced to rely upon empirical data to estimate loss distributions, but this is complicated because of changing economic conditions, which invalidate forecasts that our econometric models generate.
Originality/value
This is one of few studies of the CCR regulations that is so far-reaching.
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The purpose of this paper is to investigate how block trading and asymmetric information contribute to the firm-specific information measured by the stock return synchronicity…
Abstract
Purpose
The purpose of this paper is to investigate how block trading and asymmetric information contribute to the firm-specific information measured by the stock return synchronicity. Based on China stock market which is dominated by individual investors, this study focus on whether traders of block trading, which are usually institutional investors, are “information trader.”
Design/methodology/approach
Based on the high frequency data, the paper constructs two measures of information asymmetry, intraday measure and inter-day measure. Then the paper constructs a multiple regression model and examine how block trading and information asymmetry contribute to the firm-specific information measured by the stock return synchronicity.
Findings
The results show that: on the one hand, block trading transmits more firm-specific information, and can reduce the synchronicity; on the other hand, when the degree of information asymmetry is higher, block trading contains more firm-specific information and has a stronger effect on synchronicity. The effect of information asymmetry specifically displays as: block trading during the first half-hour of the trading day has a stronger effect on synchronicity; and block trading occurred in the days with publicly announced trading information has greater impact on synchronicity.
Practical implications
The conclusions have important practical implications: for market regulators, monitoring for block trading can improve the recognition and prevention of insider trading; for individual investors, especially the risk aversion investors, recognition of intraday and inter-day information asymmetry is beneficial for them to avoid the risk of asymmetric information.
Originality/value
First, the domestic and foreign research mostly concentrated impact of block trading on stock prices. However, reasons of stock price changes include the information effect and non-information effect, this paper selects stock return synchronicity as firm-specific information measure, and mainly focus on the information effect of block trading. Second, based on the high frequency data, the paper constructs two measures of information asymmetry, intraday measure and inter-day measure. Compared with general measure of information asymmetry, such as firm size, earnings quality, the two measures based on high frequency data are more precisely.
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Alex Frino, Jennifer Kruk and Andrew Lepone
This chapter examines the price impact of large trades in futures markets across 14 stock index futures contracts in 11 different international markets. On the balance, we find…
Abstract
This chapter examines the price impact of large trades in futures markets across 14 stock index futures contracts in 11 different international markets. On the balance, we find that part of the initial price effect of futures trades is temporary. These initial price effects are partially reversed, implying that they incur a liquidity premium; though there is some variation in this finding across markets. We also find strong evidence that large buyer- and seller-initiated trades have positive and negative permanent effects on prices, implying they convey information. We conclude, similar to research based on equities markets, that traders in futures markets are informed.
Rebecca Abraham and Charles Harrington
We propose a novel method of forecasting the level of informed trading at merger announcements. Informed traders typically take advantage of their knowledge of the forthcoming…
Abstract
We propose a novel method of forecasting the level of informed trading at merger announcements. Informed traders typically take advantage of their knowledge of the forthcoming merger by trading heavily at announcement. They trade on positive volume or informed buys for cash mergers and negative volume or informed sells for stock mergers. In response, market makers set wider spreads and raise prices for informed buys and lower prices for informed sells. As liquidity traders trade on these prices, our vector autoregressive framework establishes the link between informed trading and liquidity trading through price changes. As long as the link holds, informed trading may be detected by measuring levels of liquidity trading. We observe the link during the −1 to +1 period for cash mergers and −1 to +5 period for stock mergers.
SHANTARAM P. HEGDE and SANJAY B. VARSHNEY
We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary…
Abstract
We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.
Rebecca Abraham and Charles Harrington
This paper aims to propose a method of forecasting the level of informed trading at merger announcements by permitting liquidity traders to adjust their trading based upon signals…
Abstract
Purpose
This paper aims to propose a method of forecasting the level of informed trading at merger announcements by permitting liquidity traders to adjust their trading based upon signals from informed traders. Informed traders typically take advantage of their knowledge of forthcoming mergers by trading heavily at announcement. For cash mergers, they respond to a positive signal by purchasing stock, and for stock mergers, they respond to a negative signal by selling stock. In response, exchanges (market makers) set wider spreads (charge higher transaction fees) for informed buyers. Uninformed traders are subject to such excessive fees unless they can accurately predict the period during which such fees are charged.
Design/methodology/approach
This paper proposes a technique by which uninformed traders may make predictions by creating a vector autoregressive framework that links informed and liquidity trading through price changes.
Findings
For cash mergers, transaction fees remained excessive for days −1 to +1. For stock mergers, fees remained high on days −1 to +1, started declining on days 2 and 3, and vanished on days 4 and 5.
Research limitations/implications
Most theoretical models of informed trading have viewed informed trading and liquidity trading as tangentially linked. This study finds a direct link between these two trading activities.
Practical implications
Uninformed traders may wish to limit their trading until after day +1 for both types of mergers.
Originality/value
This paper defines the time period during which transactions costs for traders are at the maximum level. Short sellers have more information about the direction of stock movements and may sell during days of informed selling set forth by this study and repurchase stock afterwards.
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Mulugeta D. Watabaji, Adrienn Molnar, Robert D. Weaver, Manoj K. Dora and Xavier Gellynck
The purpose of this paper is to describe the volume and quality of information and communication channel use at various stages of the malt barley value chain (MBVC) in Ethiopia…
Abstract
Purpose
The purpose of this paper is to describe the volume and quality of information and communication channel use at various stages of the malt barley value chain (MBVC) in Ethiopia and to investigate how metrics of these variables influence the extent of integration of the chain.
Design/methodology/approach
The study is based on survey data collected from 320 farmers and 100 traders and interview responses compiled from 76 respondents. Descriptive statistics and ordered logistic regression were used for data analysis.
Findings
The descriptive statistics show a lower volume and poor quality of information is being shared at farmer-trader interface and that value chain integration (VCI) is weak at all studied interfaces. Results of ordered logistic regression show that information volume and quality positively influence VCI, whereas a positive relationship between channel use and VCI was found only at farm level interfaces. Evidences found suggested that inconsistent information systems, lack of information sharing plans, low level of members’ awareness about the value of information, and lack of trust to share information were factors that inhibited information sharing in the MBVC.
Originality/value
The study offers pioneering evidence of the relative role of information volume and quality and channel use as factors that influence the extent of integration of the value chain.
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The purpose of this chapter is to identify African financial management practices, highlight their origin and explain how they differ from their Western counterparts. The study…
Abstract
The purpose of this chapter is to identify African financial management practices, highlight their origin and explain how they differ from their Western counterparts. The study identified indigenous African financial practices using literature review, archival sources and library research covering the five areas of Africa comprising Northern Africa, Eastern Africa, Central Africa Western Africa and Southern Africa. The study found out that pre-colonial indigenous African financial management features prevalent use of trade finance, trade credit management, investment management and accounting. While there is also evidence of modification of Western financial management practices to suit African contexts, it is on the whole scarce. This is suggestive of the fact that they were in existence in the first instance. The clear conclusion is that many indigenous African financial management practices pre-dated and foreshadowed their Western counterparts. Yet, it is confounding that this has been largely lost sight of, and both scholars and financial management practitioners depict the former as inferior. There is clearly a need to remedy this situation. Educators need to focus on incorporating ethno-finance concepts into the entire curricula chain from basic to higher education. The anchor point for such curricula is Ubuntu philosophy. Financial management practitioners, on their part, need to shed notions that the indigenous practices are inferior and seek to journalise their day-to-day work experiences to build a body of documented practice.
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Narat Charupat and C.Sherman Cheung
This paper examines secondary equity offerings that were done in the Canadian markets through “installment receipts” (IRs). Previous studies on seasoned equity offerings tend to…
Abstract
This paper examines secondary equity offerings that were done in the Canadian markets through “installment receipts” (IRs). Previous studies on seasoned equity offerings tend to focus on the price reaction around the announcement date. We extend the analysis to cover a longer period so that the issues of liquidity effect and information asymmetry can be adequately addressed. We also offer evidence to indicate that the use of IRs in secondary offerings can reduce the liquidity impact in markets where market depth is not as substantial as in the U.S.