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Article
Publication date: 17 February 2012

John F. Pinfold and Danyang He

The purpose of this paper is to investigate the July 2007 introduction of a pre‐close call auction on the New Zealand stock market and its effect on share pricing quality…

Abstract

Purpose

The purpose of this paper is to investigate the July 2007 introduction of a pre‐close call auction on the New Zealand stock market and its effect on share pricing quality and market manipulation.

Design/methodology/approach

Market quality was tested using the methodology of Pagano and Schwartz, which is based on changes in market model R2s. Closing price manipulation is detected by comparing mean bid‐ask spread characteristics of the periods before and after the introduction of the pre‐close call auction.

Findings

The closing call auction improves the quality of share pricing and reduces the incidence of market manipulation.

Practical implications

The paper confirms the effectiveness of the changes made to the method of closing the market for all firms in the market.

Originality/value

The paper extends knowledge of the effectiveness of closing call‐auctions. It is the first study in a low‐liquidity market and of shares with very low liquidities. Such markets have lower pricing quality and are more vulnerable to market manipulation. The study establishes the effectiveness of closing auctions in this environment.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 1
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 18 August 2020

Dan Ma, Chunfeng Wang, Zhenming Fang and Ziwei Wang

The purpose of this paper is to empirically examine the impact of closing mechanism changes on market quality, investor trading behavior and market manipulation in the…

Abstract

Purpose

The purpose of this paper is to empirically examine the impact of closing mechanism changes on market quality, investor trading behavior and market manipulation in the Shanghai stock market.

Design/methodology/approach

A dummy variable is constructed indicating whether the closing mechanism is call auction or continuous auction. Market quality is measured from aspects of liquidity, volatility and price continuity; investor trading behavior is scaled by order timing and order aggressiveness, and a price deviation indicator is the proxy of manipulation. Using panel regression, this study examines the impact of closing mechanism changes based on intraday transaction data from the Shanghai stock market.

Findings

The conclusions are as follows: First, market quality improves after the closing mechanism is reformed in terms of liquidity, volatility and price continuity. Second, order strategy changes significantly in the closing call market, and investors trade more aggressively in the continuous trading period before closing. Third, the closing call mechanism restrains the closing price manipulation and thus prompts an efficient closing price.

Originality/value

This paper examines the policy effects of closing mechanism changes from aspects of market quality, trading behavior and price manipulation, providing pieces of evidence for trading mechanism design and market supervision in emerging markets.

Details

China Finance Review International, vol. 11 no. 2
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 5 October 2015

Wessel Marthinus Badenhorst

This paper aims to investigate the extent to which different prices within the bid-ask spread are used for fair value measurements and evaluate the potential consequences…

Abstract

Purpose

This paper aims to investigate the extent to which different prices within the bid-ask spread are used for fair value measurements and evaluate the potential consequences thereof.

Design/methodology/approach

The paper investigates different Level 1 fair value measurements of exchange-traded funds’ (ETFs) equity investments. Using descriptive methods, it compares actual and stated fair value measurement policies. In addition, comparative value relevance of these measurements is investigated in regression analysis.

Findings

Most fair value measurements are based on closing prices, but stated accounting policies and actual measurements frequently differ. Results also show that the bid-close spread of underlying investments is value-relevant in determining the bid-close spreads of ETFs themselves.

Research limitations/implications

Findings are specific to unleveraged ETFs, the sample country and sample period used and only apply to investments in listed equities. Conclusions from this study may assist in predicting market perceptions of the risk of listed equity portfolios.

Practical implications

This paper sheds light on the practical impact of the recent change in fair value measurement guidance.

Originality/value

This study provides evidence on the size of the bid-ask spread of actual investment portfolios and its potential impact. It shows that bid-close spreads of underlying investments are used to price the bid-close spreads of ETFs themselves and that stated and actual accounting policies often differ. Findings imply that standard-setters might be influenced by actual accounting practices.

Details

Meditari Accountancy Research, vol. 23 no. 3
Type: Research Article
ISSN: 2049-372X

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Article
Publication date: 4 October 2011

Patricia L. Chelley‐Steeley and James M. Steeley

On 29 January 2001, Euronext LIFFE introduced single security futures contracts on a range of global companies. The purpose of this paper is to examine the impact that the…

Abstract

Purpose

On 29 January 2001, Euronext LIFFE introduced single security futures contracts on a range of global companies. The purpose of this paper is to examine the impact that the introduction of these futures contracts had on the behaviour of opening and closing UK equity returns.

Design/methodology/approach

The paper models the price discovery process using the Amihud and Mendelson partial adjustment model which can be estimated using a Kalman filter.

Findings

Empirical results show that during the pre‐futures period both opening and closing returns under‐react to new information. After the introduction of futures contracts opening returns over‐react. A rise in the partial adjustment coefficient also takes place for closing returns but this is not large enough to cause over‐reaction.

Originality/value

This is the first study to examine the impact of a single security futures contract on the speed of spot market price discovery.

Details

Studies in Economics and Finance, vol. 28 no. 4
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 20 January 2020

Eda Orhun

This paper aims to look at the effects of the closing call auction on market quality and behavior by using the natural experiment of its introduction at the Abu Dhabi…

Abstract

Purpose

This paper aims to look at the effects of the closing call auction on market quality and behavior by using the natural experiment of its introduction at the Abu Dhabi Stock Exchange.

Design/methodology/approach

Current paper studies the effect of closing call auction on various market quality factors such as liquidity, bid-ask spreads, volatility and market efficiency. Liquidity is proxied by trading volume. Bid-ask spreads provide a measure for the cost of trading in the market. Volatility is measured by using Parkinson’s (1980) volatility as in Huang and Tsai (2008). Last but not least, efficiency will be obtained by estimating a relative return dispersion measure as in Huang and Tsai (2008).

Findings

The introduction of the closing call auction leads to a significant decrease in the trading volume toward the end of the continuous trading. At the same time, trading activity taking place during the call auction significantly increases. This implies a redistribution of liquidity. The implementation of the closing call auction also improves market quality by reducing market inefficiency in terms of firm-specific noise. The study also documents that there exists no significant change in the cost of trading and intraday volatility in the post-period following the adoption of closing call auction.

Originality/value

This current study is the first one looking at this topic for the Abu Dhabi Stock Exchange. Specifically, this paper looks at the changes in trading volume, bid-ask spreads, intraday return volatility and market efficiency after the implementation of the closing call mechanism.

Details

Pacific Accounting Review, vol. 32 no. 1
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 1 August 2016

Kim Hin David Ho and Shea Jean Tay

The purpose of this paper is to examine the risk neutral and non-risk neutral pricing of Singapore Real Estate Investment Trusts (S-REITs) via comparing the average of the…

Abstract

Purpose

The purpose of this paper is to examine the risk neutral and non-risk neutral pricing of Singapore Real Estate Investment Trusts (S-REITs) via comparing the average of the individual ratios (of deviation between expected and observed closing price/observed closing price) with the ratio (of standard deviation/mean) for closing prices via the binomial options pricing tree model.

Design/methodology/approach

If the ratio (of standard deviation/mean) ratio > the ratio (of deviation between expected and observed closing price/observed closing price), then the deviation of closing prices from the expected risk neutral prices is not significant and that the S-REIT is consistent with risk neutral pricing. If the ratio (of deviation between expected and observed closing price/observed closing price) is greater, then the S-REIT is not consistent with risk neutral pricing.

Findings

Capitacommercial Trust (CCT), Capitamall Trust (CMT) and Keppel Real Estate Investment Trust (REIT) have large positive differences between the two ratios (39.86, 30.79 and 18.96 percent, respectively), implying that these S-REITs are not trading at risk neutral pricing. Suntec REIT has a small positive difference of 2.35 percent between both ratios, implying that it is trading at risk neutral pricing. Ascendas REIT has the largest negative difference between the two ratios at −4.24 percent, to be followed by Mapletree Logistics Trust at −0.44 percent. Both S-REITs are trading at risk neutral pricing. The analysis shows that CCT, CMT and Keppel REIT exhibit risk averse pricing.

Research limitations/implications

Results are consistent with prudential asset allocation for viable S-REIT portfolio investing but that not all these S-REITs exhibit strong market efficiency in their pricing.

Practical implications

Pricing may be risk neutral over a certain period but investor sentiments, fear of risks and speculative activities could affect an S-REIT’s risk neutrality.

Social implications

With enhanced risk diversification activities, the S-REITs should attain risk neutral pricing.

Originality/value

Virtually no research of this nature has been undertaken for S-REITS.

Details

Journal of Property Investment & Finance, vol. 34 no. 5
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 16 September 2013

Dhiaa Shamki and Azhar Abdul Rahman

The paper aims to examine the influence of financial disclosure (FD) level and time on the value relevance of earnings, book value, and cash flows relative to three share…

Abstract

Purpose

The paper aims to examine the influence of financial disclosure (FD) level and time on the value relevance of earnings, book value, and cash flows relative to three share price proxies, namely average annual share price, annual closing share price, and share price after a three-month period following the financial year-end for Jordanian companies.

Design/methodology/approach

The paper employs price model to examine the influence of FD level and time on the value relevance of three accounting variables relative to three share price proxies for 91 Jordanian companies (consisting of 5,460 observations) within 2004-2009.

Findings

Relative to three share price proxies, the findings proved that FD level and time have a significant influence on the value relevance of book value, but not for cash flows. Also, FD level and time have a significant influence on the value relevance of earnings relative to annual closing share price, while they are not relative to share price after a three-month period following the financial year-end. FD time has a significant influence on the value relevance of earnings relative to the average annual share price. Annual closing share price is the most reliable in indicating value relevance of accounting information.

Originality/value

The paper confirms that there is a shift away from earnings towards book value as the basis for firm valuation. Market participants might be able to conclude the firm value through the value relevance of accounting information influenced by company's FD.

Details

Education, Business and Society: Contemporary Middle Eastern Issues, vol. 6 no. 3/4
Type: Research Article
ISSN: 1753-7983

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Article
Publication date: 3 November 2014

Diego A. Agudelo, Ángelo Gutiérrez Daza and Nazly J. Múnera Montoya

The purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.

Abstract

Purpose

The purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.

Design/methodology/approach

The authors test the effect of X‐Stream on market quality variables, such as liquidity (bid‐ask spread and price impact), daily and intraday volatility and trading activity, using mean tests, panel data and conditional variance models. The authors use a proprietary database of transactions and orders from the exchange.

Findings

The evidence suggests that X‐Stream improved the liquidity and trading activity and reduced the volatility of the overall market, especially of the most liquid stocks.

Practical implications

These results support the investment on more sophisticated trading systems in emerging markets.

Originality/value

Contributing to the literature on market quality, this paper provides novel evidence of the effect of reforms on market design, trading rules and operational capabilities on a small and low‐liquidity emerging stock market.

Resumen

Se investiga el efecto de la plataforma de transacción de acciones de BVC, X‐Stream, en la calidad del mercado accionario a partir de su lanzamiento en Febrero del 2009. Partiendo de una base de datos transaccional de BVC, se emplean varios modelos econométricos para medir el efecto de la nueva plataforma en las volatilidades diaria e intradiaria, la liquidez (margen proporcional de oferta y demanda e impacto en el precio) y la actividad bursátil. La evidencia demuestra que X‐Stream mejoró la liquidez y redujo la volatilidad del mercado accionario como un todo, pero especialmente en las acciones más líquidas. Esta investigación contribuye a la literatura en calidad de mercado al aportar nueva evidencia sobre el efecto de los cambios de diseño, reglas de transacción y capacidades operacionales en un mercado accionario de reducidos tamaño y liquidez. De esta manera, sirve como argumento para justificar inversiones en sistemas avanzados de transacción en mercados emergentes.

Details

Academia Revista Latinoamericana de Administración, vol. 27 no. 3
Type: Research Article
ISSN: 1012-8255

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Article
Publication date: 23 August 2013

Robert Hull, Rosemary Walker and Sungkyu Kwak

The purpose of this paper is to examine the effects of R&D manipulation on stock valuation for periods around IPOs. Insider manipulation is the difference in actual R&D…

Abstract

Purpose

The purpose of this paper is to examine the effects of R&D manipulation on stock valuation for periods around IPOs. Insider manipulation is the difference in actual R&D change minus predicted R&D change where a negative difference indicates R&D underinvestment.

Design/methodology/approach

This study is designed to build on prior IPO research that has found reduced R&D expenditures when insiders lower their ownership. The paper derives an R&D manipulation variable that measures underinvestment in R&D. This variable is used in a regression methodology to test its influence on: IPO stock valuation at various points in time and post‐IPO price changes relative to the offer price.

Findings

The paper discovers that greater underinvestment in R&D is associated with greater values during the IPO stock valuation process. This association is reversed when the paper looks at short‐term valuation based on market prices. Only for bubble period IPOs do the paper finds poorer valuations for the long‐term. Larger insider ownership decreases lead to poorer valuations regardless of the period of occurrence. Greater R&D underinvestment and insider ownership decreases both lead to less underpricing.

Research limitations/implications

Like prior research, the paper assumes that knowledge about the change in R&D is known at the time of the offering. Interpretations for long‐run results can be tenuous due to unexpected changes that occur over time.

Practical implications

Investors should note that managers are able to set higher offer prices when they inflate earnings by underinvesting in R&D. Buying at an inflated offer price with R&D manipulation leads to losses in the aftermarket with these losses associated with IPOs that occur during a bubble period.

Social implications

Misrepresentation during the IPO valuation process affects those who buy shares at inflated prices. This raises ethical questions about the behavior of those involved in the issuance process.

Originality/value

This study is unique in testing how R&D manipulation and changes in insider ownership proportions impact the: IPO valuation process, post‐IPO valuation, and changes in the stock price over time relative to the offer price.

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Article
Publication date: 21 September 2012

K. Stephen Haggard, (Grace) Qing Hao and Ying Jenny Zhang

The purpose of this paper is to investigate short‐selling around private investment in public equity (PIPE) issuances, for evidence of manipulative short‐selling by hedge funds.

Abstract

Purpose

The purpose of this paper is to investigate short‐selling around private investment in public equity (PIPE) issuances, for evidence of manipulative short‐selling by hedge funds.

Design/methodology/approach

The authors use the Regulation SHO short‐selling data in combination with information about hedge fund participation in traditional stock PIPE offerings from Sagient Research, and share price and trading volume data from the Center for Research in Security Prices (CRSP) to examine the relations among hedge fund participation, short‐selling levels and stock returns surrounding such offerings.

Findings

It is found that significantly less pre‐deal short‐selling occurs when hedge funds are included in the PIPE investor group, and adjusted returns for firms with hedge funds as investors are positive in the pre‐deal period and negative in the post‐deal period. Both of these findings are opposite of the patterns expected given manipulative short‐selling by hedge funds. Pre‐deal and post‐deal adjusted returns and PIPE discount are unrelated to pre‐deal short‐selling by hedge funds, findings inconsistent with manipulative short‐selling by these investors. The evidence suggests that most hedge funds that invest in traditional stock PIPEs do not engage in manipulative short‐selling around these deals.

Originality/value

This paper is the first, to the authors' knowledge, to examine hedge fund participation and daily short‐selling around traditional stock PIPE issuances. Previous studies focus on structured PIPE deals, which do not represent the majority of the PIPE market at present. The daily short selling data used in this study allow for detailed investigation of market behavior not afforded by monthly short interest data used in previous studies.

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