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1 – 10 of over 10000Priyantha Mudalige, Petko S Kalev and Huu Nhan Duong
The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian…
Abstract
Purpose
The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX), during a period when the market becomes fragmented.
Design/methodology/approach
This study uses intraday trading volume data in five-minute intervals prior to and after firm-specific announcements to measure individual and institutional abnormal volume. There are 70 such intervals per trading day and 254 trading days in the sample period. The first 10 minutes of trading (from 10.00 to 10.10 a.m.) is excluded to avoid the effect of opening auction and to ensure consistency in the “starting time” for all stocks. The volume transacted during five-minute intervals is aggregated and attributed to individual or institutional investors using Broker IDs.
Findings
Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements.
Research limitations/implications
The study is Australian focused, but the results are applicable to other limit order book markets of similar design.
Practical implications
The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure.
Social implications
The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure.
Originality/value
These results will help regulators to design markets that are less predatory on individual investors.
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This paper aims to examine the association between earnings quality and firm-specific return volatility for a large sample of Japanese manufacturing firms.
Abstract
Purpose
This paper aims to examine the association between earnings quality and firm-specific return volatility for a large sample of Japanese manufacturing firms.
Design/methodology/approach
This archival research uses idiosyncratic volatility and asynchronicity as two analogous proxies for firm-specific return volatility to investigate its association with earnings quality.
Findings
Using idiosyncratic volatility and asynchronicity as two comparable proxies for firm-specific return volatility, the author finds contradictory results. The author relates this contradiction to another debate in accounting and finance literature about whether firm-specific return volatility captures firm-specific information or noise. Initially, the author obtains conflicting results because the systematic risk, one of the components of asynchronicity, is highly correlated with earnings quality. After controlling for the systematic risk, the author finds that higher earnings quality is associated with lower firm-specific return volatility. This finding is consistent with the noise-based explanation of firm-specific return volatility. The author also separates earnings quality into an innate component driven by economic fundamentals and a discretionary component driven by managerial discretionary behavior and finds that both components have significant impact on firm-specific return volatility but the innate component has significantly stronger effect than the discretionary component.
Originality/value
This is the first research study presenting evidence on the association between earnings quality and firm-specific return volatility in the Japanese setting. The findings of this paper are likely to contribute to the resolution of a well-known debate on whether firm-specific return volatility captures more firm-specific information being impounded in stock prices or noise in stock prices.
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Lin Chen, Junbo Wang, Chunchi Wu and Hongquan Zhu
Although stock price co-movement has been examined extensively, its causes are not well understood. Using a decomposition method, we extract three information components from the…
Abstract
Although stock price co-movement has been examined extensively, its causes are not well understood. Using a decomposition method, we extract three information components from the turnover rate: market information, firm-specific information, and investors' opinion divergence. We find that market information strengthens stock price co-movement, whereas firm-specific information weakens it. Moreover, our analysis shows that divergence of investors' opinion increases stock price variations but weakens price co-movement.
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This paper documents the effect of different types of information on the value of financial analysts.
Abstract
Purpose
This paper documents the effect of different types of information on the value of financial analysts.
Design/methodology/approach
The authors use the pooled OLS regression and the data of nonfinancial firms from France to test our hypotheses. The data covers the period between 1997 and 2019.
Findings
The results show that analysts are more likely to cover those firms that incorporated greater proportion of market-wide information in their prices. Consistent with the economies of scale view, the authors argue that analysts specialize in the interpretation market-wide information. By doing so, they are able to cover relatively large number of firms simultaneously. The results also show that the value of analyst coverage (measured as the impact of analyst coverage on firm value, probability of stock price crash and probability of stock price jump) is a function of the extent to which different types of information are incorporated in prices. The authors’ results suggest that the impact of analyst coverage on firm value and on probability of crash is less pronounced in firms that incorporate greater proportion of market-wide information. In case of probability of jump, the results show that the impact of analyst coverage is more pronounced firms that incorporate greater proportion of market-wide information.
Originality/value
The major contribution of this paper is to document the impact of different types of information on the extent of analyst coverage. Furthermore, this paper also uses various measures (the impact of analyst coverage on firm value, probability of stock price crash and probability of stock price jump) to show how different types of information affects the value of analyst coverage.
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This study examines the impact of firm-specific information and macroeconomic variables on market overreaction of US and Chinese winner and loser portfolio before and during…
Abstract
Purpose
This study examines the impact of firm-specific information and macroeconomic variables on market overreaction of US and Chinese winner and loser portfolio before and during COVID-19.
Design/methodology/approach
The firm-specific information includes firm size, volume, volatility, return of asset (ROA), return of equity (ROE), earning per share (EPS) and quick ratio while the macroeconomic variables are export rate, import rate, real GDP, nominal GDP, FDI, IPI and unemployment rate. Besides, one-third of the top performance stocks are categorized as winner portfolio while one-third of lowest performance stocks are categorized as loser portfolio. This study uses AECR to indicate stock return and measure market overreaction. GAECR is used to determine contrarian profit. The data range of pre-COVID-19 is from 1-Jan-2015 to 31-Dec-2019 while the period of COVID-19 is from 1-Jan-2020 to 31-Dec-2020.
Findings
In pre-COVID-19, firm-specific information (volatility, ROA, ROE and EPS) and macroeconomic variables are found to be correlated to stock return in US and Chinese portfolios except Chinese winner portfolio. Nonetheless, the impact of firm-specific information has vanished and macroeconomic variables are significant to stock return in COVID-19. It shows that investors rely on the economic indicators to trade in turbulent period due to emergence of COVID-19 as a disruption in market. Furthermore, US and Chinese portfolios are overreacted during COVID-19. Chinese loser portfolio has higher tendency of overreaction than US loser portfolio while US winner portfolio has higher tendency of overreaction than Chinese winner portfolio.
Originality/value
The results of this study assists academician, practitioners and investors on understanding and create awareness to the existence of market overreaction and the determinants that can cause the phenomenon.
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Abstract
Purpose
The findings suggest that reducing information processing costs as a result of better transportation is an important ingredient in promoting the pricing of firm-specific information. This study aims to discuss the aforementioned issue.
Design/methodology/approach
The authors adopt a difference-in-difference (DID) research design to examine the impact of information processing costs on stock price synchronicity with a sample of firms listed in the Chinese A-share market during 2007 and 2017.
Findings
This paper shows that the launch of the high-speed railway (hereafter HSR) in China is associated with lower stock price synchronicity, consistent with the theory that the HSR reduces investors’ information processing costs (cost of monitoring, acquiring and analyzing firm disclosures). This effect is more pronounced for companies located in remote areas than for those located in large cities. Further tests show that the negative association between the launch of HSR and stock price synchronicity is stronger for companies with higher information asymmetries, proxied by higher equity concentration, higher complexity and lower internal control quality.
Originality/value
This study contributes to the literature in the following three ways. First, prior literature relates the effects of geographic distance to information transmission and information asymmetry between insiders and outside investors (e.g. Coval and Moskowitz, 2001; Kang and Kim, 2008; Malloy, 2005). The authors supplement the literature by providing new empirical evidence from an exogenous shock (natural experiment), that is, the launch of HSR, that facilitates transportation and reduces information transmission costs. Second, prior studies have shown that new airline routes that facilitate transportation improve investment and productivity (e.g. Bernstein et al., 2016; Giroud, 2013). The authors extend this stream of studies by showing that the development of HSR networks reduces information processing costs, and promotes the incorporation of firm-specific information in the asset pricing. More importantly, in this study, the authors explicitly incorporate disclosure processing costs theory into our framework thus enhancing our understanding of how and why improvements in transport relate to better market outcomes.
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Adel Almasarwah, Mohammad Almaharmeh, Ahmed M. Al Omush and Adel Sarea
This study investigates the nature of the association between profit warnings and stock price informativeness in the context of Jordan as an emerging country.
Abstract
Purpose
This study investigates the nature of the association between profit warnings and stock price informativeness in the context of Jordan as an emerging country.
Design/methodology/approach
The authors used a large panel data set that related to stock price synchronicity and profit warnings percentages on the Amman Stock Exchange for the period spanning 2007–2018. Robust regression was used as a parametric test. This enabled us to obtain stronger results that fall in line with our prediction that a profit warning encourages firm investors to collect and process more firm-specific information than common market information.
Findings
Our findings show a significant positive effect of profit warnings on the amount of firm-specific information incorporated into stock price, which means that the greater the percentage of profit warnings the more likely that more firm-specific information will be incorporated in stock price synchronicity. In addition, corporate governance characteristics (moderating variables) significantly increase the level of the relationship between profit warnings and stock price synchronicity.
Practical implications
Our study results could be useful to investors, senior managers, and regulators in Jordanian firms, particularly in relation to decisions about enhancing the quality of financial statements. In addition, our results provide new evidence about the consequences of earnings announcements for information content and the informativeness of stock prices. Our methodology and evaluation of profit warnings may also demonstrate useful evidence for future researchers on profit warnings and stock price informativeness in developing economies, especially given that such evidence is scarce in developing economies.
Originality/value
This research is the first study of its kind on emerging markets, particularly in the Middle East. Moreover, entering the corporate governance variables as moderating variables to the robust regression was found to be more powerful than other regressions.
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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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Ehsan H. Feroz, Jarrod Johnston, Jacqueline L. Reck and Earl R. Wilson
The purpose of this paper is to describe a study which examined the effects of underwriter reputation market segments on the value relevance of firm specific risk measures in the…
Abstract
Purpose
The purpose of this paper is to describe a study which examined the effects of underwriter reputation market segments on the value relevance of firm specific risk measures in the pricing of initial public offerings (IPOs).
Design/methodology/approach
The study abandons the notion of a homogenous market for IPOs and focuses instead on the differential demand for information across identifiable segments of the IPO market in the pre‐market offering period leading to the first day trading closing prices. Ordinary least square (OLS) regressions were used to test the two hypotheses developed in the paper.
Findings
It was found that firm‐specific risk measures are associated with the initial trading day returns of IPOs managed by low reputation underwriters, but not those by high reputation underwriters. However, as expected, these risk measures are impounded in initial trading day returns only for a sub‐sample of high‐risk junk IPOs that were marked down in price by the underwriter prior to the offering in order to make them more attractive to investors.
Research limitations
As with all empirical studies the tests are joint tests of the hypotheses stipulated and econometric assumptions underlying OLS. The findings of the study may not be generalized to an unrelated domain.
Practical implications
The findings suggest that ex ante risk measures are useful in picking among junk IPOs those with the best chances of survival, and thus earning an initial trading return on those IPOs.
Originality/value
This is the first study to look at junk IPOs in a systematic manner using a quasi‐experimental design.
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Vivien W. Tai, Yao‐Min Chiang and Robin K. Chou
Taiwan OTC market is an electronic, order driven, call market. The purpose of this paper is to gain understanding of whether trade size or number of transaction provides more…
Abstract
Purpose
Taiwan OTC market is an electronic, order driven, call market. The purpose of this paper is to gain understanding of whether trade size or number of transaction provides more information on explaining price volatility and market liquidity in this market. The paper also aims to investigate how market condition can affect the relationship between information type and trading activities.
Design/methodology/approach
The paper uses data from the Taiwan OTC market to run the empirical tests. It divides firms into five size groups based on their market capitalization. Regression equations are run to test: whether number of transactions has a more significant impact on price volatility on the Taiwan OTC market; the impact of market information on number of transactions; the relative impact of firm specific and market information on number of transactions; and the impact of number of transaction of bid‐ask spread.
Findings
Findings show that the larger the number of transactions, the higher the price volatility. Smaller firms on the Taiwan OTC market are traded based on firm‐specific information. This relation is further affected by market trends. Especially for the larger firms, when the market is up and the amount of market information increases, number of transactions increases. When the market is down and the amount of market information increases, number of transactions decreases. Finally, it is found spread size is more likely to be influenced by number of transactions, instead of trade size. Overall, based on these empirical results, the information content of number of transactions seems to be higher than that of trade size in the Taiwan OTC market.
Practical implications
Investors now understand that number of transaction actually carry more information than trade size does.
Originality/value
The relation between market information and number of transaction, also that between market information and trade size is influenced by market condition. The paper fills a gap in the literature to show that market condition has an impact on the relation between information type and trader's behavior. A number of transactions are identified that provide more information than trade size does. It is also shown that market conditions can further affect the impact of information on trading activities.
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