Search results
1 – 10 of over 13000When a stock is added into the S&P 500 Index, it in effect becomes cross-listed in the Index derivative markets. When index-based trading strategies such as index arbitrage are…
Abstract
When a stock is added into the S&P 500 Index, it in effect becomes cross-listed in the Index derivative markets. When index-based trading strategies such as index arbitrage are executed, the component stocks are directly affected by such trading. We find increased volatility of daily returns, plus increased trading volume for the underlying stocks. Utilizing a list of S&P 500 Index composition changes over the period September 1976 to December 2005, we study the market-adjusted volume turnover and return variance of the stocks added to and deleted from the Index. The results indicate that after the introduction of the S&P 500 Index futures and options contracts, stocks added to the S&P 500 experience statistically significant increase in both trading volume and return volatility. Both daily and monthly return variances increase following index inclusion. When stocks are removed from the index, though, neither volatility of returns nor trading volume experiences any significant change. So, we have new evidence showing that Index inclusion changes a firm's return volatility, and supporting the destabilization hypothesis.
Cheedradevi Narayanasamy, Mamunur Rashid and Izani Ibrahim
The purpose of this paper is to bridge the gap between the theory underlying divergence of opinion (DOP) and a cognitive concept termed as attention by specifically focussing on…
Abstract
Purpose
The purpose of this paper is to bridge the gap between the theory underlying divergence of opinion (DOP) and a cognitive concept termed as attention by specifically focussing on the volume and price behaviour in initial public offering (IPO) settings.
Design/methodology/approach
Employing the hierarchical regression for a sample of 282 Malaysian fixed price IPOs issued from 2004 to 2014, this research investigated the effect of investors’ attention on other information that complements the information revealed by initial return on DOP. Measure of market adjusted turnover (AbTO) from non-IPO setting was used to capture the DOP in the after-market, while investors’ attention was on a dichotomise scale variable which was captured by the increase/decrease of the Google search index (GOGC2) on the month of listing compared to a month prior to listing.
Findings
The findings indicate that attention moderates the relationship between initial return (also surrogates underpriced IPOs) and DOP. The findings suggest that disagreement to initial returns is reduced, while liquidity in the after-market is promoted, when investors pay more attention to other information that complements price change. The findings also indicate that behavioural tendency is less when individual participation is weak.
Research limitations/implications
This paper highlights the importance of interaction effects in explaining the behavioural tendency in the after-market.
Practical implications
The weak individual investors’ participation and greater attention reduce the market inefficiency in Malaysia.
Originality/value
The finding is consistent with the view that the level of individual investors’ participation and information disclosure requirements has an implication on behavioural bias, which affects DOP in the after-market.
Details
Keywords
Fanglin Shen, Quantong Guo, Hongyan Liang and Zilong Liu
The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home…
Abstract
Purpose
The purpose of this paper is to investigate the relationship between investors' divergence of opinions and the asset prices of foreign stocks and also examine the effect of home market country-level factors on the influence of divergency of opinions on stock price.
Design/methodology/approach
The authors employ panel data estimation with fixed effects to examine the host market response in divergent opinions to the earnings announcements. The paper uses the American Depositary Receipts (ADRs) of 42 countries from 1985 to 2011.
Findings
The authors find a negative relationship between differences of opinions and excess quarterly earnings announcement returns, and investors do process information asymmetrically based on good and bad earnings shocks. In addition, the authors find the negative relationship between divergent opinions and excess earnings announcement returns in ADRs is more pronounced in countries with short-sales restrictions, while other home-market country-level factors – the enforcement of insider trading law, legal origin, investor protection and rating on accounting standard – do not influence the relationship between investors' divergency of opinion and stock returns.
Originality/value
This paper is among the first to bring asymmetric effects on convergence in Miller framework and enhance the understanding of price convergence documented in Miller (1977). In addition, this study incorporates home-market country-level factors in explaining the relationship between investors' divergency of opinions and stock returns.
Details
Keywords
Phillip T. Lamoreaux, Lubomir P. Litov and Landon M. Mauler
We document the emergence of the Lead Independent Director (LID) board role in a sample of U.S. firms from 1999–2015. We find that firms that adopt an LID board role are larger…
Abstract
We document the emergence of the Lead Independent Director (LID) board role in a sample of U.S. firms from 1999–2015. We find that firms that adopt an LID board role are larger and have more independent boards, higher institutional investor holdings, and an NYSE listing. Firms with greater anticipated benefits from monitoring also adopt an LID role, e.g., firms with dual CEO-Chairman, with more takeover defense mechanisms, and with higher cash holdings. Using an event study methodology, we find that investors respond positively to the adoption of an LID board role. Lastly, using instrumental variables to address endogeneity in the LID board role, we find that firms with an LID are more likely to terminate poorly performing CEOs. Taken as a whole, these results suggest that the LID board role enhances firm value and improves the quality of corporate governance.
Details
Keywords
Imtiaz Sifat and Azhar Mohamad
Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit breakers' ability to achieve so are nonconclusive. While previous scholars studies…
Abstract
Purpose
Despite regulatory claims of straitening volatility and preventing crashes, evidences on circuit breakers' ability to achieve so are nonconclusive. While previous scholars studies general performances of circuit breakers, the authors examine whether Malaysian price limits aggravate volatility, impede price discovery, and interfere with trading activities in both tranquil and stressful periods.
Design/methodology/approach
The study uses a combination of parametric and nonparametric techniques consistent with Kim and Rhee (1997) to examine the major ex-post hypotheses in circuit breaker research.
Findings
For calm markets, the authors find significant success of upper limits in tempering volatility with low trading interference. Lower limits show mixed results. Conversely, in crisis markets limits fare poorly in nearly all aspects, particularly for lower limits.
Practical implications
Ramifications of the paper's findings are discussed through highlighting the asymmetric nature of price limits' ex-post effects. The paper also contributes to regulatory debate surrounding the quest for an optimal price limit.
Originality/value
The paper is the first of its kind in documenting long-horizon evidence of ex-post effects of a wide-band price limit. Moreover, the paper is unique in its approach in bifurcating circuit breaker performance along the line of market stability periods.
Details
Keywords
The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance.
Abstract
Purpose
The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance.
Design/methodology/approach
The author calculates position adjusted turnover ratio in the same three steps as Edelen et al. (2013). Position adjusted turnover ratio is intended to be a trading cost proxy that captures both fund trading volume and per-trade costs. A metric of eight Morningstar performance measures is utilized.
Findings
Results show that funds with a higher position adjusted turnover ratio tend to have a lower risk-adjusted performance, such as indicated by both Sharpe and Sortino ratios, and even though these funds may have a higher annualized return.
Research limitations/implications
The sample selection process is subject to a survival bias. Also, this study utilizes Morningstar performance measures rather than the widely used factors models.
Practical implications
This study examines the impact of invisible costs from fund trading. These findings encourage fund managers to take strategic steps to reduce the overall invisible cost impact to improve fund performance.
Originality/value
Few studies have investigated fund trading cost measured by position adjusted turnover ratio and its impact on fund performance. Further, this study contributes to current literature by using eight Morningstar fund performance variables, which are practitioner-oriented and are accessible by investors.
Details
Keywords
This study focused on analysing the effect of acquisition characteristics on post‐acquisition operating performance for 83 bids consisting of 83 public listed bidders acquiring 80…
Abstract
This study focused on analysing the effect of acquisition characteristics on post‐acquisition operating performance for 83 bids consisting of 83 public listed bidders acquiring 80 private, 2 public listed and 1 non‐public listed targets in Malaysia during the period 1988–1992. The specific bid characteristics analysed are business relatedness, management turnover, the relative size of targets to bidders, the method of payment offered and board of directors' ownership structure. Since the specific feature of the current sample is that it consists mainly of privately owned targets, the characteristics of disciplinary bids found in acquisitions of public listed targets were not expected in agreed bids between the bidders and targets in this study. The results indicate that the target directors' turnover and the directors' share ownership do not have a significant effect on the post‐acquisition performance. Rather it appears that, if anything, retention of existing management is more likely to lead to performance improvement. Further analysis shows that replacement of target management has no impact on post‐acquisition performance regardless of the relatedness line of business. The latter findings reinforce the unique characteristics of the data set used in the current analysis of acquisitions of privately owned Malaysian companies in which unique skills of previous directors may often be retained post‐acquisition regardless of the business relatedness. The study also provides evidence that acquisitions of highly related business between target and acquiring firm, large relative size of target to bidders and payment for the acquisition by shares have a significant positive impact on post‐acquisition control‐adjusted performance. However, highly related business between target and bidder and payment by shares are the only significant acquisition characteristics that have a significant positive impact on the post‐acquisition control‐adjusted performance when multiple regression is used.
Jungmu Kim, Changjun Lee, Woo-Hyuk Lee, Youngkyung Ok and Thuy Thi Thu Truong
The authors aim to understand the driving forces behind the idiosyncratic volatility puzzle in the Korean stock market. The authors study the Korean stock market because previous…
Abstract
Purpose
The authors aim to understand the driving forces behind the idiosyncratic volatility puzzle in the Korean stock market. The authors study the Korean stock market because previous works report a strong idiosyncratic volatility puzzle in Korea, and the market for the exchange-traded funds (ETFs) including low volatility ETFs has experienced drastic growth in Korea.
Design/methodology/approach
Using common stocks listed either on KOSPI or KOSDAQ over the period 1997–2016, the authors estimate idiosyncratic volatility using the Fama–French three-factor model. In addition, based on prior literature, the authors use turnover as a proxy for overvaluation. The authors then study the role of turnover in understanding the idiosyncratic volatility puzzle in Korea.
Findings
The authors find that turnover is highly associated with idiosyncratic volatility. Turnover is extremely large among firms with high idiosyncratic volatility and the puzzle disappears after we control for turnover, meaning that turnover subsumes the explanatory power of idiosyncratic volatility for equity returns. The authors also find underperformance of stocks with high turnover and high idiosyncratic volatility exclusively during earnings announcement periods. Overall, our finding implies that the puzzle arises since high idiosyncratic volatility stocks due to high turnover are overvalued and experience correction afterwards.
Originality/value
Literature has suggested explanations based on lottery preferences of investors and market frictions behind the idiosyncratic volatility puzzle. What makes our study distinct from previous work is that we find the role of turnover in understanding the idiosyncratic volatility puzzle using turnover measure as a proxy for overvaluation in the Korean stock market.
Details
Keywords
Sees the objective of teaching financial management to be to helpmanagers and potential managers to make sensible investment andfinancing decisions. Acknowledges that financial…
Abstract
Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.
Details
Keywords
Hyung-Suk Choi, Stephen P. Ferris, Narayanan Jayaraman and Sanjiv Sabherwal
To determine what role overconfidence plays in the forced removal of CEOs internationally.
Abstract
Purpose
To determine what role overconfidence plays in the forced removal of CEOs internationally.
Design/Methodology
The study makes use of the Fortune Global 500 list.
Findings
We find that overconfident CEOs face significantly greater hazards of forced turnovers than their non-overconfident peers. Regardless of important differences in culture, law, and corporate governance across countries, overconfidence has a separate and distinct effect on CEO turnover. Overconfident CEOs appear to be at greater risk of dismissal regardless of where in the world they are located. We also discover that overconfident CEOs are disproportionately succeeded by other overconfident CEOs, regardless of whether they are forcibly removed or voluntarily leave office. Finally, we determine that the dismissal of overconfident CEOs is associated with improved market performance, but only limited enhancement in accounting returns.
Originality/Value
This study is unique with its examination of overconfidence among global CEOs rather than being limited to U.S. chief executives. It also provides insight into how overconfidence is related to national cultures, legal systems and corporate governance mechanisms.
Details