Search results

Several studies and research related to event study and terrorist bombing acts have different conclusions. Moreover, research on terrorist bombings worldwide has never been conducted. Hence, this research aims at examining the impact of terrorist bombing using the abnormal return variables by looking at all bombings around the world in the past 10 years. This research uses a paired t-test by looking at the abnormal return before, during, and after a bombing act. Results show no significant difference between the abnormal return before, during, and after bombing acts.

This research examines stock traders' disposition effects and contrarian/momentum behavior in the Taiwan Stock Exchange (TWSE). Specifically, we first investigate disposition effects across all trader types and then examine the relationships between disposition effects, trader types, and order characteristics. Next, we explore contrarian and/or momentum behavior and analyze the relationships among the contrarian/momentum behavior, investor type, and order characteristics. Finally, the links among trader types, order characteristics, and investment performance are detected. This chapter yields the following findings. (1) Individual investors exhibit the strongest disposition effects compared to other investors. (2) Foreign investors, investment trusts, and individual investors tend to use large orders to sell loser stocks. (3) Investment trusts are inclined to be momentum traders, while individual investors tend to perform contrarian strategies. (4) Institutional aggressive and large orders perform better than individuals' orders. (5) The performance of foreign investors' selling decisions is better than that of retail investors.

The paper investigates whether stock liquidity of firms is valued by lending banks revealing that firms with higher liquidity in the capital market pay lower spreads for the loans they obtain. This relationship is causal as evidenced by using the decimalization of tick size as an exogenous shock-to-stock liquidity in a difference-in-differences setting. Reduction in financial constraint and improvement in corporate governance induced by higher stock liquidity are potential mechanisms through which liquidity impacts loan spreads. These higher liquidity firms also receive less stringent nonprice loan terms, for example, longer loan maturity and less required collateral.

In this chapter we examine the determinants of the long-run stock price performance of Initial Public Offerings (IPOs) on Europe’s new stock markets. We report that the average company that went public on these markets has been a very poor long-term investment. We find that the stock price performance during a three-year window is inversely related to first-day returns. We also find that the long-term underperformance of IPO firms begins after the lock-up agreement has expired and insiders start trading in the firm’s shares. These findings are consistent with the divergence of opinion hypothesis of Miller (1977).

We investigate institutional investors’ trading behavior of acquiring firm stocks surrounding merger activities for the period 1992–2001. We label investment companies and independent investment advisors as active institutions and banks, nonbank trusts, and insurance companies as passive institutions. We analyze the trading behavior of active and passive institutions surrounding merger announcements and their eventual resolution. Our results indicate that active institutions significantly increase their holdings of acquiring firm stocks for mergers with higher announcement period abnormal return and this increase is more pronounced for stock mergers than cash mergers. Active institutions display preference for stock proposals at the merger announcement on the basis of their prior beliefs and this is explained by the “overreaction phenomenon.” However, they update their beliefs between announcement and final resolution as more information arrives into the market. Finally, active institutions appear to correct their overreaction behavior by displaying their greater preference for cash proposals as compared to stock proposals at the quarter of eventual outcome. The trading behavior of passive institutions suggests that these institutions disregard the market response of merger announcement in trading acquiring firm stocks at the announcement quarter. The passive institutions gradually update their beliefs and utilize the information released at the announcement in rebalancing their portfolios at the final resolution.

We examine market response to changes in the annual “Dogs of the Dow” (DOD) portfolio. Specifically, we explore stock prices and trading volumes of the Dow stocks that are newly included into or excluded from the DOD portfolio. Although the historical performance of this popular dividend-driven investment strategy is subject to debate, our study focuses on investigating Harris and Gurel’s (1986) “noninformation-motivated demand shifts” in the sample of DOD additions and deletions. Utilizing standard event study methodology over the period 1996–2016, we find evidence that a Dow stock experiences a significant but temporary increase (decrease) in price when it is newly included into (excluded from) the DOD portfolio. Price reversals occur within one week of the reconstitutions. We also find that trading volumes temporarily increase following both index additions and deletions. The results support the price-pressure hypothesis as the DOD reconstitutions do not generally convey new information.

Purpose – The aggregate investment by foreign institutional investors (FIIs) in the Indian stock market is significant compared to that by domestic institutions and individual (retail) investors. The question of whether FIIs exhibit herding and positive feedback trading while investing in the Indian stock markets has not been examined so far. This study is an attempt to fill the gap and contribute to the existing evidence on foreign portfolio investment in India.

Methodology/approach – We have analyzed the daily data on purchases and sales of securities by FIIs sourced from the Securities and Exchange Board of India (SEBI), and the Bombay Stock Exchange (BSE). We have adopted the approach of Lakonishok et al. (1992), and Wermers (1999) to examine herding and positive feedback trading by foreign investors.

Findings – Our results suggest that FIIs exhibit herding and positive feedback trading during different phases of the stock market. This observed behavior is prominent in but not restricted to large cap stocks as they enjoy better liquidity.

Social implication – The herding and positive feedback trading by FIIs is a cause for concern for government of India, capital market regulator (SEBI), and the country's central bank (RBI) as it adversely affects stock prices and volatility. They are required to formulate and implement a suitable policy response given their objective of protecting the interests of small investors in the market. They may also have to monitor the purchases and sales of equities by FIIs in general and of better performing large cap stocks in particular.

We model international short-term capital flow by identifying technical trading rules in short-term capital markets using Genetic Programming (GP). The simulation results suggest that the international short-term markets was quite efficient during the period of 1997–2002, with most GP generated trading strategies recommending buy-and-hold on one or two assets. The out-of-sample performance of GP trading strategies varies from year to year. However, many of the strategies are able to forecast Taiwan stock market down time and avoid making futile investment. Investigation of Automatically Defined Functions shows that they do not give advantages or disadvantages to the GP results.