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Article
Publication date: 29 May 2018

Stoyu I. Ivanov

This paper aims to examine performance of firms with a negative second-day return after the Initial Public Offering (IPO) relative to stocks with a positive second-day…

Abstract

Purpose

This paper aims to examine performance of firms with a negative second-day return after the Initial Public Offering (IPO) relative to stocks with a positive second-day return after the IPO. Loughran and Ritter (1995) document that firms which have done an IPO or an SEO underperform similar firms over three- and five-year investment horizons. Loughran and Ritter (2002) also document that firms that go public “leave money on the table”, with this amount being almost twice as large as the fees paid to the investment banks.

Design/methodology/approach

The study’s null hypothesis is that stocks with a negative return on the second day of the IPO perform better than firms with a positive return on the second day of the IPO. The authors estimate the second-day return based on first- and second-day closing prices from the Center for Research in Security Prices, and they use a regression model and Jensen’s alpha to test the hypothesis.

Findings

The authors find evidence that rejects the paper’s working null hypothesis of superior performance of negative second-day return IPO firms relative to positive second-day return IPO firms in the three-year and five-year period samples. They fail to find statistically significant evidence in the entire period samples which suggest that negative second-day return IPO firms perform similarly to positive second-day return IPO firms.

Originality/value

The findings in this study raise interesting questions with regards to the ideas developed by Loughran and Ritter (2002) and the “money left on the table”. These findings are of interest to both entrepreneurs and investment bankers who advise them during the underwriting process. If there is not a benefit in terms of IPO performance to investors, then the question becomes – shouldn’t owners possibly consider actually “taking money from the table”. After all, the return to investors will be the same either way but if entrepreneurs make more money at IPO they would be motivated to start more companies in the future.

Details

Studies in Economics and Finance, vol. 35 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 20 November 2020

Stoyu I. Ivanov and Matthew Faulkner

Recently, multiple examples of large firms acquiring real estate have polarized investors. Who are the firms investing in real estate and what are their characteristics…

Abstract

Purpose

Recently, multiple examples of large firms acquiring real estate have polarized investors. Who are the firms investing in real estate and what are their characteristics? How does this investment in owning commercial real estate relate to cash holding policies? Is owning commercial real estate associated with better credit ratings? This study questions commonly held beliefs in finance that firms prefer to lease their real estate rather than own it and examines what are the differences in outcomes between the choices.

Design/methodology/approach

The authors identify three testable hypotheses based on the research questions and prior literature. The authors use univariate and multivariate analyses to test these hypotheses along with thorough robustness and addressing of endogeneity issues to confirm that our results hold in a variety of settings. The authors employ new proxies of real estate to the literature from Bloomberg and firm level data from Compustat.

Findings

The authors show that more firms within the S&P 500 choose to own commercial real estate. The authors also find many significant differences in corporate characteristics between firms who own real estate and those who do not, such that firms with real estate ownership have significantly: higher growth opportunities, higher R&D expenses, higher working capital levels, lower capital expenditures, higher leverage and higher cash flow. Firms with corporate real estate (CRE) ownership hold less cash. Contingent on real estate ownership, firms have higher cash holdings as their real estate holdings increase. Last, firms with commercial real estate ownership have higher credit ratings.

Originality/value

One of the main contributions of this study is in the use of a new specific proxy using data on corporate land, buildings and construction in progress, which to the best of our knowledge has not been done in the past. Other studies focus on aggregate property, plant and equipment data which blurs the CRE ownership picture. Additionally, the authors provide an underexplored variable of CRE ownership to its impacts of cash holdings and credit ratings, which had yet to be uncovered.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 6 June 2016

Stoyu I. Ivanov

The purpose of this study is to identify the factors that impact the exchange-traded funds net fund flow changes on a daily basis.

Abstract

Purpose

The purpose of this study is to identify the factors that impact the exchange-traded funds net fund flow changes on a daily basis.

Design/methodology/approach

A total of 1,212 different exchange-traded funds with a proprietary daily net fund flow data and logistic regressions were studied because the majority of the 1,212 exchange-traded funds have mostly zero daily net fund flow changes.

Findings

It was documented that in the period December 22, 2005 to July 28, 2010 autocorrelation at the daily frequency is not universally present for the 1,212 exchange-traded funds that we study, despite the fact that this is the case in the monthly data documented in prior studies. No support was found for the feedback trading hypothesis but some support was found for the contrarian investor hypothesis on daily basis, even though the opposite is ascertained for both in the prior literature monthly data. Also, it cannot be concluded that tracking error prompts net fund flow changes and thus arbitrage activity.

Originality/value

The paper contributes to the ongoing analysis of the factors influencing investment companies fund flow changes, which has mostly focused on open-end funds and monthly data so far. Considering the increased scope and relevance of exchange-traded funds in today’s financial markets, this study fills a void in the fund flow changes literature.

Details

Studies in Economics and Finance, vol. 33 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 16 May 2016

Stoyu I. Ivanov

The aim of this study is to examine real estate investment trust exchange-traded funds (REIT ETFs) and test for the existence of the “asymmetric beta puzzle” phenomenon in…

Abstract

Purpose

The aim of this study is to examine real estate investment trust exchange-traded funds (REIT ETFs) and test for the existence of the “asymmetric beta puzzle” phenomenon in these financial instruments that are relatively new and are gaining popularity. The “asymmetric beta puzzle” phenomenon is used to identify the hedging and diversification benefits of a financial instrument. “Asymmetric beta puzzle” exists when betas in declining markets are higher than betas in advancing markets.

Design/methodology/approach

To study 14 REIT ETFs by using monthly and daily Center for Research in Security Prices (CRSP) data. Capital asset pricing model (CAPM) and Fama–French three-factor model were used to estimate betas in REIT ETFs and those in advancing and declining markets. Both the S&P 500 and the CRSP value-weighted indices were used in the beta estimation. Two hypotheses with regard to betas in both advancing and declining markets were defined and tested to test for the existence of the “asymmetric beta puzzle” phenomenon.

Findings

This study confirms the presence of the “asymmetric beta puzzle” in the data of monthly REIT ETFs as documented by Goldstein and Nelling (1999) and Chatrath et al. (2000) for REITs; however, this phenomenon was not found when using daily data, but quite the opposite – REIT ETF betas are higher in advancing markets than they are in declining markets – was found.

Originality/value

Goldstein and Nelling (1999) and Chatrath et al. (2000) identify the phenomenon of “the asymmetric REIT-beta puzzle” in monthly REIT’s returns. This study revisits the phenomenon identified in the aforementioned authors’ studies by using daily data and a relatively new real estate financial instrument – REIT ETFs. Therefore, this paper fills a void in the literature and would benefit both institutional and retail investors in their portfolio designs.

Details

The Journal of Risk Finance, vol. 17 no. 3
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 7 September 2015

Stoyu I. Ivanov

The purpose of this paper is to find if erosion of value exists in grantor trust structured exchange traded funds. The author examines the performance of six currency…

Abstract

Purpose

The purpose of this paper is to find if erosion of value exists in grantor trust structured exchange traded funds. The author examines the performance of six currency exchange traded funds’ tracking errors and pricing deviations on intradaily-one-minute interval basis. All of these exchange traded funds are grantor trusts. The author also studies which metric is of more importance to investors in these exchange traded funds by examining how these performance metrics are related to the exchange traded funds’ arbitrage mechanism.

Design/methodology/approach

The Australian Dollar ETF (FXA) is designed to be 100 times the US Dollar (USD) value of the Australian Dollar, the British Pound ETF (FXB) is designed to be 100 times the USD value of the British Pound, the Canadian Dollar ETF (FXC) is designed to be 100 times the USD value of the Canadian Dollar, the Euro ETF (FXE) is designed to be 100 times the USD value of the Euro, the Swiss Franc ETF (FXF) is designed to be 100 times the USD value of the Swiss Franc and the Japanese Yen ETF (FXY) is designed to be 10,000 times the USD value of the Japanese Yen. The author uses these proportions to estimate pricing deviations. The author uses a moving average model based on an Elton et al. (2002) to estimate if tracking error or pricing deviation are more relevant in ETF arbitrage and thus to investors.

Findings

The author documents that the average intradaily tracking errors for the six currency ETFs are relatively small and stable. The tracking errors are highest for the FXF, 0.000311 percent and smallest for FXB, −0.000014 percent. FXB is the only ETF with a negative tracking error. All six ETFs average intradaily pricing deviations are negative with the exception of the FXA pricing deviation which is a positive $0.17; the rest of the ETFs pricing deviations are −0.3778 for FXB, −0.3231 for FXC, −0.2697 for FXC, −0.2697 for FXE, −0.6484 for FXF and −0.9273 for FXY. All exhibit skewness, kurtosis, very high levels of positive autocorrelation and negative trends, which suggests erosion of value. The author also found that these exchange traded funds’ arbitrage mechanism is more closely related to the exchange traded funds’ pricing deviation than tracking error.

Research limitations/implications

The paper uses high-frequency one-minute interval data in the analysis of pricing deviation which might be artificially deflating standard errors and thus inflating the t-test significance values.

Originality/value

The paper is relevant to ETF investors and contributes to the continuing search in the finance literature of better ETF performance metric.

Details

International Journal of Managerial Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 12 April 2013

Stoyu I. Ivanov

The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.

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Abstract

Purpose

The purpose of this study is to extend the work of DeFusco, Ivanov and Karels by examining pricing deviation of DIA, SPY and QQQQ on intradaily basis.

Design/methodology/approach

The DIA is designed to be one hundredth of the DJIA, the SPY is designed to be one tenth of the S&P 500 and QQQQ is designed to be one fortieth of the NASDAQ 100. This feature of ETFs requires the estimation of the difference between the proportional level of the index and the price of the ETF, which is the ETF pricing deviation.

Findings

The paper finds that the DIA, SPY and QQQQ pricing deviations are 0.0429, −0.0743 and 0.4298, respectively. The findings indicate that the prices of DIA and QQQQ are on average lower than the underlying indexes. SPY is the exception having a price which is higher than the theoretical price of the S&P 500 index. The author finds that this is due to the increased demand for the SPY. Additionally, the paper provides an explanation for the large change (increase) in the pricing deviation of QQQQ after December 1, 2004 which DeFusco, Ivanov and Karels could not explain. On December 1, 2004 QQQQ trading was consolidated on NASDAQ. The paper finds negative growth in the volume of QQQQ after December 1, 2004 indicating decrease in popularity of this ETF. The decrease in popularity of QQQQ might explain the increase in its pricing deviation.

Research limitations/implications

The paper uses high frequency data in the analysis of pricing deviation which might be artificially deflating standard errors and thus inflating the t‐test significance values.

Originality/value

The paper contributes to the ongoing search in the finance literature of precision ETF performance metrics.

Details

Managerial Finance, vol. 39 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 17 March 2014

Stoyu I. Ivanov

In this study, the author aims to examine the behavior of QQQ options at the time of the QQQ move from AMEX to NASDAQ on December 1, 2004. The author addresses the…

Abstract

Purpose

In this study, the author aims to examine the behavior of QQQ options at the time of the QQQ move from AMEX to NASDAQ on December 1, 2004. The author addresses the questions: is there a relation between hedging and speculation, if such a relation exists considering the improvement in market trading efficiency after the QQQ move did the relation between speculative demand for options and hedging demand for options strengthen at the time of the QQQ move, if such a relation exists does hedging activity follow speculative activity.

Design/methodology/approach

The author uses the fact that deep-out-of-the-money puts are used for hedging, whereas deep-out-of-the-money calls are used for speculation. The author uses spectral analysis on QQQ options in the attempt to answer the research question. The author uses spectral analysis because the data in the study are non-normally distributed which would make parametric testing meaningless.

Findings

The author finds that indeed the relation between speculative demand and hedging demand for options exists and strengthens after the consolidation of trading on NASDAQ and that hedging follows speculation. The fact that this relation exists is economically meaningful in that this is established for the first time empirically in support of the theoretical models predicting this relation's existence.

Originality/value

Market participants on both the speculation side of the investment spectrum, such as hedge funds, and hedging side of the investment spectrum, such as mutual funds and money managers, would be interested in this topic and the findings of this paper. The main contribution of this study is in examining the relation between differential demand for options by using the non-parametric tools of spectral analysis. This helps extend the understanding of exchange traded funds' (ETF') option behavior and contributes to this strand of the ETF literature.

Details

The Journal of Risk Finance, vol. 15 no. 2
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 November 2011

John M. Geppert, Stoyu I. Ivanov and Gordon V. Karels

The purpose of this paper is to examine the shocks to firm's beta around the event of addition or deletion from the S&P 500 index.

Abstract

Purpose

The purpose of this paper is to examine the shocks to firm's beta around the event of addition or deletion from the S&P 500 index.

Design/methodology/approach

The total derivative of beta and Campbell and Vuolteenaho decomposition of beta methodologies are used, on monthly and daily basis, to examine the behavior of beta around the event.

Findings

Results show a significant increase in correlations of the event firms' returns and the market proxy returns and cash‐flow betas, and decrease in discount‐rate betas for added firms and the opposite effects for deleted firms. Robustness tests indicate that the total derivative changes effects are typical for the event firms industry but that the cash‐flow correlation changes are specific to the firm. These findings suggest that addition or deletion from the S&P 500 index is not an information free event.

Research limitations/implications

The Campbell and Vuolteenaho methodology has limitations – it is conditional on the selection of state variables. In future research it would be beneficial to use different state variables in the beta decomposition framework. Another relevant question for a future research is: what are the effects of the event on the Fama‐French factor model loadings?

Originality/value

The paper's findings contribute to the ongoing debate in the literature of the information hypothesis for addition or deletion from the S&P 500 index.

Details

Review of Accounting and Finance, vol. 10 no. 4
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 18 January 2011

Stoyu I. Ivanov and Janis K. Zaima

The purpose of this study is to examine whether employee stock ownership plans (ESOPs) add or destroy value from a new perspective by examining the relation of the…

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2811

Abstract

Purpose

The purpose of this study is to examine whether employee stock ownership plans (ESOPs) add or destroy value from a new perspective by examining the relation of the adoption of ESOP and the company cost of capital.

Design/methodology/approach

The capital asset pricing model is used to estimate the company's cost of equity capital, and the cost of debt is estimated using bond yield spreads. The weighted average cost of capital (WACC) is calculated as the weighted percentage of the firm funded by equity, preferred stock, and debt multiplied by the individual costs of capital. Univariate and multivariate analyses are conducted around the event of adoption to determine if the cost of capital changes after the adoption of ESOP.

Findings

Results from the univariate analysis show that firms adopting leveraged as well as non‐leveraged ESOP plans experience decreases in costs of equity and debt capital as well as decreases in their WACC. However, the multivariate analysis demonstrates that only the non‐leveraged common ESOPs are negatively correlated to cost of equity, cost of debt, and WACC. Robustness tests confirm that the reduction in the cost of equity capital drives the decline in WACC.

Originality/value

The findings contribute to the cost of capital literature and have implications for firms that decide to engage in ESOP plans. It is found that ESOPs benefit from decreased cost of capital related to the ability to increase debt capacity for the firm as well as the existing tax preferential treatments of ESOP plans.

Details

Managerial Finance, vol. 37 no. 2
Type: Research Article
ISSN: 0307-4358

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