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1 – 10 of over 3000Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there…
Abstract
Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there still remains a lack of consensus for a single explanation of this anomaly. Different from other studies, this dissertation attempts to answer the primary research question: how can investors make trading profits from the ex-dividend day anomaly and how much can they earn? With this goal, I examine the economic motivations of equity investors through four main hypotheses identified in the anomaly's literature: the tax differential hypothesis, the short-term trading hypothesis, the tick size hypothesis, and the leverage hypothesis.
While the U.S. ex-dividend anomaly is well studied, I examine a long data window (1975–2010) of Thailand data. The unique structure of the Thai stock market allows me to assess all four main hypotheses proposed in the literature simultaneously. Although I extract the sample data from two data sources, I demonstrate that the combined data are consistently sampled. I further construct three trading strategies – “daily return,” “lag one daily return,” and “weekly return” – to alleviate the potential effect of irregular data observation.
I find that the ex-dividend day anomaly exists in Thailand, is governed by the tax differential, and is driven by short-term trading activities. That is, investors trade heavily around the ex-dividend day to reap the benefits of the tax differential. I find mixed results for the predictions of the tick size hypothesis and results that are inconsistent with the predictions of the leverage hypothesis.
I conclude that, on the Stock Exchange of Thailand, juristic and foreign investors can profitably buy stocks cum-dividend and sell them ex-dividend while local investors should engage in short sale transactions. On average, investors who employ the daily return strategy have earned significant abnormal return up to 0.15% (45.66% annualized rate) and up to 0.17% (50.99% annualized rate) for the lag one daily return strategy. Investors can also make a trading profit by conducting the weekly return strategy and earn up to 0.59% (35.67% annualized rate), on average.
EDWARD A. DYL, H. DOUGLAS WITTE and LARRY R. GORMAN
We examine tick sizes, stock prices, and share turnover in eighteen stock markets in developed countries and find that differences in mandatory tick sizes explain a significant…
Abstract
We examine tick sizes, stock prices, and share turnover in eighteen stock markets in developed countries and find that differences in mandatory tick sizes explain a significant proportion of the variation in stock prices among markets, and that lower percentage tick sizes are not associated with higher turnover. We consider the implications of these findings for the recent decimalization of stock trading in the United States, and conclude that decimal trading is likely to result in lower stock prices (due to stock splits) with no substantial change in dollar trading volume.
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Cheng-Yi Chien, Tzu-Hsiang Liao and Hsiu-Chuan Lee
– This paper aims to examine the impact of a reduction in tick size on the information content of the order book by using data from the Taiwan Stock Exchange (TWSE).
Abstract
Purpose
This paper aims to examine the impact of a reduction in tick size on the information content of the order book by using data from the Taiwan Stock Exchange (TWSE).
Design/methodology/approach
To estimate the information content of the order book, the modified information share proposed by Hasbrouck and extended by Lien and Shrestha is used in this paper.
Findings
The empirical results show that the limit order book is informative. Furthermore, the results indicate that a reduction in tick size will decrease the information content of the order book and the decrease in the information content of the order book is positively related to the thinner order book.
Originality/value
This paper suggests that, in order to enhance the information content of the order book, the TWSE should disclose the full limit order book.
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Rui Ma, Hamish D. Anderson and Ben R. Marshall
The purpose of this paper is to review the literature on liquidity in international stock markets, highlights differences and similarities in empirical results across existing…
Abstract
Purpose
The purpose of this paper is to review the literature on liquidity in international stock markets, highlights differences and similarities in empirical results across existing studies, and identifies areas requiring further research.
Design/methodology/approach
International cross-country studies on stock market liquidity are categorized and reviewed. Important relevant single-country studies are also discussed.
Findings
Market liquidity is influenced by exchange characteristics (e.g. the presence of market makers) and regulations (e.g. short-sales constraints). The literature has identified the most appropriate liquidity measures for global research, and for emerging and frontier markets, respectively. Major empirical facts are as follows. Liquidity co-varies within and across countries. Both the liquidity level and liquidity uncertainty are priced internationally. Liquidity is positively associated with firm transparency and share issuance, and negatively related to dividends paid out. The impact of internationalization on liquidity is not universal across firms and countries. Some suggested areas for future studies include: dark pools, high-frequency trading, commonality in liquidity premium, funding liquidity, liquidity and capital structure, and liquidity and transparency.
Research limitations/implications
The paper focusses on international stock markets and does not consider liquidity in international bond or foreign exchange markets.
Originality/value
This paper provides a comprehensive survey of empirical studies on liquidity in international developed and emerging stock markets.
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Wendy Kesuma, Irwan Adi Ekaputra and Dony Abdul Chalid
This paper investigates whether individual investors are attentive to stock splits and whether higher split ratios (stronger private information signals) reduce the disposition…
Abstract
Purpose
This paper investigates whether individual investors are attentive to stock splits and whether higher split ratios (stronger private information signals) reduce the disposition effect.
Design/methodology/approach
This study employs stock split events and transaction data in the Indonesia Stock Exchange (IDX) from January 2004 to December 2017. The authors measure individual investors' attention using buy-initiated trades. To test the effect of split signal on disposition effect, the authors regress individual investors' sell-initiated trades on past stock returns.
Findings
Unlike Birru (2015), the authors find that individual investors are attentive to stock splits, especially when stock split ratios are high. In turn, stock splits tend to weaken the disposition effect. The higher the stock split ratios, the weaker the disposition effect.
Research limitations/implications
This study has a limitation in that the authors exclude all stock splits with dividend events around the split date. These stock splits cover 37% of all splits in Indonesia.
Practical implications
Practically, individual investors should look for stock-related information to reduce disposition bias.
Originality/value
To the best of authors’ knowledge, this study is the first to test individual investors' attention on stock splits based on their buy-initiated trades. This study is also the first to test the impact of stock split ratios on the disposition effect reduction. This study's findings enrich the scant literature on individual investors' attention and how to reduce their disposition effect bias.
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Mingsheng Li, Steven Xiaofan Zheng and Melissa V. Melancon
To test the effects of underpricing and share retention (i.e. the proportion of shares retained by the pre‐initial‐public‐offering (IPO) owners) on IPO aftermarket liquidity.
Abstract
Purpose
To test the effects of underpricing and share retention (i.e. the proportion of shares retained by the pre‐initial‐public‐offering (IPO) owners) on IPO aftermarket liquidity.
Design/methodology/approach
Uses both percentage spread and turnover ratio to measure liquidity. The percentage spread is the quoted bid‐ask spread divided by the quoted midpoint and measures the trading cost relative to share price. Turnover ratio is the daily trading volume divided by the number of shares offered and measures the speed of transaction. Both non‐parametric analyses and multiple regressions are conducted to investigate the effects of underpricing and share retention on liquidity.
Findings
Results indicate that initial return is positively related to turnover ratio and negatively related to percentage spread. These relations are significant even after controlling for other factors. Also finds that the pre‐IPO owners’ retention rate is positively related to turnover ratio and negatively related to percentage spread. High retention rates attract more trades, provide quality assurance, and improve IPO aftermarket liquidity.
Originality/value
This paper investigates the theoretical links between underpricing and liquidity and provides direct evidence on Booth and Chua's liquidity theory. In addition, this is one of the first empirical studies to analyze the effect of share retention on aftermarket liquidity.
The purpose of this paper is to provide the current state of knowledge about the Flash Crash. It has been one of the remarkable events of the decade and its causes are still a…
Abstract
Purpose
The purpose of this paper is to provide the current state of knowledge about the Flash Crash. It has been one of the remarkable events of the decade and its causes are still a matter of debate.
Design/methodology/approach
This paper reviews the literature since the early days to most recent findings, and critically compares the most important hypotheses about the possible causes of the crisis.
Findings
Among the causes of the Flash Crash, the literature has propsed the following: a large selling program triggering the sales wave, small but not negligible delays suffered by the exchange computers, the micro-structure of the financial markets, the price fall leading to margin cover and forced sales, some types of feedback loops leading to downward price spiral, stop-loss orders coupled with scarce liquidity that triggered price reduction. On its turn leading to further stop-loss activation, the use of Intermarket Sweep Orders, that is, orders that sacrificed search for the best price to speed of execution, and dumb algorithms.
Originality/value
The results of the previous section are condensed in a set of policy implications and recommendations.
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Don Ellithorpe and Scott Putnam
Major segments of the U.S. economy are affected by weather. With the emergence of weather derivatives, exposure to weather‐related risk has evolved from being merely accepted. As…
Abstract
Major segments of the U.S. economy are affected by weather. With the emergence of weather derivatives, exposure to weather‐related risk has evolved from being merely accepted. As a result, weather risk management strategies are increasingly being adopted in strategic decision‐making by senior management. Weather derivatives enable managers to focus on core operating risks by trading away those business exposures related to temperature, precipitation, snow level, etc. These contracts offer a unique opportunity to discretely trade a new category of risk, which was previously considered to be an inevitable cost of doing business. This article describes the weather derivatives market and its contracts and outlines the principles of pricing and risk analysis in weather markets. In closing, the article discusses the application of these products for portfolio and business risk management using illustrative examples from the energy markets.
Hamish D. Anderson and Yuan Peng
The purpose of this paper is to examine the impact on stock liquidity following the reduction of minimum tick size from $0.01 to $0.005 for a selection of dual-listed and property…
Abstract
Purpose
The purpose of this paper is to examine the impact on stock liquidity following the reduction of minimum tick size from $0.01 to $0.005 for a selection of dual-listed and property stocks on the New Zealand Exchange (NZX) during 2011.
Design/methodology/approach
Various liquidity measures were examined six months either side of the change in minimum tick size for the eligible stocks and these were compared to a sample of stocks matched on similar liquidity characteristics. Liquidity measures examined in the paper include quoted and effective spread, volume, depth and binding-constraint probability.
Findings
After controlling for firms matched on similar pre-period liquidity characteristics both spread and depth decline significantly. Evidence that small firms experience significant declines in trading activity was also found, and while firms with higher binding-constraints probability have greater declines in spread, their decline in depth is greater still.
Research limitations/implications
The small sample of 17 stocks eligible for the $0.005 minimum tick size potentially impacts on the strength of the statistical analysis. As such, it is harder to detect statistically significant changes in liquidity.
Practical implications
These findings have important implications for policymakers as the hoped for benefits of smaller tick increments may only be fully realized by larger more active stocks.
Originality/value
The paper examines the impact of a change in minimum tick size on eligible New Zealand Exchange (NZX) stocks to determine whether it meet the stated NZX goal of boosting liquidity.
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