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We examine the informational roles of trades and time between trades in the domestic and overseas US Treasury markets. A vector autoregressive model is employed to assess the information content of trades and time duration between trades. We find significant impacts of trades and time duration between trades on price changes. Larger trade size induces greater price revision and return volatility, and higher trading intensity is associated with a greater price impact of trades, a faster price adjustment to new information and higher volatility. Higher informed trading and lower liquidity contribute to larger bid–ask spreads off the regular daytime trading period.

Current US tax laws provide investors an incentive to time the sales of their bonds to minimize tax liability. This gives rise to a tax-timing option that affects bond value. In reality, corporate bond investors’ tax-timing strategy is complicated by risk of default. Existing term structure models have ignored the effect of the tax-timing option, and how much corporate bond value is due to the tax-timing option is unknown. In this chapter, we assess the effects of taxes and stochastic interest rates on the timing option value and equilibrium price of corporate bonds by considering discount and premium amortization, multiple trading dates, transaction costs, and changes in the level and volatility of interest rates. We find that the value of the tax-timing option accounts for a substantial proportion of corporate bond price even when interest rate volatility is low. Ignoring the timing option value results in overestimation of credit spread, and underestimation of default probability and the marginal investor’s income tax rate. These estimation biases generally increase with bond maturity and credit risk.

The purpose of this paper is to provide a comprehensive background on the recent legislative, regulatory, and prosecutorial scrutiny of mutual funds and underlying issues such as the level and transparency of fees and costs, distribution and sales practices, and fund governance.

Provides a detailed chronology of events since January 2003 concerning mutual fund scandals such as trading abuses and questionable sales practices and related issues such as revenue sharing, directed brokerage, soft dollars, market timing, late trading, and selective disclosure. The chronology in this issue of JOIC will be followed an article in the next issue that describes reform initiatives that have taken place in response to the scandals.

Despite criticism and scrutiny of equity mutual funds following poor performance in 2001 and 2002, meaningful efforts to achieve reform began to lose momentum in mid‐2003. Then concern with mutual fund abuses was reignited in September 2003 when New York Attorney General Eliot Spitzer announced a settlement with Canary Capital that involved market timing, late trading, and selective disclosure. Since then there have been numerous disclosures of fund trading abuses and questionable trading practices, and the resulting uproar has triggered significant efforts to reform the manner in which funds and their service providers conduct business.

This comprehensive chronology provides an essential reference by bringing together all the events and underlying issues related to mutual fund scandals, abuses, regulation, compliance, and reform efforts since January 1, 2003.

Are firms able to time the market? The purpose of this paper is to focus on the study of own stock trading, emphasizing both repurchase and resell operations on the open market as well as over the counter.

The authors use data on 37,997 own stock transactions from 2005 to 2015 of Euronext Lisbon listed firms. Following Dittmar and Field (2015), this paper uses relative transaction prices to ascertain the relative performance of own stock transactions, in the open market and over the counter.

Results show that firms can time both repurchases as well as resales. Firms repurchase (resell) at lower (higher) prices than those prevailing in the market. Moreover, market-timing ability proves to be higher after the bailout period and to be influenced by the own stock trading frequency. Trading on the open market allows for increased timing ability for own stock repurchasing and reselling activity. Finally, results show seasonal effects both in repurchase and resale performance. Also, more efficient but less valuable firms are more likely to be successful in timing the market.

The authors study both the repurchasing and the reselling activity of the same set of firms, of already issued stock, using high-frequency (daily) data. In addition, the authors study own stock trading both in the open market and OTC, and also study the impact of a major economic shift on the firms’ ability to time the market.

The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple venues. The results provide novel empirical insights questioning the generalizability of the current literature and aim to expand the understanding of price determination in a fragmented market microstructure.

This paper provides an empirical data analysis based on an event study methodology. The authors applied Thomson Reuters Tick History data covering German blue chip stocks listed on multiple venues in 2009 and 2013. Different time aggregations up to one second are applied to provide an in-depth analysis.

The paper empirically discovers a persistent price leader-follower relationship not only during intraday auctions but also in subsequent continuous trading. The authors found that trading on alternative venues instantly dries out in case the dominant market switches to a call auction. In these situations, alternative markets await and adopt the official price signal of the dominant market although prices on alternative venues still indicate a certain extent of price discovery. This phenomenon remains persistent at different levels of market fragmentation, indicating that alternative trading venues fully accept the price leadership role of the dominant market, no matter their own market share.

This paper provides an innovative empirical setup to analyze price co-movement and convergence based on high-frequent data. Further, the results provide novel and robust insights into the price determination process in fragmented markets that clarify the role of price follower and price leader.

This study concerns how well stock market regulators prevent trading by using trading halts when they suspect asymmetric information in the market. Security trading halts in the Portuguese stock market are analysed to measure the effectiveness of trading halts imposed by market authorities as well as their timing in interrupting and restarting trading. Stock price returns, abnormal returns and volatility are used to compare the significance of differences for pre‐and post‐halt periods. First the global sample is used to analyse abnormal returns and then it is split into good and bad news halts. A GARCH (1,1) model is also applied and found to be a more sensitive instrument on justifying trading halts. Justification for trading halts tends to rise as event window size increases, suggesting that supervisory authorities tend to spot the dominant changes better. In fact, when very short time‐sampling periods are used weaker justifications for stock halting are found. The opportunity for market authorities to interrupt trading seems to be increasing. In terms of timing they seem, on the whole, to be delayed when imposing trading halts or anticipated when authorising the restart. Nevertheless, when considering good news, although the halt tends to be late the restart seems to be on time. It is concluded that all methodologies should be jointly applied by stock watch departments of supervision authorities for detecting trading under asymmetric information, but special attention is drawn to GARCH methodologies that show superior ability for detecting changes in stock characteristics.

Overnight risk is of particular interest for many market participants including traders who provide liquidity to the market, but also to market participants with longer investment horizons who want to determine whether a given risk–return tradeoff can justify possible intermediate portfolio hedging transactions. Overnight risk may in particular play a highly significant role in emerging markets, given that information is incorporated into prices at a slower rate and liquidity may hinder a quick unwinding of portfolio positions.

Prior literature has shown deviations between ETF prices and their net-asset-value (NAV) to exist. Fulkerson and Jordan (2013, p. 31) question “if there exists a true tradeable strategy” to exploit these inefficiencies. The purpose of this paper is to implement a profitable daily long-short trading strategy based on price/NAV information and explicitly accounting for trading costs.

For a sample of European sector ETFs, the authors analyze gross and net returns of a long-short trading strategy in the capital asset pricing model and Fama-French three-factor model.

The authors document positive gross excess return for the long-short trading strategy in all sample periods, but net excess returns to be positive only between 2008 and 2010.

The results document a profitable long-short trading strategy exploiting deviations between ETF prices and NAV and highlight the impact of trading costs in ETF markets. Due to the limited availability of historic trading cost data, the research uses a comparatively small sample size.

The net profitability of long-short trading in ETFs is only found in times of high uncertainty in the stock market.

The inclusion of trading costs enables a detailed comparison between gross and net returns in ETF trading, addressing potential limits to arbitrage.

This article delves into the new rules concerning insider trading and protection for prearranged trades, which were adopted at the same time Regulation FD was adopted. This starts with the basics of 10 b‐5 insider trading and then it moves into the specifics and the application of the new rules. This is also a discussion of affirmative defenses available for trading plan.

Due to insufficient disclosure on open market share repurchases in the USA, at any given point in time, outside shareholders have no knowledge of whether their firm is executing open market share repurchase trades. It is hypothesized that such information disparity between outside shareholders and insiders of a repurchasing firm creates asymmetric opportunities for insiders to time their sell trades in a period when the firm is engaged in buyback trading of its own shares. Insiders have an incentive to sell when the firm is in the market supporting the price by repurchasing its shares. The purpose of this study is to examine this hypothesis (insider timing hypothesis) by investigating insiders' trading activities during the periods of corporate share buyback trading.

Multiple regression analyses are used to explore relations among trades by insiders, corporate share buyback trades, and a number of other control variables.

This study finds evidence that insiders do increase the net number of shares sold in a fiscal quarter when the firm is in the market engaged in share buyback trading.

This study suggests the possibility of insiders' opportunistic trading behavior during the periods of corporate open market share buyback trading.