Business Commons^™

Is The Synthetic Stock Price Really Lower Than Actual Price?, Jianfeng Hu

Research Collection Lee Kong Chian School Of Business

Conventional wisdom suggests synthetic stock prices are lower than actual prices due to short‐sale constraints and voting premiums. This study finds that such underpricing of the synthetic midquote disappears if arbitrageurs face security borrowing costs. The synthetic spread predominantly contains the actual spread. Synthetic stock overpricing is as common as underpricing but the former is more persistent and more profitable. The difference between synthetic and actual quotes is significantly affected by options market makers' hedging costs and investors' demand for leverage.

Trading Regularity And Fund Performance: Evidence In Uncertain Markets, Lin Tong, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

High trading regularity funds outperform low trading regularity funds more during periods of low market returns and greater market and economic uncertainty. Their trading also has strong return predictability on stock returns during periods of greater uncertainty. They trade more around news events, and their news related trading predicts stock return stronger during periods of greater uncertainty. They also profit from liquidity provision in highly uncertain market environment. Overall our evidence suggests that high trading regularity funds trade more frequently during periods of high uncertainty when information production and processing skill is more valuable and when the demand for liquidity …

Macroeconomic Stabilization In The Digital Age, John Beirne, David Fernandez

Research Collection Lee Kong Chian School Of Business

Macroeconomic Stabilization in the Digital Age provides insights into factors affecting the macroeconomic management of the economy in the digital age. Policy makers need to be aware of the increasing prominence of the digital economy and digital finance and seek to better understand how continued digitalization will affect policies aimed at managing the economy. For emerging market economies (EMEs), macroeconomic policy challenges have been exacerbated by the digital finance revolution in the aftermath of the global financial crisis and the coronavirus disease (COVID-19) pandemic, when many EMEs experienced large and volatile capital flows. Policy makers must also navigate through fluctuating …

How To Make Venture Capital Funding Work For You, Ser Keng Ang

Research Collection Lee Kong Chian School Of Business

From Facebook to Google, some of the biggest brands we know today got their start from venture capital funding. Prof Ang Ser Keng from the Lee Kong Chian School of Business, shares how and when involving venture capitalists in your startup can propel it to success.

Financial Performance Of Shipping Firms That Increase Lng Carriers And The Support Of Eco-Innovation, Kian Guan Lim, Michelle Lim

Research Collection Lee Kong Chian School Of Business

The technology to liquefy natural gas for transport to countries worldwide and the increasing use of natural gas as a cleaner fossil fuel for industry and household meant that the supply of liquified natural gas (LNG) worldwide is a profitable trend. Shipping companies can strategically choose to diversify into LNG fleet to grasp this trend. By supplying more LNG shipping capacities, the greater availability of LNG worldwide, as a source of marine fuel and as a source of cleaner energy in replacing coal and oil, is supporting eco-innovation. In this paper, we investigate three economic and financial benefits to a …

What Do Short Sellers Know?, Ekkehart Boehmer, Charles M. Jones, Juan (Julie) Wu, Xiaoyan Zhang

Research Collection Lee Kong Chian School Of Business

Using NYSE short-sale order data, we investigate whether short sellers' informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for over 24% of the overall underperformance of heavily shorted stocks. Importantly, short sellers use both public news and private information to anticipate news regarding earnings and analysts. Shorting's predictive ability remains significant after controlling for information in analyst actions and displays no reversal patterns, indicating that short sellers know more than analysts, and the nature of their information …

Can Retail Investors Learn From Insiders?, Ekkehart Boehmer, Bo Sang, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

This paper examines the trading patterns of retail investors following insider trading and the corresponding price impact. Retail investors follow the opportunistic purchases by insiders, but not their routine purchases. Neither investor attention nor common information such as earnings announcements or analysts forecast re- visions explains the results. They keep following insider purchases in subsequent four quarters. Moreover, for stocks with opportunistic insider purchases, those that retail investors bought yield higher cumulative abnormal returns than those that retail investors sold. The effect is mostly driven by the information compo- nent of the retail trades, rather than liquidity provision or temporary …

Bank Partnership And Liquidity Crisis, Seungho Choi, Yong Kyu Gam, Junho Park, Hojong Shin

Research Collection Lee Kong Chian School Of Business

This study empirically investigates the relationship between banking integration and liquidity management. To measure banks’ connectivity, we use the number of partnerships proxied via the syndicated loan arrangements in which they serve as lead arrangers. If banks establish more business partnerships through syndicated loan arrangements, those under market stress are more likely to face increased funding costs, create reduced liquidity, and originate declined small business loans and mortgages. Those banks with more partners are shown to have a lower liquidity coverage ratio, suggesting that business partnerships create a disincentive toward liquidity risk management.

Algorithmic Trading And Market Quality: International Evidence, Ekkehart Boehmer, Kingsley Fong, Juan Julie Wu

Research Collection Lee Kong Chian School Of Business

We study the effect of algorithmic trading (AT) on market quality between 2001 and 2011 in 42 equity markets around the world. We use an exchange colocation service that increases AT as an exogenous instrument to draw causal inferences about AT on market quality. On average, AT improves liquidity and informational efficiency but increases short-term volatility. Importantly, AT also lowers execution shortfalls for buy-side institutional investors. Our results are surprisingly consistent across markets and thus across a wide range of AT environments. We further document that the beneficial effect of AT is stronger in large stocks than in small stocks.

Will Ceos With Banking Experience Lower Default Risks? Evidence From P2p Lending Platforms In China, Qiang Gong, Chong Liu, Qianni Peng, Luying Wang

Research Collection Lee Kong Chian School Of Business

Using a novel dataset of 121 Chinese P2P lending platforms, we investigate the impact of CEOs' banking experience on default risk. The empirical results indicate that CEOs with prior banking experience manage default risk better. Moreover, CEOs' banking experience has a stronger influence on small platforms and in situations where the platforms' depository banks are city commercial banks. Our results indicate that although fintech provides technology to reduce risks, we cannot ignore the constructive role of professional experience in risk management. Thus, investors and regulators in emerging markets should pay attention to managers' financial qualifications, and especially to CEOs' banking …

Do Short Sellers Use Textual Information? Evidence From Annual Reports, Hung Wan Kot, Frank Weikai Li, Ming Liu, K.C. John Wei

Research Collection Lee Kong Chian School Of Business

We examine short-sellers’ use of textual information in annual reports for shorting activities. We find that more uncertainty and negative words in annual reports are associated with greater abnormal shorting volume. Short selling motivated by textual information negatively predicts stock price reaction around the filing date of 10-K reports. We further provide some evidence that textual information used by short-sellers are related to revisions of analysts’ earnings forecasts, changes in firm fundamentals, and increasing crash risk subsequently. Our results suggest that textual information in annual reports forms an important part of short-sellers’ information advantage.

Corporate Social Responsibility And Sustainable Finance: A Review Of The Literature, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

Corporate Social Responsibility (CSR) refers to the incorporation of Environmental, Social, and Governance (ESG) considerations into corporate management, financial decision making, and investors’ portfolio decisions. Socially responsible firms are expected to internalize the externalities (e.g. pollution) they create, and are willing to be accountable to shareholders as well as a broader group of stakeholders (employees, customers, suppliers, local communities,…). Over the past two decades, various rating agencies developed firm-level measures of ESG performance, which are widely used in the literature. A problem for past and a challenge for future research is that these ratings show inconsistencies, which depend on the …

Financial Technology And Inclusion In Asean, David Fernandez, Marc Rakotomalala

Research Collection Lee Kong Chian School Of Business

Financial technology (FinTech) has the potential to be a positive, game-changing force for boosting financial inclusion in ASEAN, as mobile money and greater access to basic financial services have the capacity to improve the economic well-being of households. Indeed, technology has been shown to drive broader increases in economic growth, which itself interacts positively with financial inclusion. In a more direct way, new, specific fintech developments globally and in ASEAN itself can be beneficial for financial inclusion. In this paper, we look at financial inclusion and technology, and how cooperative efforts between ASEAN policymakers, the private sector, and their broader …

What Drives The Declining Wealth Effect Of Subsequent Share Repurchase Announcements?, David K. Ding, Hardjo Koerniadi, Chandrasekhar Krishnamurti

Research Collection Lee Kong Chian School Of Business

Recent academic studies document that open market share repurchase announcements in the United States generate significantly lower returns than those reported in earlier studies. We find that the lower announcement return is associated with an increasing number of subsequent announcements in the more recent periods. Although the announcement period return from the initial announcement is positive, subsequent announcement returns are significantly decreasing. Further, we find that the decreasing returns of subsequent announcements are attributed to firms with negative past repurchase announcement returns. Our multivariate regression test results are consistent with the notion that the decreasing subsequent repurchase announcement returns are …

Do Women Receive Worse Financial Advice?, Utpal Bhattacharya, Amit Kumar, Sujata Visaria, Jing Zhao

Research Collection Lee Kong Chian School Of Business

We arranged for trained undercover men and women to pose as potential clients and visit all 65 local financial advisory firms in Hong Kong. At financial planning firms, but not at securities firms, women were more likely than men to receive advice to buy only individual or only local securities. Women clients who signaled that they were highly confident, highly risk tolerant or had a domestic outlook, were especially likely to receive this suboptimal advice. Our theoretical model explains these patterns as the result of statistical discrimination interacting with advisors’ incentives. Taste-based discrimination is unlikely to explain the results.

Security Analysts And Capital Market Anomalies, Li Guo, Frank Weikai Li, K.C. John Wei

Research Collection Lee Kong Chian School Of Business

We examine whether analysts use information in well-known stock return anomalies when making recommendations. We find results contrary to the common view that analysts are sophisticated information intermediaries who help improve market efficiency. Specifically, when analysts make more favorable recommendations to stocks classified as overvalued, these stocks tend to have particularly large negative abnormal returns ex post. Moreover, analysts whose recommendations are more aligned with anomaly signals are more skilled and elicit greater recommendation announcement returns. Our results suggest that analysts' biased recommendations could be a source of market frictions that impede the efficient correction of mispricing.

Bermudan Option In Singapore Savings Bonds, Kian Guan Lim

Research Collection Lee Kong Chian School Of Business

The Singapore Savings Bonds (SSB) is a unique investment program offered by the Singapore government whereby retail investors can earn risk-free tax-free step-up interest closely matched to Treasury bond rates for up to 10 years and can redeem on any business day prior to maturity without any early redemption penalty. This study analyses the unique design of the SSB and provides a valuation of the Bermudan option for early redemption that is embedded in the SSB. The Black-Derman-Toy model is used to build the interest rate tree, and an iterative method is employed to avoid arbitrary specification of the pre-determined …

Crowdfunding Platforms: Ecosystem And Evolution, Yee Heng Tan, Srinivas K. Reddy

Research Collection Lee Kong Chian School Of Business

Crowdfunding is the practice of seeking support from a large number of backers, each funding a small amount, in order to reach a specific funding goal. This monograph examines: (1) the field of crowdfunding, (2) how it has evolved, (3) the impact crowdfunding has on the fields of innovation, marketing and finance and (4) the factors that can affect crowdfunding outcomes. We view crowdfunding as complementary and transformative, increasing the efficiency of several existing processes such as idea generation and testing, fund raising and collection. We combine practitioner perspectives and research findings to provide insights on this subject. We explore …

Risk Premium Spillovers Among Stock Markets: Evidence From Higher-Order Moments, Marinela Adriana Finta, Sofiane Aboura

Research Collection Lee Kong Chian School Of Business

We investigate the volatility and skewness risk premium spillovers among the U.S., U.K., German, and Japanese stock markets. We define risk premia as the difference between risk-neutral and realized moments. Our findings highlight that during periods of stress, cross-market and cross-moment spillovers increase and that these increases are mirrored by a decrease in within-market effects. We document strong bidirectional spillovers between volatility and skewness risk premia and emphasize the prominent role played by the volatility risk premium. Finally, we show that several announcements drive the time-varying risk premium spillovers.

The Global Sustainability Footprint Of Sovereign Wealth Funds, Hao Liang, Luc Renneboog

Research Collection Lee Kong Chian School Of Business

With the emergence of sovereign wealth funds (SWFs) around the world managing equity of over $8 trillion, their impact on the corporate landscape and social welfare is being scrutinized. This study investigates whether and how SWFs incorporate environmental, social, and governance (ESG) considerations in their investment decisions in publicly listed corporations, as well as the subsequent evolution of target firms' ESG performance. We find that SWF funds do consider the level of past ESG performance as well as recent ESG score improvement when taking ownership stakes in listed companies. These results are driven by the SWF funds that do have …

Are Corporate Spin-Offs Prone To Insider Trading?, Patrick Augustin, Menachem Brenner, Jianfeng Hu, Marti Subrahmanyam

Research Collection Lee Kong Chian School Of Business

Despite abundant empirical evidence of informed trading ahead of major corporate events, no such evidence has been reported in the case of corporate spinoff (SP) announcements. This is surprising, as SP announcements are unexpected, and are also associated with a positive price jump in the parent company’s stock. Using a sample of 280 US announcement events from 1996 to 2013, we document significant pre-announcement informed trading activity in options for about 9 to 16% of events in our sample. In contrast, we find statistically insignificant evidence of informed trading in stocks, suggesting that informed traders employ leverage through options. In …

Go Big With Economic Push To Fight Covid-19, David Fernandez

Research Collection Lee Kong Chian School Of Business

Economic policymakers need to focus on taking bold and immediate action in order to tackle the pandemic crisis.

Do Firms Adapt To Climate Change? Evidence From Establishment-Level Data, Frank Weikai Li, Yupeng Lin, Zuben Jin, Zilong Zhang

Research Collection Lee Kong Chian School Of Business

This paper examines firms’ adaptation to long-term changes in climatic conditions. Using detailed information of establishments owned by U.S. public firms from 1990 to 2012, we show that higher abnormal temperatures over the previous five years in a county lead to a significant reduction in local employment and the number of establishments. Further tests suggest that the decline in employment and establishments is largely due to a decline in local consumer demand rather than lower labor productivity. We also find that firms more likely take adaptive actions when their managers are more likely to believe in, or are concerned about, …

Green Bonds For Financing Renewable Energy And Energy Efficiency In South-East Asia: A Review Of Policies, Dina Azhgaliyeva, Anant Kapoor, Yang Liu

Research Collection Lee Kong Chian School Of Business

Mobilizing private finance for renewable energy and energy efficiency is critical for Association of South-East Asian Nations (ASEAN) not only for the reduction of global temperature rise but also for meeting fast-growing energy demand. Two-thirds of green bonds issued in ASEAN were used to finance renewable energy and energy efficiency projects. This paper provides a review of green bond issuance and green bond policies in ASEAN. Issuance of green bonds in top three green bond issuing countries in ASEAN, i.e. Indonesia, Malaysia and Singapore, are reviewed in detail. Green bond policies in ASEAN are effective in promoting green bond issuance. …

Artificial Intelligence-Enhanced Predictive Insights For Advancing Financial Inclusion: A Human-Centric Ai-Thinking Approach, Meng Leong How, Sin Mei Cheah, Aik Cheow Khor, Yong Jiet Chan

Research Collection Lee Kong Chian School Of Business

According to the World Bank, a key factor to poverty reduction and improving prosperity is financial inclusion. Financial service providers (FSPs) offering financially-inclusive solutions need to understand how to approach the underserved successfully. The application of artificial intelligence (AI) on legacy data can help FSPs to anticipate how prospective customers may respond when they are approached. However, it remains challenging for FSPs who are not well-versed in computer programming to implement AI projects. This paper proffers a no-coding human-centric AI-based approach to simulate the possible dynamics between the financial profiles of prospective customers collected from 45,211 contact encounters and predict …

A Behavioral Signaling Explanation For Stock Splits: Evidence From China, Chenyu Cui, Frank Weikai Li, Jiaren Pang, Deren Xie

Research Collection Lee Kong Chian School Of Business

We propose a behavioral signaling explanation for the positive announcement effects of stock splits. There are two key behavioral ingredients in our model. First, (retail) investors have misconceptions about stock splits that make them view stock splits as good news. Second, investors are loss-averse and will be particularly disappointed if a splitting firm’s ex-post performance falls short of expectation. In a separating equilibrium, only managers with favorable private information use stock splits to signal. Using a comprehensive sample of stock splits in China over the period of 1998 to 2017, we find supporting evidence: (1) stock splits elicit positive announcement …

Time-Series Momentum: Is It There?, Dashan Huang, Jiangyuan Li, Liyao Wang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

Time-series momentum (TSM) refers to the predictability of the past 12-month return on the next one-month return, and is the focus of several recent influential studies. This paper shows, however, that asset-by-asset time-series regressions reveal little evidence of TSM, both in- and out-of-sample. While the t-statistic in a pooled regression appears large, it is not statistically reliable as it is less than the critical values of parametric and non-parametric bootstraps. From an investment perspective, the TSM strategy is profitable, but its performance is virtually the same as that of a similar strategy that is based on historical sample mean and …

Dbs Impact Measurement Project: Technical Review, Hao Liang, Phuong Tran Bao Nguyen, David Fernandez, Jun Ho Park

Research Collection Lee Kong Chian School Of Business

The measurement of ESG and its impact is becoming one of the more important and debated issues in sustainable business practice, with the significant challenges being the subjectivity of scope, criteria, as well as lack of consistency across different rating agencies and data providers

Impact measurement goes beyond ESG measurement. Apart from qualitative and input-based approach, it encapsulates a more outcome/impact-based approach, supported with quantitative methods

Impact measurement and valuation are still at the infant stage, with limited research and guidelines, thus [Impact Institute] II’s approach has significant novelty and is among the first to measure and value impact

II …

Commentary: Where Does The Talent Pools Of Smes Come From?, T. Mandy Tham

Research Collection Lee Kong Chian School Of Business

In a commentary, SMU Assistant Professor of Finance Mandy Tham explored how ‘family members’ is defined could affect the size of talent pool for SMEs and family businesses, and suggested some criteria for the selection of family members to be nurtured for the SMEs and family businesses.

The Impact Of Investor Protection Law On Global Takeovers: Lbo Vs. Non-Lbo Transactions, Xiaping Cao, Douglas Cummings, Jeremy C. Goh, Xiaoming Wang

Research Collection Lee Kong Chian School Of Business

This paper examines the impact of investor protection laws on value creation in LBOs versus non-LBO takeovers. We find that value creation measured by takeover premium is significantly higher in countries with better investor protection. The value effect of investor protection laws is more pronounced for LBOs than non-LBO takeover transactions. Among LBOs, investor protection’s value effect is lower for club deals than others. These results suggest that institutional context and legal environment determine the extent of value creation for takeovers around the world.