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- Institutional trading (3)
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Articles 1 - 14 of 14
Full-Text Articles in Business
Leverage Change, Debt Overhang, And Stock Prices, Jie Cai, Zhe Zhang
Leverage Change, Debt Overhang, And Stock Prices, Jie Cai, Zhe Zhang
Research Collection Lee Kong Chian School Of Business
We document a significant and negative effect of the change in a firm’s leverage ratio on its stock prices. We find that the negative effect is stronger for firms with a greater likelihood of debt overhang. Moreover, firms with an increase in leverage ratio tend to have less future investment. These findings are consistent with Myers' (1977) debt overhang theory that an increase in leverage may lead to future underinvestment, thus reducing a firm's value.
Conflicts Of Interest And Stock Recommendations: The Effects Of The Global Settlement And Related Regulations, Ohad Kadan, Leonardo Madureria, Rong Wang, Tzachi Zach
Conflicts Of Interest And Stock Recommendations: The Effects Of The Global Settlement And Related Regulations, Ohad Kadan, Leonardo Madureria, Rong Wang, Tzachi Zach
Research Collection Lee Kong Chian School Of Business
We study the effect of the Global Analyst Research Settlement and related regulations on sell-side research. These regulations attempted to mitigate the interdependence between research and investment banking. We document that following the regulations many brokerage houses have migrated from the traditional five-tier rating system to a three-tier system. Optimistic recommendations have become less frequent and more informative, whereas neutral and pessimistic recommendations have become more frequent and less informative. Importantly, the overall informativeness of recommendations has declined. The likelihood of issuing optimistic recommendations no longer depends on affiliation with the covered firm, although affiliated analysts are still reluctant to …
Institutional Investors And The Informational Efficiency Of Prices, Ekkehart Boehmer, Eric K. Kelley
Institutional Investors And The Informational Efficiency Of Prices, Ekkehart Boehmer, Eric K. Kelley
Research Collection Lee Kong Chian School Of Business
Using a broad panel of NYSE-listed stocks between 1983 and 2004, we study the relation between institutional shareholdings and the relative informational efficiency of prices, measured as deviations from a random walk. Stocks with greater institutional ownership are priced more efficiently, and we show that variation in liquidity does not drive this result. One mechanism through which prices become more efficient is institutional trading activity, even when institutions trade passively. But efficiency is also directly related to institutional holdings, even after controlling for institutional trading, analyst coverage, short selling, variation in liquidity, and firm characteristics.
The Geography Of Hedge Funds, Melvyn Teo
The Geography Of Hedge Funds, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
This article analyzes the relationship between the risk-adjusted performance of hedge funds and their proximity to investments using data on Asia-focused hedge funds. I find, relative to an augmented Fung and Hsieh (2004) factor model, that hedge funds with a physical presence (head or research office) in their investment region outperform other hedge funds by 3.72% per year. The local information advantage is pervasive across all major geographical regions, but is strongest for emerging market funds and funds holding illiquid securities. These results are robust to adjustments for fund fees, serial correlation, backfill bias, and incubation bias. I show also …
Forecast Accuracy Uncertainty And Momentum, Bing Han, Dong Hong, Mitchell Craig Warachka
Forecast Accuracy Uncertainty And Momentum, Bing Han, Dong Hong, Mitchell Craig Warachka
Research Collection Lee Kong Chian School Of Business
We demonstrate that stock price momentum and earnings momentum can result from uncertainty surrounding the accuracy of cash flow forecasts. Our model has multiple information sources issuing cash flow forecasts for a stock. The investor combines these forecasts into an aggregate cash flow estimate that has minimal mean-squared forecast error. This aggregate estimate weights each cash flow forecast by the estimated accuracy of its issuer, which is obtained from their past forecast errors. Momentum arises from the investor gradually learning about the relative accuracy of the information sources and updating their weights. Empirical tests validate the model's prediction of stronger …
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Research Collection Lee Kong Chian School Of Business
We propose and empirically examine a comprehensive measure of institutional trading frictions to include the dimensions of price impact, quantity of execution, return dynamics, speed of execution or order splitting, and trading commissions. Our empirical analysis reveals that various hidden components of institutional trading frictions such as adverse selection and clean-up costs are persistent and could add significantly to previously measured directly observable components of transaction costs. Our simultaneous system of equations accounts for the endogeniety in institutional order aggressiveness based on potentially superior information as well as order splitting strategies in the implementation stage to reduce transaction costs. Order …
Extreme Events And The Copula Pricing Of Commercial Mortgage-Backed Securities, Zhanyong Liu, Gang-Zhi Fan, Kian Guan Lim
Extreme Events And The Copula Pricing Of Commercial Mortgage-Backed Securities, Zhanyong Liu, Gang-Zhi Fan, Kian Guan Lim
Research Collection Lee Kong Chian School Of Business
Commercial mortgage-backed securities (CMBS), as a portfolio-based financial product, have gained great popularity in financial markets. This paper extends Childs, Ott and Riddiough’s (J Financ Quant Anal, 31(4), 581–603, 1996) model by proposing a copula-based methodology for pricing CMBS bonds. Default on underlying commercial mortgages within a pool is a crucial risk associated with CMBS transactions. Two important issues associated with such default—extreme events and default dependencies among the mortgages—have been identified to play crucial roles in determining credit risk in the pooled commercial mortgage portfolios. This article pays particular attention to these two issues in pricing CMBS bonds. Our …
Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Craig Warachka
Using High-Frequency Transaction Data To Estimate The Probability Of Informed Trading, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Craig Warachka
Research Collection Lee Kong Chian School Of Business
This paper applies the asymmetric autoregressive conditional duration (AACD) model of Bauwens and Giot (2003) to estimate the probability of informed trading (PIN) using irregularly spaced transaction data. We model trade direction (buy versus sell orders) and the duration between trades jointly. Unlike the Easley, Hvidkjaer, and O'Hara(2002) approach, which uses the aggregate numbers of daily buy and sell orders to estimate PIN, our methodology allows for interactions between consecutive buy-sell orders and accounts for the duration between trades and the volume of trade. We extend the Easley-Hvidkjaer-O'Hara framework by allowing the probabilities of good news and bad news to …
The Performance Of Reverse Leveraged Buyouts, Jerry Cao, Josh Lerner
The Performance Of Reverse Leveraged Buyouts, Jerry Cao, Josh Lerner
Research Collection Lee Kong Chian School Of Business
Reverse leveraged buyouts (RLBOs) have received increased public scrutiny but attracted little systematic study. We collect a comprehensive sample of 526 RLBOs between 1981 and 2003 and examine the three-year and five-year stock performance of these offerings. RLBOs appear to perform as well as or better than other initial public offerings and the stock market as a whole, depending on the specification. Evidence exists of a deterioration of returns over time.
Institutional Investors, Past Performance, And Dynamic Loss Aversion, Paul G. J. O'Connell, Melvyn Teo
Institutional Investors, Past Performance, And Dynamic Loss Aversion, Paul G. J. O'Connell, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Using a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduce risk following losses and mildly increase risk following gains. This asymmetry is more pronounced later in the calendar year and among older and more experienced funds. We show that such performance dependence is consistent with dynamic loss aversion (Barberis, Huang, and Santos (2001)) and overconfidence. In addition, prior institutional gains and losses have palpable implications for future prices.
Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang
Institutional Investors And Equity Returns: Are Short-Term Institutions Better Informed?, Xuemin (Sterling) Yan, Zhe Zhang
Research Collection Lee Kong Chian School Of Business
We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions' trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions' trading is also positively related to future earnings surprises. By contrast, long-term institutions' trading does not forecast future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.
Investor Reaction To Women Directors, E. Kang, David K. Ding, C. Charoenwong
Investor Reaction To Women Directors, E. Kang, David K. Ding, C. Charoenwong
Research Collection Lee Kong Chian School Of Business
Existing studies on women directorships present equivocal results on the association between appointing women directors and firm performance. These studies tend to focus on western countries and largely ignore investors' reactions to such appointments. This paper applies the financial event study method and finds that investors generally respond positively to the appointment of women directors in Singaporean firms. Regression analyses also reveal that investors are most receptive when the women are independent directors and are least receptive when the directors assume the CEO role. This study not only tests the theory of gender diversity in an Asian context but also …
Business Aggression, Institutional Loans, And Credit Crisis: Evidence From Lending Practices In Leveraged Buyouts, Xiaping Jerry Cao, Wei-Ling Song, Joe Mason
Business Aggression, Institutional Loans, And Credit Crisis: Evidence From Lending Practices In Leveraged Buyouts, Xiaping Jerry Cao, Wei-Ling Song, Joe Mason
Research Collection Lee Kong Chian School Of Business
This paper investigates the lending practices related to leverage buyouts (LBOs) market between high and low write-down institutions. The write-downs, which are a proxy for business aggression of institutions, are mainly related to credit crisis from the beginning of 2007 to August 10, 2008. We find that high (low) write-down institutions increase (decrease) loan market share dramatically during the period of 2001-2006. The increase is mainly driven by the segment of loans sold to institutional investors, such as collateralized loan obligations vehicle, hedge fund, and insurance companies. Institutional loans originated by high write-down institutions carry significantly fewer covenants and higher …
Idiosyncratic Risk And The Cross-Section Of Expected Stock Returns, Fangjian Fu
Idiosyncratic Risk And The Cross-Section Of Expected Stock Returns, Fangjian Fu
Research Collection Lee Kong Chian School Of Business
Theories such as Merton (1987, Journal of Finance) predict a positive relation between idiosyncratic risk and expected return when investors do not diversify their portfolio. Ang, Hodrick, Xing, and Zhang (2006, Journal of Finance 61, 259-299) however find that monthly stock returns are negatively related to the one-month lagged idiosyncratic volatilities. I show that idiosyncratic volatilities are time-varying and thus their findings should not be used to imply the relation between idiosyncratic risk and expected return. Using the exponential GARCH models to estimate expected idiosyncratic volatilities, I find a significantly positive relation between the estimated conditional idiosyncratic volatilities and expected …