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Articles 1 - 10 of 10
Full-Text Articles in Business
Chasing Private Information, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Chasing Private Information, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Research Collection Lee Kong Chian School Of Business
Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily returns reflect the sign of private signals, but bid-ask spreads are lower when informed investors trade. Market makers' learning under event uncertainty and limit orders help explain these findings. The cross-section of information duration indicates that traders select days with high uninformed volume. Evidence from the U.S. SEC Whistleblower Reward Program and the FINRA involvement addresses selection concerns.
Relative Strength Over Investment Horizons And Stock Returns, Zhaobo Zhu, Xinrui Duan, Jun Tu
Relative Strength Over Investment Horizons And Stock Returns, Zhaobo Zhu, Xinrui Duan, Jun Tu
Research Collection Lee Kong Chian School Of Business
In this article, the authors propose a simple and novel measure of relative strength over investment horizons that synthesizes short- and intermediate-term price information. The relative-strength measure compares the short-term price trend with the intermediate-term price trend. The relative strength strategy generates substantial profits, which are greater than a simple sum of traditional short-term reversal and momentum profits. The superior performance of the relative strength strategy is evident after risk adjustments for various factor models and is robust across subperiods and different market conditions. These findings seem consistent with investor conservatism and the idea that investors are slow to adjust …
The Trend In Short Selling And The Cross Section Of Stock Returns, Zhaobo Zhu, Xinrui Duan, Jun Tu
The Trend In Short Selling And The Cross Section Of Stock Returns, Zhaobo Zhu, Xinrui Duan, Jun Tu
Research Collection Lee Kong Chian School Of Business
This paper documents that stocks with a decreasing (increasing) trend in their short selling as proxied by the long-term change in short interest experience significant and positive (negative) abnormal returns. Moreover, the positive abnormal returns have larger absolute values and are more persistent. The return predictability of the trend in short selling is not subsumed by the level of short interest and other well-known determinants of stock returns. Investor sentiment does not affect the profitability of the trend strategy. Our results suggest that market participants underreact to public information on short interest and that short sellers are sophisticated investors.
Trust And Local Bias, Chi Shen Wei, Lei Zhang
Trust And Local Bias, Chi Shen Wei, Lei Zhang
Research Collection Lee Kong Chian School Of Business
This paper examines the effect of social trust on local bias. Our evidence suggests that institutional investors located in high-trust regions of the United States exhibit lower local bias. Moreover, we find that high-trust investors are better diversified, suggesting that trust helps accomplish greater diversification. The results are not due to firm, demographic, or local economic characteristics. Additional analysis reveals that the documented informational advantage in local holdings exists only in low-trust regions. We show that this finding is consistent with a trust explanation.
The Flash Crash: A Cautionary Tale About Highly Fragmented Markets, Albert J. Menkveld, Bart Zhou Yueshen
The Flash Crash: A Cautionary Tale About Highly Fragmented Markets, Albert J. Menkveld, Bart Zhou Yueshen
Research Collection Lee Kong Chian School Of Business
A breakdown of cross-market arbitrage activity could make markets more fragile and result in price crashes. We provide suggestive evidence for this novel channel based on a high-frequency analysis of the most salient crash in recent history: The Flash Crash. We further show that such an event can be extremely costly for a large seller trading in a particular venue as the seller effectively relies on local liquidity supply only. These findings highlight the vulnerability of today's highly fragmented markets.
Text Sophistication And Sophisticated Investors, Juha Joenvaara, Jari Karppinen, Song Wee Melvyn Teo, Cristian Ioan Tiu
Text Sophistication And Sophisticated Investors, Juha Joenvaara, Jari Karppinen, Song Wee Melvyn Teo, Cristian Ioan Tiu
Research Collection Lee Kong Chian School Of Business
We show that two novel measures of text sophistication, applied to hedge fund strategy descriptions, encapsulate incremental information about funds. Consistent with the linguistics literature, hedge funds with lexically diverse strategy descriptions outperform, eschew tail risk, and encounter fewer regulatory problems. In line with the literature, hedge funds with syntactically complex strategy descriptions report more regulatory violations and trigger more severe infractions. Fund investors recognize the dichotomy and direct flows accordingly, but not enough to erode away the alphas of lexically diverse funds. Our findings suggest that text sophistication measures provide texture on the cognitive ability and trustworthiness of sophisticated …
Swaption Portfolio Risk Management: Optimal Model Selection In Different Interest Rate Regimes, Poh Ling Neo, Chyng Wen Tee
Swaption Portfolio Risk Management: Optimal Model Selection In Different Interest Rate Regimes, Poh Ling Neo, Chyng Wen Tee
Research Collection Lee Kong Chian School Of Business
We formulate a risk-based swaption portfolio management framework for profit-and-loss (P&L) explanation. We analyze the implication of using the right volatility backbone in the pricing model from a hedging perspective, and demonstrate the importance of incorporating stability and robustness measure as part of the calibration process for optimal model selection. We also derive a displaced-diffusion stochastic volatility (DDSV) model with a closed-form analytical expression to handle negative interest rates. Finally, we show that our framework is able to identify the optimal pricing model, which leads to superior P&L explanation and hedging performance.
The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li
The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li
Research Collection Lee Kong Chian School Of Business
We present evidence of investors underreacting to the absence of events in financialmarkets. Routine-based insiders strategically choose to be silent when they possessprivate information not yet reflected in stock prices. Consistent with our hypothesis,insider silence following routine sell (buy) predict positive (negative) future return aswell as fundamentals. The return predictability of insider silence is stronger amongfirms with poor information environment and facing higher arbitrage costs, and alarge fraction of abnormal returns concentrates on future earnings announcements. Along-short strategy that exploits insiders’ strategic silence behavior generates abnormalreturns of 6% to 10% annually
Momentum And Reversal: The Role Of Short Selling, Zhaobo Zhu, Xinrui Duan, Licheng Sun, Jun Tu
Momentum And Reversal: The Role Of Short Selling, Zhaobo Zhu, Xinrui Duan, Licheng Sun, Jun Tu
Research Collection Lee Kong Chian School Of Business
This paper investigates the relation between short selling and momentum. We document that a consistent momentum strategy that buys lightly shorted winners and sells heavily shorted losers exhibits strong short-term momentum and no long-term reversal. In contrast, an inconsistent momentum strategy that buys heavily shorted winners and sells lightly shorted losers experiences weak short-term momentum and persistent long-term reversal. Our results are robust after controlling for firm characteristics, proxy for short-sale constraints, and investor sentiment, as well as an exogenous shock (the Taxpayer Relief Act of 1997). These findings present a new challenge to existing theories of momentum that rely …
Are Bond Ratings Informative? Evidence From Regulatory Regime Changes, Louis H. Ederington, Jeremy C. Goh, Yen Teik Lee, Lisa Zongfei Yang
Are Bond Ratings Informative? Evidence From Regulatory Regime Changes, Louis H. Ederington, Jeremy C. Goh, Yen Teik Lee, Lisa Zongfei Yang
Research Collection Lee Kong Chian School Of Business
The Dodd–Frank Act (Section 939B) enacted in 2010 repealed the exemption of credit rating agencies (CRAs) from Regulation Fair Disclosure. Testing whether CRAs continue to provide new information to the market after the repeal, the authors find that the significant prerepeal stock price responses to rating changes disappear after the regime change. Bond price reactions, however, remain significant. These results are even more significant at the investment–speculative boundary. Evidence suggests that CRAs served as a conduit for transmitting private information before the repeal and that the continued bond price reactions are likely due to regulations favoring higher-rated bonds.