Abstract This study shows that, to obtain a precise measure of the liquidity premium in the stock market, it is important to recognize the influence of information uncertainty on the pricing of liquidity. Information uncertainty, which is positively correlated with stock illiquidity but negatively priced in the stock market, obscures the estimation of the liquidity premium. After controlling for its influence, we find that the liquidity premium is statistically significant and economically important in the U.S. stock market. Moreover, the risk-adjusted liquidity premium remains significant in both the earlier and more recent sub-sample periods. Our study addresses the recent debate about whether liquidity is still priced in recent decades, given the significant improvement in the trading technology and increase of the trading volume during this period.
{"title":"Information Uncertainty and the Pricing of Liquidity","authors":"W. Kang, Nan Li, Huiping Zhang","doi":"10.2139/ssrn.2197648","DOIUrl":"https://doi.org/10.2139/ssrn.2197648","url":null,"abstract":"Abstract This study shows that, to obtain a precise measure of the liquidity premium in the stock market, it is important to recognize the influence of information uncertainty on the pricing of liquidity. Information uncertainty, which is positively correlated with stock illiquidity but negatively priced in the stock market, obscures the estimation of the liquidity premium. After controlling for its influence, we find that the liquidity premium is statistically significant and economically important in the U.S. stock market. Moreover, the risk-adjusted liquidity premium remains significant in both the earlier and more recent sub-sample periods. Our study addresses the recent debate about whether liquidity is still priced in recent decades, given the significant improvement in the trading technology and increase of the trading volume during this period.","PeriodicalId":131174,"journal":{"name":"Asian Finance Association (AsianFA) 2013 Conference (Archive)","volume":"38 11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114287383","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a reliable new estimator for realized skewness which is robust to microstructure noise at ultra-high frequency level. Asymptotic theory for the new estimator has been de- rived. Simulation example veries its superior performance. We apply the new estimator to tick data of the S&P 500 index for forecasting equity premium in the U.S. market from 1990-2011 and nd that it has signicant forecast-ability both in-sample and out-of-sample. We also show that the new skewness measure plus the variance risk premium provides right decomposition for the skewness risk. We thus provide evidence that realized skewness links to conditional market premium.
{"title":"Realized Skewness at High Frequency and the Link to a Conditional Market Premium","authors":"Zhi Liu, Kent Wang, Junwei Liu","doi":"10.2139/ssrn.2224216","DOIUrl":"https://doi.org/10.2139/ssrn.2224216","url":null,"abstract":"We propose a reliable new estimator for realized skewness which is robust to microstructure noise at ultra-high frequency level. Asymptotic theory for the new estimator has been de- rived. Simulation example veries its superior performance. We apply the new estimator to tick data of the S&P 500 index for forecasting equity premium in the U.S. market from 1990-2011 and nd that it has signicant forecast-ability both in-sample and out-of-sample. We also show that the new skewness measure plus the variance risk premium provides right decomposition for the skewness risk. We thus provide evidence that realized skewness links to conditional market premium.","PeriodicalId":131174,"journal":{"name":"Asian Finance Association (AsianFA) 2013 Conference (Archive)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130558895","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The role of investor sentiment in the stock market has attracted attentions of many economists. Previous papers show that investor sentiment has return predictability and it is more pronounced among stocks that are more difficult to value and/or to arbitrage, and emphasize the behavioral role of investor sentiment. However, it still remains unclear whether this predictability is actually due to a causal effect of autonomous animal spirits or not. Alternatively, investor sentiment may simply reflect systematic risks, which would affect stock returns. In this alternative case, the predictability would be mere coincidence, not causation. In this paper, I try to understand the meaning of innovations in investor sentiment. I use the investor sentiment index constructed by Baker and Wurgler (2006). I set up a structural model in which sentiment innovations arise from both animal spirit shocks and several risk shocks, and animal spirit shocks could affect stock returns. By matching impulse response functions from data simulated by the theoretical model to those from the actual US data, I estimate parameters in the model. The estimated model moderately replicates the historical data in the actual stock market. The estimation results show that a substantial amount of variation in investor sentiment is explained by systematic risk shocks as well as by animal spirit shocks, and that animal spirit shocks can have significant effects on stock returns. The findings suggest that investor sentiment is a noisy proxy of animal spirits and autonomous animal spirits are at least in part responsible for the apparent return predictability of investor sentiment.
{"title":"What Does Investor Sentiment Reflect: Animal Spirits or Risks?","authors":"S. Sohn","doi":"10.2139/ssrn.2177181","DOIUrl":"https://doi.org/10.2139/ssrn.2177181","url":null,"abstract":"The role of investor sentiment in the stock market has attracted attentions of many economists. Previous papers show that investor sentiment has return predictability and it is more pronounced among stocks that are more difficult to value and/or to arbitrage, and emphasize the behavioral role of investor sentiment. However, it still remains unclear whether this predictability is actually due to a causal effect of autonomous animal spirits or not. Alternatively, investor sentiment may simply reflect systematic risks, which would affect stock returns. In this alternative case, the predictability would be mere coincidence, not causation. In this paper, I try to understand the meaning of innovations in investor sentiment. I use the investor sentiment index constructed by Baker and Wurgler (2006). I set up a structural model in which sentiment innovations arise from both animal spirit shocks and several risk shocks, and animal spirit shocks could affect stock returns. By matching impulse response functions from data simulated by the theoretical model to those from the actual US data, I estimate parameters in the model. The estimated model moderately replicates the historical data in the actual stock market. The estimation results show that a substantial amount of variation in investor sentiment is explained by systematic risk shocks as well as by animal spirit shocks, and that animal spirit shocks can have significant effects on stock returns. The findings suggest that investor sentiment is a noisy proxy of animal spirits and autonomous animal spirits are at least in part responsible for the apparent return predictability of investor sentiment.","PeriodicalId":131174,"journal":{"name":"Asian Finance Association (AsianFA) 2013 Conference (Archive)","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115764241","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the impact of the bank–firm relationship on IPO underpricing in China, an emerging economy with a bank-dominated financial system. Utilizing a hand-collected loan data for 902 Chinese IPO firms from 2004 to 2011, we document that the bank–firm relationship reduces the degree of IPO underpricing. Both the lender's and the borrower's firm characteristics affect the signal quality of the bank–firm relationship, resulting in differential impacts on IPO underpricing. The relationship between firms and banks with high credit quality or the relationship between politically unconnected firms and banks has a more positive impact on mitigating IPO underpricing.
{"title":"The Differential Impact of the Bank-Firm Relationship on IPO Underpricing: Evidence from China","authors":"Xiangchao Hao, Jing Shi, Jian Yang","doi":"10.2139/ssrn.2206871","DOIUrl":"https://doi.org/10.2139/ssrn.2206871","url":null,"abstract":"This study investigates the impact of the bank–firm relationship on IPO underpricing in China, an emerging economy with a bank-dominated financial system. Utilizing a hand-collected loan data for 902 Chinese IPO firms from 2004 to 2011, we document that the bank–firm relationship reduces the degree of IPO underpricing. Both the lender's and the borrower's firm characteristics affect the signal quality of the bank–firm relationship, resulting in differential impacts on IPO underpricing. The relationship between firms and banks with high credit quality or the relationship between politically unconnected firms and banks has a more positive impact on mitigating IPO underpricing.","PeriodicalId":131174,"journal":{"name":"Asian Finance Association (AsianFA) 2013 Conference (Archive)","volume":"19 6","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-01-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132870668","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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