I find that U.S. IPO prospectus disclosure exhibits significant correlation with first day underpricing, consistent with theories of underpricing as caused by informational asymmetry. In particular, a 1 standard deviation increase in positive prospectus disclosure is associated with almost a third reduction in first day underpricing. More disclosure also has a significant positive relation to measures of informational completeness. Further, I show that the amount of disclosure may derive from litigation risk. Controlling for measures of litigation risk, more disclosure exhibits a significant and positive relation to IPO litigation, while absent controls the relation is negative – suggesting that the amount of disclosure responds to ex ante perceived risk of litigation.
{"title":"IPO Underpricing, Disclosure, and Litigation Risk","authors":"J. Spindler","doi":"10.2139/ssrn.1396818","DOIUrl":"https://doi.org/10.2139/ssrn.1396818","url":null,"abstract":"I find that U.S. IPO prospectus disclosure exhibits significant correlation with first day underpricing, consistent with theories of underpricing as caused by informational asymmetry. In particular, a 1 standard deviation increase in positive prospectus disclosure is associated with almost a third reduction in first day underpricing. More disclosure also has a significant positive relation to measures of informational completeness. Further, I show that the amount of disclosure may derive from litigation risk. Controlling for measures of litigation risk, more disclosure exhibits a significant and positive relation to IPO litigation, while absent controls the relation is negative – suggesting that the amount of disclosure responds to ex ante perceived risk of litigation.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121902615","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}
How the correlation between equity returns behaves during market turmoils has been an issue of discussion in the international finance literature. Some research suggest an increase of correlation during volatile periods [Ang and Bekaert, 2002], while others argue its stability [Forbes and Rigobon, 2002]. In this paper, we study the impact of returns and volatility on correlation between international equity markets. Our objective is to determine if there is any asymmetry in correlation and identify the main explanation for this asymmetry. Within a framework of autoregressive models we quantify the relationship between return, volatility, and correlation using the generalized impulse response function and we test for the asymmetries in the return-correlation and volatility-correlation relationships. We also examine the implications of these asymmetric effects for the optimal international portfolio. Empirical evidence using weekly data on US, Canada, UK, and France equity indices, show that without taking into account the effect of return, there is an asymmetric impact of volatility on correlation. The volatility seems to have more impact on correlation during market upturn periods than during downturn periods. However, once we introduce the effect of return, the asymmetric impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the market direction and the level of return rather than the level of the volatility. These results are confirmed using some tests of the asymmetry in volatility-correlation and return-correlation relationships in separate models and then in a joint model. Finally, we find that taking into account the asymmetric effect of return on correlation leads to an average financial gain ranged between 3.35 and 37.25 basis points for optimal international diversification.
{"title":"Asymmetric Effects of Return and Volatility on Correlation between International Equity Markets","authors":"A. Taamouti, Georges Tsafack","doi":"10.2139/ssrn.1344416","DOIUrl":"https://doi.org/10.2139/ssrn.1344416","url":null,"abstract":"How the correlation between equity returns behaves during market turmoils has been an issue of discussion in the international finance literature. Some research suggest an increase of correlation during volatile periods [Ang and Bekaert, 2002], while others argue its stability [Forbes and Rigobon, 2002]. In this paper, we study the impact of returns and volatility on correlation between international equity markets. Our objective is to determine if there is any asymmetry in correlation and identify the main explanation for this asymmetry. Within a framework of autoregressive models we quantify the relationship between return, volatility, and correlation using the generalized impulse response function and we test for the asymmetries in the return-correlation and volatility-correlation relationships. We also examine the implications of these asymmetric effects for the optimal international portfolio. Empirical evidence using weekly data on US, Canada, UK, and France equity indices, show that without taking into account the effect of return, there is an asymmetric impact of volatility on correlation. The volatility seems to have more impact on correlation during market upturn periods than during downturn periods. However, once we introduce the effect of return, the asymmetric impact of volatility on correlation disappears. These observations suggest that, the relation between volatility and correlation is an association rather than a causality. The strong increase in the correlation is driven by the market direction and the level of return rather than the level of the volatility. These results are confirmed using some tests of the asymmetry in volatility-correlation and return-correlation relationships in separate models and then in a joint model. Finally, we find that taking into account the asymmetric effect of return on correlation leads to an average financial gain ranged between 3.35 and 37.25 basis points for optimal international diversification.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"3 5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128781224","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}
Pub Date : 2009-03-01DOI: 10.1007/978-0-85729-470-8_2
C. Tapiero
{"title":"The Price of Safety and Economic Reliability","authors":"C. Tapiero","doi":"10.1007/978-0-85729-470-8_2","DOIUrl":"https://doi.org/10.1007/978-0-85729-470-8_2","url":null,"abstract":"","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127922131","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}
Pub Date : 2009-03-01DOI: 10.1111/j.1467-9442.2008.01555.x
Camille Cornand, Frank Heinemann
We propose a speculative attack model in which agents receive multiple public signals. It is characterised by its focus on an informational structure, which sets free from the strict separation between public information and private information. Diverse pieces of public information can be taken into account differently by players and are likely to lead to different appreciations ex post. This process defines players’ private value. The main result is to show that equilibrium uniqueness depends on two conditions: (i) signals are sufficiently dispersed (ii) private beliefs about the relative precision of these signals sufficiently differ. We derive some implications for information dissemination policy. Transparency in this context is multi-dimensional: it concerns the publicity of announcements, the number of signals disclosed as well as their precision. Especially, it seems that the central bank has better not publishing its forecast errors in order to maintain stability. An illustration to our analysis is the recent debate concerning the optimal monetary policy committee structure of central banks.
{"title":"Speculative Attacks with Multiple Sources of Public Information","authors":"Camille Cornand, Frank Heinemann","doi":"10.1111/j.1467-9442.2008.01555.x","DOIUrl":"https://doi.org/10.1111/j.1467-9442.2008.01555.x","url":null,"abstract":"We propose a speculative attack model in which agents receive multiple public signals. It is characterised by its focus on an informational structure, which sets free from the strict separation between public information and private information. Diverse pieces of public information can be taken into account differently by players and are likely to lead to different appreciations ex post. This process defines players’ private value. The main result is to show that equilibrium uniqueness depends on two conditions: (i) signals are sufficiently dispersed (ii) private beliefs about the relative precision of these signals sufficiently differ. We derive some implications for information dissemination policy. Transparency in this context is multi-dimensional: it concerns the publicity of announcements, the number of signals disclosed as well as their precision. Especially, it seems that the central bank has better not publishing its forecast errors in order to maintain stability. An illustration to our analysis is the recent debate concerning the optimal monetary policy committee structure of central banks.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"172 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132624902","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 report results of a series of experiments that simulates trading in financial market. The specific format of our experiment allows to unambiguously measure the information content of the order flow and to disentangle the impact that risk attitudes and belief updating rules have on market informational efficiency. On the one hand, we show that many of the so called "irrational" behaviors are not so if one takes into account subjects' risk attitude. On the other hand we find evidence of non-Bayesian updating of beliefs. Risk neutral subjects are rare and subjects displaying risk aversion or risk loving tend to ignore private information when their prior beliefs on the asset fundamentals are strong. This behavior implies that when the market has a sharp opinion on an asset fundamental value, the private information dispersed in the economy struggles to enter trading prices. Non-Bayesian belief updating has an ambiguous effect on market efficiency as it reduces (improves) the information flow when subject prior belief is weak (strong).
{"title":"On the Information Content of the Order Flow: An Experiment","authors":"Christophe Bisière, J. Décamps, S. Lovo","doi":"10.2139/ssrn.1282165","DOIUrl":"https://doi.org/10.2139/ssrn.1282165","url":null,"abstract":"We report results of a series of experiments that simulates trading in financial market. The specific format of our experiment allows to unambiguously measure the information content of the order flow and to disentangle the impact that risk attitudes and belief updating rules have on market informational efficiency. On the one hand, we show that many of the so called \"irrational\" behaviors are not so if one takes into account subjects' risk attitude. On the other hand we find evidence of non-Bayesian updating of beliefs. Risk neutral subjects are rare and subjects displaying risk aversion or risk loving tend to ignore private information when their prior beliefs on the asset fundamentals are strong. This behavior implies that when the market has a sharp opinion on an asset fundamental value, the private information dispersed in the economy struggles to enter trading prices. Non-Bayesian belief updating has an ambiguous effect on market efficiency as it reduces (improves) the information flow when subject prior belief is weak (strong).","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"38 2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114589916","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}
A symmetric distribution of information, although omnipresent in real markets, is rarely considered in experimental economics. We study whether information about imminent future dividends can abate bubbles in experimental asset markets. We find that markets with asymmetrically informed traders have significantly smaller bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices---implying higher market efficiency---when some traders know more than others about future dividends. This suggests that bubbles are abated when traders know that a subset of them have an edge (in information) over others. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.
{"title":"Bubbles and Information: An Experiment","authors":"Matthias Sutter, J. Huber, Michael Kirchler","doi":"10.2139/ssrn.1268742","DOIUrl":"https://doi.org/10.2139/ssrn.1268742","url":null,"abstract":"A symmetric distribution of information, although omnipresent in real markets, is rarely considered in experimental economics. We study whether information about imminent future dividends can abate bubbles in experimental asset markets. We find that markets with asymmetrically informed traders have significantly smaller bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices---implying higher market efficiency---when some traders know more than others about future dividends. This suggests that bubbles are abated when traders know that a subset of them have an edge (in information) over others. \u0000 \u0000This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"86 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124137779","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}
Many investors usually believe that real estate is a reliable investment. However, as it is not risk-free and the recent US housing bubble has shown the devastating effects of a crisis in this sector. Even more, Shiller (1989) highlights that this is not an efficient market since there are clear correlation. In the present work we use the entropy as a measure of the informational efficiency in the US Housing market and tested the relationship with the probability of having a crash in the sector. We found some evidence suggesting that the market has been inefficient since May 1999. In addition, the logit model indicates that a decrease in the informational efficiency produce a significant increase in the probability of having a crash. Further results show that the fact of investing in different US metropolitan areas does not affect this probability.
{"title":"The US Housing Bubble and the Informational Efficiency","authors":"W. Risso","doi":"10.2139/ssrn.1259427","DOIUrl":"https://doi.org/10.2139/ssrn.1259427","url":null,"abstract":"Many investors usually believe that real estate is a reliable investment. However, as it is not risk-free and the recent US housing bubble has shown the devastating effects of a crisis in this sector. Even more, Shiller (1989) highlights that this is not an efficient market since there are clear correlation. In the present work we use the entropy as a measure of the informational efficiency in the US Housing market and tested the relationship with the probability of having a crash in the sector. We found some evidence suggesting that the market has been inefficient since May 1999. In addition, the logit model indicates that a decrease in the informational efficiency produce a significant increase in the probability of having a crash. Further results show that the fact of investing in different US metropolitan areas does not affect this probability.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-08-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122900256","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}
Pae, S. Acquisition and Discretionary Disclosure of Private Information and Its Implications for Firms' Productive Activities. Shape Journal of Accounting Research 37 (Autumn 1999): 465-74.
{"title":"Corrigendum to:","authors":"Suil Pae","doi":"10.2139/ssrn.548066","DOIUrl":"https://doi.org/10.2139/ssrn.548066","url":null,"abstract":"Pae, S. Acquisition and Discretionary Disclosure of Private Information and Its Implications for Firms' Productive Activities. Shape Journal of Accounting Research 37 (Autumn 1999): 465-74.","PeriodicalId":440574,"journal":{"name":"ERN: Asymmetric & Private Information (Topic)","volume":"62 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122893533","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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