Journal of Financial Markets最新文献

We examine the relation between the geographic proximity of institutional investors and debt maturity. We hypothesize and find that firms with more or closer local institutional investors have shorter maturity debt. Analyses based on new debt issues and using SOX as a natural experiment and firm headquarter relocations as exogenous shocks indicate a causal effect of local institutional monitoring on debt maturity. Tests of the underlying mechanism suggest that firms monitored by local institutional investors choose shorter maturity debt to reduce debt and equity agency costs. The results demonstrate that local institutional investors affect firms’ debt maturity choices.

We find that the COVID-19 pandemic increases (decreases) stock return sensitivity to market-wide (firm-specific) news, which is associated with return reversals (delayed reactions). These results are consistent with limited investor attention and investors paying heightened (reduced) attention to macro (micro) information after the outbreak. There are more biased reactions when the epidemic spread is higher, to good news than bad news, for firms headquartered in pandemic epicenters, and for larger stocks. We also find higher (lower) imbalanced trading, information flow, and price efficiency associated with market-wide (firm-specific) news during the pandemic.

This study explores how arbitrage capital reshapes out-of-sample returns and trade volume. Studying 71 anomalies, I show that the discovery of an anomaly creates a contrarian effect on the general decay in returns. A consistent volume effect reinforces the arbitrage capital explanation. The effect duration has been shortened and starts earlier in more recent years, along with the reduction in arbitrage costs. Also consistent with the limits-to-arbitrage hypothesis, the differences in long-side and short-side portfolios diminish in more recent years. The long-lasting effect indicates a persistent mispricing component in anomalies.

Regulators use measures such as a fee on high order-to-trade ratio (OTR) to slow down high-frequency trading. Their impact on market quality is, however, mixed. We study a natural experiment in the Indian stock market where such a fee was introduced twice, with differences in motivation and implementation. Using a difference-in-difference approach, we find that the fee decreased OTR and improved market quality when it was imposed on all orders, while it had little effect when it was imposed selectively on some orders. Improvement in liquidity was driven by a reduction in adverse selection costs following lower OTR.

We investigate how market power or price impact of market makers affects the participation decisions of investors with ambiguity aversion. Limited participation exists because some investors are ambiguous about the asset fundamental, but the market power of market makers mitigates limited participation. As a result, when market makers become less competitive, the non-participation range decreases, while return volatility increases; thus, market makers and ambiguity-averse investors are better off, but investors with liquidity needs are worse off. However, the non-participation range and uninformed investors’ welfare can increase or decrease when information is more asymmetric, depending on the importance of liquidity demand.

We analyze the underlying source of gender differences in earnings estimates on a crowdsourcing platform, Estimize, to understand the mechanisms driving analyst ability. Estimates made by females are more accurate than those made by males. This outperformance is not consistent with explanations based on females’ innate ability to process information, females utilizing more up-to-date information, superior stock selection among females, copycat estimates, gender bias, or survivorship bias. Instead, our evidence is consistent with females learning more quickly through making estimates, leading to their outperformance.

Investor sentiment is an important condition for style investing in affecting asset price predictability. We find that style returns have predictive power for future stock returns in high sentiment periods, but not low sentiment periods. The correlation between style returns and stock returns explains the variation in momentum profits in high sentiment periods, but not low sentiment periods. Sentiment has an interaction effect with style returns, but not market returns. While positive style returns predict future stock returns under high sentiment, negative style returns do not. The effect of investor sentiment on style investing is independent of prior market returns.

Taxes create distortions in financial markets. A tax credit attached to dividend payments in Australia creates a wedge in valuations as it can be utilized only by certain investors. Individual investors, who benefit most from the credit, buy aggressively cum-dividend and sell aggressively ex-dividend, demanding liquidity from institutional investors. Stocks with higher net purchases by individual investors operating through discount brokers in the cum-dividend period have ex-day returns that are 25 bps lower. The tax distortion allows individual investors to capture the tax credit and institutional investors to increase trading profits. Individual investor trading influences ex-dividend pricing.

We examine the effect of single-stock futures (SSFs) trading on the price discovery and market quality of underlying stocks during the 2008 short-selling ban in the United States. We find a significant increase in SSFs trading volume for banned stocks during the ban period. We show that the contribution of SSFs trading to underlying stock price discovery also increased significantly. Moreover, SSFs trading helped mitigate the negative effect of the short-selling ban on market quality. Although SSFs trading in the U.S. still lags other countries, our findings project an increasingly important role for them in the U.S. financial market.

We find that the relation between the idiosyncratic volatility (IVOL) anomaly and the beta anomaly is quite different at long horizons than at short horizons. At short horizons, neither anomaly can fully explain the other. At long horizons, the IVOL-alpha relation is explained by the beta-alpha relation. A long-window estimate of idiosyncratic volatility measure popularly used by the investment industry behaves more like beta than IVOL in predicting returns and alphas. Our findings suggest that the short-horizon and long-horizon low-risk effects are different and warrant different explanations.