Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100851
Christine Bangsgaard , Thomas Kokholm
We analyze the lead–lag relation between VIX futures and SPX futures. The two futures markets are weakly connected when market volatility is low. By contrast, when volatility is high, their prices are highly negatively correlated, with VIX futures leading SPX futures. However, the tightness of the lead–lag relation prevents the formation of profitable trading strategies in a setup that includes transaction costs. An analysis of the time variation in the lead–lag relation finds that an improvement in the relative liquidity of one market strengthens the lead of that market. Moreover, the hedging activities of market makers influence the lead–lag relation.
{"title":"The lead–lag relation between VIX futures and SPX futures","authors":"Christine Bangsgaard , Thomas Kokholm","doi":"10.1016/j.finmar.2023.100851","DOIUrl":"10.1016/j.finmar.2023.100851","url":null,"abstract":"<div><p>We analyze the lead–lag relation between VIX futures and SPX futures. The two futures markets are weakly connected when market volatility is low. By contrast, when volatility is high, their prices are highly negatively correlated, with VIX futures leading SPX futures. However, the tightness of the lead–lag relation prevents the formation of profitable trading strategies in a setup that includes transaction costs. An analysis of the time variation in the lead–lag relation finds that an improvement in the relative liquidity of one market strengthens the lead of that market. Moreover, the hedging activities of market makers influence the lead–lag relation.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1386418123000496/pdfft?md5=27d85097640e8d3a70a5051e18b77279&pid=1-s2.0-S1386418123000496-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136173380","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100871
Narayan Bulusu
Central banks use open market operations (OMOs) to adjust the liquidity available to the financial system to maintain the short-term borrowing rate within the desired target range. Using the conditional event study methodology to decompose the impact of OMOs into supply and announcement effects, this paper finds that when OMO announcements are unexpected, the decrease in the lending rate as a result of the higher supply is significantly moderated by the announcement effect. The results highlight that central banks communicate not just through signals of their desired policy stance, but also through their announcements of operations that implement the stance.
{"title":"Disentangling the supply and announcement effects of open market operations","authors":"Narayan Bulusu","doi":"10.1016/j.finmar.2023.100871","DOIUrl":"10.1016/j.finmar.2023.100871","url":null,"abstract":"<div><p>Central banks use open market operations<span><span> (OMOs) to adjust the liquidity available to the financial system to maintain the short-term borrowing rate within the desired target range. Using the conditional </span>event study methodology to decompose the impact of OMOs into supply and announcement effects, this paper finds that when OMO announcements are unexpected, the decrease in the lending rate as a result of the higher supply is significantly moderated by the announcement effect. The results highlight that central banks communicate not just through signals of their desired policy stance, but also through their announcements of operations that implement the stance.</span></p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138524701","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100868
Chris Stivers , Licheng Sun , Sounak Saha
Studying 1,473 U.S. securities class action (SCA) lawsuits over 2009–2019, we find that the pre-filing abnormal negative returns and shorting are largely linked to public investigation news that precedes the SCA lawsuit filing. Across all the lawsuits, 73% of the total abnormal negative returns over the ten-day pre-filing period are attributed to the 31.6% of the cases that had investigation news over that pre-filing period. Our findings indicate that investors’ ability to anticipate SCA lawsuits is not as economically significant as previous studies suggest, and that SCA shorting profitability is substantially linked to analysis of public information.
{"title":"Abnormal stock returns and shorting around securities class action lawsuits: The role of pre-filing news releases","authors":"Chris Stivers , Licheng Sun , Sounak Saha","doi":"10.1016/j.finmar.2023.100868","DOIUrl":"10.1016/j.finmar.2023.100868","url":null,"abstract":"<div><p>Studying 1,473 U.S. securities class action (SCA) lawsuits over 2009–2019, we find that the pre-filing abnormal negative returns and shorting are largely linked to public investigation news that precedes the SCA lawsuit filing. Across all the lawsuits, 73% of the total abnormal negative returns over the ten-day pre-filing period are attributed to the 31.6% of the cases that had investigation news over that pre-filing period. Our findings indicate that investors’ ability to anticipate SCA lawsuits is not as economically significant as previous studies suggest, and that SCA shorting profitability is substantially linked to analysis of public information.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136128281","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100867
Anthony Saunders , Pei Shao , Yuchao Xiao
When a firm's loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so-called qualified institutional buyers (QIBs). We document a significant information effect that benefits these buyers in the firm's market for equity, in particular, a significant impact on equity market investors and the firm's stock bid-ask spreads, which benefits informed QIBs relative to retail investors. This informational benefit raises important regulatory issues related to disclosure and SEC regulations.
{"title":"Private information disclosure in the secondary loan market and its impact on equity market trading costs","authors":"Anthony Saunders , Pei Shao , Yuchao Xiao","doi":"10.1016/j.finmar.2023.100867","DOIUrl":"10.1016/j.finmar.2023.100867","url":null,"abstract":"<div><p>When a firm's loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so-called qualified institutional buyers (QIBs). We document a significant information effect that benefits these buyers in the firm's market for equity, in particular, a significant impact on equity market investors and the firm's stock bid-ask spreads, which benefits informed QIBs relative to retail investors. This informational benefit raises important regulatory issues related to disclosure and SEC regulations.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136009436","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100855
Keming Li
This paper shows an abnormal level of option trading activities in the ten days before the revelation of financial misconduct in a sample of the SEC and/or DOJ enforcement actions. These abnormal option trading volumes are negatively associated with the subsequent stock returns to the announcements, and are positively linked to firm penalty, the number of violations, prison sentences, fraud charge, top executives number, potential firm deception toward auditors, impeded investigation, and violation period. Finally, abnormal option trading is related to the time to discovery and the likelihood of discovery. These results suggest that option traders detect firms engaged in financial misconducts.
{"title":"Informed trading prior to financial misconduct: Evidence from option markets","authors":"Keming Li","doi":"10.1016/j.finmar.2023.100855","DOIUrl":"10.1016/j.finmar.2023.100855","url":null,"abstract":"<div><p>This paper shows an abnormal level of option trading activities in the ten days before the revelation of financial misconduct in a sample of the SEC and/or DOJ enforcement actions. These abnormal option trading volumes are negatively associated with the subsequent stock returns to the announcements, and are positively linked to firm penalty, the number of violations, prison sentences, fraud charge, top executives number, potential firm deception toward auditors, impeded investigation, and violation period. Finally, abnormal option trading is related to the time to discovery and the likelihood of discovery. These results suggest that option traders detect firms engaged in financial misconducts.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48903099","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100870
Mengdie Deng, Tse-Chun Lin, Jiayu Zhou
Based on the SEC's Tick Size Pilot Program, we adopt a difference-in-differences design and find that the improved liquidity for large orders increases their ownership of the treatment firms with a larger tick size during the program. The effect is concentrated among firms with lower liquidity for large orders ex ante and mainly comes from dedicated investors and quasi-indexers. We also find that analyst coverage and forecast accuracy increase for the treatment firms, plausibly catering to the increased information demand of institutional investors. Consequently, price efficiency increases as well. Overall, we show the bright side of this controversial program.
{"title":"Does better liquidity for large orders attract institutional investors and analysts? Evidence from the Tick Size Pilot Program","authors":"Mengdie Deng, Tse-Chun Lin, Jiayu Zhou","doi":"10.1016/j.finmar.2023.100870","DOIUrl":"10.1016/j.finmar.2023.100870","url":null,"abstract":"<div><p>Based on the SEC's Tick Size Pilot Program, we adopt a difference-in-differences design and find that the improved liquidity for large orders increases their ownership of the treatment firms with a larger tick size during the program. The effect is concentrated among firms with lower liquidity for large orders ex ante and mainly comes from dedicated investors and quasi-indexers. We also find that analyst coverage and forecast accuracy increase for the treatment firms, plausibly catering to the increased information demand of institutional investors. Consequently, price efficiency increases as well. Overall, we show the bright side of this controversial program.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135564301","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100856
Yanhua Sunny Yang , Chris Yung
We examine analysts’ forecast timing when issuing negative opinions. When management withholds bad news, good news become more abundant but relatively uninformative. We theoretically predict and empirically document that analysts treat observed bad news as having higher precision and respond to it by issuing forecasts more quickly and accurately than for good news forecasts. These results hold to various robustness checks. This study improves our understanding of negative information dissemination in capital markets.
{"title":"Do analysts distribute negative opinions earlier?","authors":"Yanhua Sunny Yang , Chris Yung","doi":"10.1016/j.finmar.2023.100856","DOIUrl":"10.1016/j.finmar.2023.100856","url":null,"abstract":"<div><p>We examine analysts’ forecast timing when issuing negative opinions. When management withholds bad news, good news become more abundant but relatively uninformative. We theoretically predict and empirically document that analysts treat observed bad news as having higher precision and respond to it by issuing forecasts more quickly and accurately than for good news forecasts. These results hold to various robustness checks. This study improves our understanding of negative information dissemination in capital markets.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135568863","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-01-01DOI: 10.1016/j.finmar.2023.100869
Joseph M. Marks , Chenguang Shang
We investigate the relation between firms' business seasonality and their stock market liquidity and find robust evidence that firms with seasonal business tend to have less liquid equity. The effect of seasonality on stock liquidity is amplified for firms facing greater information asymmetry. Furthermore, firms with seasonal business patterns are associated with a higher probability of informed trading, and their stock returns co-move less with the market. Overall, our results suggest that the business patterns of such firms may negatively affect their information environments, and investors’ concerns with regard to adverse selection impede the liquidity provision for these firms.
{"title":"Business seasonality and stock liquidity","authors":"Joseph M. Marks , Chenguang Shang","doi":"10.1016/j.finmar.2023.100869","DOIUrl":"10.1016/j.finmar.2023.100869","url":null,"abstract":"<div><p><span>We investigate the relation between firms' business seasonality and their stock market liquidity and find robust evidence that firms with seasonal business tend to have less liquid equity. The effect of seasonality on stock liquidity is amplified for firms facing greater information asymmetry. Furthermore, firms with seasonal business patterns are associated with a higher probability of informed trading, and their </span>stock returns co-move less with the market. Overall, our results suggest that the business patterns of such firms may negatively affect their information environments, and investors’ concerns with regard to adverse selection impede the liquidity provision for these firms.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2024-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136128058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-11-01DOI: 10.1016/j.finmar.2023.100839
Robert Merl , Stefan Palan , Dominik Schmidt , Thomas Stöckl
Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.
{"title":"Insider trading regulation and trader migration","authors":"Robert Merl , Stefan Palan , Dominik Schmidt , Thomas Stöckl","doi":"10.1016/j.finmar.2023.100839","DOIUrl":"10.1016/j.finmar.2023.100839","url":null,"abstract":"<div><p>Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market causes both informed and uninformed traders to be more active in the unregulated market. This market, thus, sees more trading volume, lower spreads, and less mispricing. Nevertheless, uninformed traders suffer greater losses in unregulated markets, while informed traders profit from the absence of regulation.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2023-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S138641812300037X/pdfft?md5=0a547f16c0c54abdad7660685881411c&pid=1-s2.0-S138641812300037X-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43373734","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-11-01DOI: 10.1016/j.finmar.2023.100849
Charles Martineau , Marius Zoican
How does retail trading impact information supply in financial markets? We build a trading model with endogenous information supply where analysts maximize trading volume by institutional investors. In equilibrium, sell-side analysts provide higher quality signals in stocks with large retail interest, as institutional investors can trade more aggressively without revealing information. We provide empirical evidence supporting the main prediction of the model: A one standard deviation increase in retail trading leads to an additional 0.6 analysts covering the stock. To establish causality, we confirm our results using stock splits as a plausibly exogenous shock to retail trading.
{"title":"Retail trading and analyst coverage","authors":"Charles Martineau , Marius Zoican","doi":"10.1016/j.finmar.2023.100849","DOIUrl":"10.1016/j.finmar.2023.100849","url":null,"abstract":"<div><p>How does retail trading impact information supply in financial markets? We build a trading model with endogenous information supply where analysts maximize trading volume by institutional investors. In equilibrium, sell-side analysts provide higher quality signals in stocks with large retail interest, as institutional investors can trade more aggressively without revealing information. We provide empirical evidence supporting the main prediction of the model: A one standard deviation increase in retail trading leads to an additional 0.6 analysts covering the stock. To establish causality, we confirm our results using stock splits as a plausibly exogenous shock to retail trading.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.8,"publicationDate":"2023-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41506970","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}