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Volatility increases subsequent to stock splits: An empirical aberration
Abstract
This paper analyzes the empirical behavior of stock-return volatilities prior to and subsequent to the ex-dates of stock splits. The evidence demonstrates rather unambiguously that there is, on the average, an approximately 30% ‘arbitrary’ increase in the return standard deviations following the ex-date. The increase holds for both daily and weekly data, and it is not temporary. No explanatory confounding variables, such as institutional frictions affecting price observations, have been identified. We view the findings as being essentially inconsistent with the notion of ‘rational pricing’.
... En concreto, diversos trabajos detectan la presencia de rentabilidades anormales significativas en los días alrededor del anun-SPLITS cio de split [FAMA et al. (1969); GRINBLATT et al. (1984); LAKONISHOK y LEV (1987); LAMOUREUX y POON (1987); MCNICHOLS y DRAVID (1990); IKENBERRY et al. (1996); WULFF (1999); YAGÜE (2002); MENÉNDEZ y GÓMEZ ANSÓN (2003)] y alrededor de la fecha de ejecución del mismo [GRINBLATT et al. (1984); GÓMEZ SALA (1998; WULFF (1999); MENÉNDEZ y GÓMEZ ANSÓN (2003)], lo que ha sido interpretado como apoyo a la hipótesis de la señalización. Por otra parte, el incremento significativo de las volatilidades de los títulos tras la realización de un split para distintos mercados [OHLSON y PENMAN (1985); DRAVID (1987); LAMOUREUX y POON (1987); CONROY et al. (1990); DUBOFSKY (1991); KRYZANOWSKI y ZHANG (1996); ANGEL (1997); ANGEL et al. (1997); DESAI et al. (1998); KOSKI (1998); LIPSON (1999); REBOREDO (2000); SCHULTZ (2000); EASLEY et al. (2001); BLEY (2002)] implica un considerable incremento de la negociación no informada, debida principalmente al aumento del número de pequeños inversores. ...
... splits en las bolsas internacionales destaca, por lo general, la existencia de rentabilidades anormales positivas alrededor de las fechas de anuncio [FAMA et al. (1969), GRINBLATT et al. (1984), LAKONISHOK y LEV (1987), LAMOUREUX y POON (1987), MCNICHOLS y DRAVID (1990), WULFF (1999)] y de ejecución del split [GRINBLATT et al. (1984), WULFF (1999)]. Adicionalmente, se detectan con posterioridad al split incrementos en el número de accionistas de las empresas que fraccionan el nominal de sus títulos [LAKONISHOK y LEV (1987), LAMOUREUX y POON (1987), CONROY et al. (1990, MALONEY y MULHERIN (1992)], aumento significativo de la volatilidad de los precios de los títulos [OHLSON y PENMAN (1985), DRAVID (1987), LAMOUREUX y POON (1987), CONROY et al. (1990, DUBOFSKY (1991), KRYZANOWSKI y ZHANG (1996), DESAI et al. (1998, KOSKI (1998), WULFF (1999], un incremento considerable de la actividad negociadora de los pequeños inversores [KRYZANOWSKI y ZHANG (1996), ANGEL (1997), ANGEL et al. (1997), DESAI et al. (1998, KOSKI (1998), LIPSON (1999), SCHULTZ (2000), EASLEY et al. (2001), BLEY (2002)], así como comportamientos significativos en distintas medidas indicadoras de la liquidez de los títulos afectados, a saber, una reducción del volumen negociado [COPELAND (1979), LAMOUREUX y POON (1987, KOSKI (1998), DESAI et al. (1998, LIPSON (1999)] y un incremento de la horquilla relativa tras el split [COPELAND (1979), DESAI et al. (1998, KOSKI (1998), EASLEY et al. (2001]. ...
... Los inversores incluso estarían dispuestos a pagar por esta ventaja fiscal de las acciones [LAMOUREUX y POON (1987)]. Un activo con elevada volatilidad en el precio, como es el caso de los títulos cuyo valor nominal se ha visto desdoblado [OHLSON y PENMAN (1985); DRAVID (1987) Se denomina front running a una práctica no ética de los brokers en los mercados financieros consistente en negociar un título con antelación a la información del departamento de análisis y antes de que los clientes hayan dado instrucciones. Ejemplos de este tipo de estrategia serían los siguientes: 1) brokers que adquieren títulos de una compañía justo antes de que la agencia de valores recomiende la compra del título; 2) un broker que adquiere 100 acciones a título particular antes de que la agencia de valores para la que trabaja adquiera un gran importante paquete de 400.000 títulos. ...
Este trabajo ha sido seleccionado y ha obtenido el 1.er Premio Estudios Financieros 2004 en la Modalidad de contabilidad y administración de empresas junto con el de Luis Ángel Castrillo Lara y Sonia Marcos Naveira titulado «La armonización de la auditoría de cuentas en la Unión Europea: la influencia de los grupos de interés y el marco institucional en la regulación», que se publicó en nuestra anterior Revista de los meses de agosto-septiembre, núms. 257-258. Los desdoblamientos de acciones o splits se han convertido en un fenómeno muy popular en España en la última década. Este tipo de operación consiste simplemente en dividir el valor nominal de las acciones de un título en la misma proporción en que se incrementa su número. Si bien desde un punto de vista teórico, el desdoblamiento carece de efectos, a la vista de los efectos de este tipo de operación en los mercados se puede inferir que las empresas pueden utilizarlos como instrumento de gestión con diversas finalidades. Entre dichos objetivos empresariales se encuentran la señalización de beneficios futuros, aumentar la liquidez de los títulos, aumentar el control de la empresa por parte de los principales accionistas o el consejo de administración, llamar la atención de los agentes del mercado, alcanzar un tick óptimo con respecto al precio del título, obtener ventajas fiscales, aprovechar el efecto psicológico de un precio más bajo, aprovechar la ineficiencia del mercado para obtener rendimientos extraordinarios y ajustar el precio del título ante cambios en la operativa del mercado. El objetivo del presente trabajo es contrastar empíricamente los motivos que mueven a las empresas españolas a realizar splits. Para ello se ha considerado una muestra total de 91 desdoblamientos realizados por las empresas que cotizan en el mercado continuo español entre 1996 y 2001. Como resultado de la estimación de los modelos logit, probit y la regresión de Cox, se obtiene que sólo resultan relevantes para explicar las decisiones de los directivos españoles en cuanto a la realización de splits las teorías de la señalización, de la atención y del ajuste ante cambios en la operativa del mercado (en este caso, ante el redondeo del euro). Si bien los directivos declaran en las encuestas desdoblar el valor nominal de sus títulos para aumentar la liquidez de los mismos, los splits parecen ser utilizados para enviar señales al mercado y llamar la atención de los agentes que en él operan.
... Comme le remarquent Ohlson & Penman (1985), les rentabilités quotidiennes sont de l'ordre de 10 -3 . Le carré de l'espérance des rentabilités est donc négligeable par rapport à l'espérance du carré des rentabilités (rapport de l'ordre de 1 pour 1000) dans la formule de calcul de la variance, si bien que l'on peut ramener l'hypothèse nulle à : information. ...
... Ils notent que cette hausse est persistante puisqu'ils n'observent pas de retour de la variance à son niveau initial à long terme. Leurs résultats restent donc compatibles avec l'hypothèse d'une variance constante mais variant brusquement à la date de réalisation.Grar (1993), en se fondant sur la même méthodologie qu'Ohlson & Penman (1985), observe lui aussi l'impact de la division sur la variance des rentabilités sur le marché français.Le risque systématique ou risque de marché, non diversifiable, mesuré par le de l'action, est une des deux composantes du risque total lié à un titre. L'autre composante est le risque spécifique. ...
... cependant que les rentabilités anormales trouvées par FFJR sont surestimées du fait de l'instabilité des qu'ils ne prennent pas en compte.Les travaux plus récents sur les effets des divisions de titres montrent en outre un impact sur la structure de l'actionnariat, avec un accroissement de celui-ci au profit notamment des investisseurs individuels.Ohlson et Penman (1985) concluent déjà leurs travaux en émettant l'hypothèse que la diminution du prix de l'action peut attirer davantage d'investisseurs peu sophistiqués et mal informés à effectuer des transactions sur ces titres.C'est l'accroissement de la proportion de ces « noise traders » qui serait alors la cause des autres phénomènes observables, notamm ...
Les opérations de division/multiplication de nominal ont fait l'objet de nombreuses recherches depuis quelques décennies, principalement anglo-saxonnes. Deux hypothèses principales en ressortent. L'hypothèse de signalement suppose que l'annonce de l'opération permet au dirigeant d'une entreprise cotée de transmettre au marché son information privée concernant ses performances futures. L'hypothèse d'ajustement des prix vise quant-à-elle un objectif plus opérationnel : l'opération permettrait d'ajuster le niveau de prix en sorte d'impacter la liquidité et le risque des titres ou de satisfaire les différentes classes d'investisseurs. Les travaux plus récents observent en plus de l'impact sur les rentabilités, la liquidité ou le risque, un changement dans la structure de l'actionnariat consécutif à ces opérations. Les études empiriques réalisées et les méthodologies d'étude d'évènement mobilisées dans nos travaux montrent que ces deux hypothèses classiques sont difficilement applicables au marché français. Les observations sur ce marché conduisent à élargir la problématique au lien possible entre prix unitaire des titres et composition de l'actionnariat. Une hypothèse originale est alors proposée, modélisée et testée. Cette hypothèse d' « ajustement de l'actionnariat par les prix » explique notamment que les réactions soient différentes sur ce marché, comme la motivation du recours à de telles opérations. Le choix du niveau de prix « optimal » des actions correspond dans cette optique à un arbitrage entre la performance accrue due au contrôle d'investisseurs institutionnels et le bénéfice en termes de rentabilité exigée de disposer d'une base large d'actionnariat individuel.
... Researchers have posited a variety of explanations for stock splits, including signaling to reduce information asymmetry (Brennan and Copeland, 1988;Dharan and Ikenberry, 1995;Ikenberry et al., 1996), adjusting the stock price to an optimal trading range (Copeland, 1979;Fernando, Krishnamurthy, and Spindt, 2004;Dyl and Elliott, 2006) or to an optimal tick size (Angel, 1997;Harris, 1997), and to increase the tax option value for investors (Lamoureux and Poon, 1987). In addition to the announcement return effect, beginning with Ohlson and Penman (1985), research has documented a significant increase in post-split stock volatility. ...
... For example, we provide evidence that abnormal returns around the announcement date remain positive and significant, though at a level of approximately 2% rather than the 3% return found using earlier sample periods. 8 We also document that the Ohlson and Penman (1985) finding, of increased post-split price volatility, persists even after the decimalization of market prices. ...
... In addition to the positive price reaction, there is also an increase in daily return volatility. Ohlson and Penman (1985) calculate volatility as the mean of the squared daily returns for the 252 days before and after the split ex-date and find an increase in daily return volatility of about 30% beginning on the split ex-date. Their results hold for both daily and weekly data and are not temporary, but they are unable to identify any rational explanation for the effect. ...
We analyze the relation between the delta and vega of a CEO's compensation and the propensity of the firm to engage in a split. Controlling for other well-known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta. Our results are economically significant: for the average (median) firm in our sample, a stock split results in a CEO wealth gain of $4.9 million ($84,000). This article is protected by copyright. All rights reserved
... The split was implemented to attract a wider range of buyers at the resulting lower price per share. It has been shown by many researchers, such as Ohlson and Penman (1985), Sheikh (1989), Desai et al. (1998) that stock splits result in post-split increases of implied stock volatilities. For instance, Ohlson and Penman (1985) show that stock splits cause short-term increases in volatility upon announcement and long-term increases in volatility after the date the split is effective. ...
... It has been shown by many researchers, such as Ohlson and Penman (1985), Sheikh (1989), Desai et al. (1998) that stock splits result in post-split increases of implied stock volatilities. For instance, Ohlson and Penman (1985) show that stock splits cause short-term increases in volatility upon announcement and long-term increases in volatility after the date the split is effective. ...
In this paper, we study the statistical properties of the moneyness scaling transformation by Leung and Sircar (2015). This transformation adjusts the moneyness coordinate of the implied volatility smile in an attempt to remove the discrepancy between the IV smiles for levered and unlevered ETF options. We construct bootstrap uniform confidence bands which indicate that the implied volatility smiles are statistically different after moneyness scaling has been performed. An empirical application shows that there are trading opportunities possible on the LETF market. A statistical arbitrage type strategy based on a dynamic semiparametric factor model is presented. This strategy presents a statistical decision algorithm which generates trade recommendations based on comparison of model and observed LETF implied volatility surface. It is shown to generate positive returns with a high probability. Extensive econometric analysis of LETF implied volatility process is performed including out-of-sample forecasting based on a semiparametric factor model and uniform confidence bands' study. It provides new insights into the latent dynamics of the implied volatility surface. We also incorporate Heston stochastic volatility into the moneyness scaling method for better tractability of the model.
... However, this drift is conditional on the period examined (Byun and Rozeff (2003)), and it is driven by the relatively short period between the split announcement date and the split effective date (Boehme and Danielsen (2007)). Stock volatility increases when splits are announced (Ohlson and Penman (1985)), which is a common occurrence for any unscheduled and meaningful corporate announcement. Finally, there is an increase in stock volatility after splits are effected (Ohlson and Penman (1985), Dravid (1987), and Koski (1998)). ...
... Stock volatility increases when splits are announced (Ohlson and Penman (1985)), which is a common occurrence for any unscheduled and meaningful corporate announcement. Finally, there is an increase in stock volatility after splits are effected (Ohlson and Penman (1985), Dravid (1987), and Koski (1998)). ...
Prior research shows that splitting firms earn positive abnormal returns and that they experience an increase in stock return volatility. By examining option-implied volatility, we assess option traders’ perceptions on return and volatility changes arising from stock splits. We find that they do expect higher volatility following splits. There is only weak evidence, though, of option traders anticipating an abnormal increase in stock prices. We also show that our option measures can predict both stock volatility levels and changes after the announcement. However, there is little evidence that they can predict the returns of splitting firms.
... Lower-priced stocks are also exposed to extreme returns, which is consistent with non-proportional thinking among individual investors (Shue & Townsend, 2021). Current literature findings contradict past evidence that stock splits substantially increase return volatility without increasing liquidity (Ohlson & Penman, 1985;Shue & Townsend, 2021). Comerton-Forde (2003). ...
This study investigates whether firm’s management uses split ratios to target low price anchors in order to impact post-split ownership. We report anchoring bias for the lowest ranges of prices in the equity market and find specific price anchors among individual investors in the secondary equity market. Initial founders/promoters may use these price anchors and target-specific post-split prices to achieve the desired ownership structure between individual and institutional investors. This study addresses the role of nominal prices in choosing to split shares in the context of a firm’s ownership structure. Our findings amplify the fact that the psychological biases of individual investor behaviour depend on share price levels, which affects the ownership structure of a firm. Our study makes three contributions. First, we provide evidence for anchoring basis among individual investors for the lowest price ranges. Thus, companies use higher split ratios to target the lowest price ranges to disperse ownership among individual investors. Second, we find that institutional investors reduce ownership in companies that target the lowest price anchors post-split. Third, promoters may use price anchors to disperse ownership among individual investors, thus maintaining control.
... See-To and Yang (2017) analyzed sentiment dispersion, which contains information about stock volatility and stock returns; they uncovered the potential predictive power of sentiment dispersion and raised a new perspective with which to assess the impact of investor opinion on the stock market. As the literature suggests, sentiment dispersion could contain information regarding future returns and volatility and can be used to increase the accuracy of prediction (Varian 1985 Empirical research on the behavior of stock-return volatilities to assess the impact of investor opinion on stock market is evinced in Ohlson and Penman (1985) and See-To and Yang (2017). As the literature (Varian 1985 Ownership structure has a high impact on trading patterns and return scales. ...
This study aims to model arbitrageur behavior in a sentiment-driven capital asset-pricing model under the premise of reflecting a more detailed decomposition of investor types in the equity markets. We explore the behavior and the impact of arbitrageur behavior, particularly, on pricing and on key financial ratios. We observe that the prevalence of the arbitrageur counteracts the effects of unsophisticated investors, resulting in a lower volatility of the price–dividend ratio, lower predictive power of changes in consumption for future price changes and lower equity premium. Thus, the results of our research allow us to conjecture that the extrapolation bias in the prices is lowered.
... According to Lamoureux and Poon(1987), market attaches positive value to the split because of its Tax Option impact. Ohlson and Penman(1985) found that the splitted stocks found significant price reaction on announcement of splits. ...
Stock split generally creates a notional feeling of pride and happiness in the mind of investors that the company going to split is a better company and the good performance will continue in future also. The main motive of this study is to analyse the effect of stock split announcement on share price behaviour and market liquidity of stocks of some large cap companies in India. Event study methodology has been used for analysing the share price behaviour and it is observed that the share prices of most of the stock splitting companies under study decreased continuously all through the event window surrounding the announcement date. On the announcement date some nominal recovery has been seen but after that during the post announcement period more negative abnormal returns have been noticed. The control companies also performed bad during the pre announcement period but during the post announcement period their share price performance have been improved too much. For the different holding period within the event window the post announcement average control adjusted abnormal returns (AARca) are found significantly negative except for very short holding periods when the negative AARca are insignificant. Thus the negative impact of stock split announcement on share price behaviour can be clearly noticed here. Thereafter, the liquidity of stocks surrounding the stock split announcement have been analysed by using the measures like Volume of trade, Turnover and Turnover ratio and it is found that the percentage of stock splitting companies having significant positive change and having significant negative change in liquidity are higher than the percentage of control companies having significant positive change and significant negative change in liquidity respectively from pre to post split announcement period. But the percentage of stock splitting companies having significant negative change in liquidity is higher than the percentage of them having significant positive change in liquidity. Thus there is an impact of stock split announcement on liquidity of shares but the negative impact has been dominated here in this study. INTRODUCTION Stock split is a procedure mainly undertaken by the management of a company to reduce par value of shares in order to make the shares more affordable to the small investors and to enhance the market liquidity of the stock when the share price become too high compared to the share prices of its peer companies. Due to the stock split, the number of outstanding share increases in a pre decided and approved distribution ratio and simultaneously the price will decreases by the inverse of this ratio that results in no alteration of ownership interest of the existing shareholders and the total market value of their holdings. Though stock split is considered by many earlier researchers as a cosmetic event or is just like an event of cutting a pie into small pieces that does not add any value indeed, investors get very much excited to hear that the stocks in which they have invested is going to be split. The feeling of pride and happiness is due to the possibility of increase in share price around the stock split that is itself a positivity. This positive market reaction and probability of price enhancement is mainly depends on two broad aspects of stock split: Liquidity aspect and Signalling aspect. According to BERVAS(2006), Liquidity is a relative concept, as more liquid the asset, the more it is easily traded for liquidity "par excellence": money, i.e. at low cost, at short notice and with no risk of notable change in price. Market liquidity is the primary consideration for an efficient market as market liquidity is the ability to settle transaction at current prices and at all time with no notable transaction costs. Liquidity of stocks may boost up due to more affordability of stocks after the stock split.
... A few studies which have utilized share price unpredictability as a measure of liquidity have found an expansion taking after a stock split (Ohlson and Penman (1985), Dravid (1987), Lamoureux and Poon (1987), Conroy et al (1990), Dubofsky (1991), Desai et al (1998) and Koski (1998)). The quantity of exchanges per day has been found to build taking after stock splits (Muscarella and Vetsuypens (1996), Kryzanowski and Zhang (1996) and Desai et al (1998)). ...
The stock split is a corporate occasion wherein the price of the stock declines and the quantity of exceptional shares increments in the same ratio. In this way, for instance, if there is a stock split of 1:5, it implies that for each offer 5 shares will be allocated to every shareholder expanding the quantity of exceptional shares and diminishing the price of the offer by 1/fifth of the previous quality. This Paper has been embraced to think about the impacts of stock splits on the shareholders' riches and the organization's productivity. Firstly, the secondary information examination was conducted wherein the concept of stock split, reverse stock split, the impacts of stock split and the contrast between bonus issue and the stock split was contemplated. At that point the reasons because of which organizations go for a stock split were additionally concentrated on. The need of the study was distinguished in the wake of experiencing the different studies that have been conducted on the comparative themes both inside and outside India. At that point, the general theory identified with stock splits like exchanging extent speculation, liquidity theory, different occasions theory and so on were examined with the assistance of existing information accessible on web, magazines and books. Likewise the intra business reactions to stock split declarations, impacts of stock splits on stock prices and insider exchanging on stock split declarations were concentrated on to touch base at the goals and the speculation to be examined. After that, examination procedure was formulated to ponder the impacts of stock splits on the money related ratios like earnings per share, return on equity, profit per share and price to earnings ratio.
... Apart from the above two traditional explanations, a number of empirical studies have examined impact of split on several other firm-specific factors like, volatility of stock returns, ownership structure optimal tick size bid-ask spread and transaction cost taxoption value of the stock, etc. [Barker (1956), Choi and Strong (1971), Chottiner and Young (1971), Copeland (1979), Constantinides (1984, Eades et al. (1984), Grinblatt et al. (1984), Ohlson and Penman (1985), Black (1986), O'Hara and Oldfield (1986), Copeland (1987, 1988), Lakonishok and Lev (1987), Lamoureux and Poon (1987), Dubofsky and French (1988), Sheikh (1989), Conroy et al. (1990), Dubofsky Stock split was introduced in our country by the market regulators in the year 1999 as a part of initiatives undertaken enhance efficiency of stock market of our country. So, it seems important to examine the informational efficiency of Indian stock market using split information particularly in the absence of comprehensive empirical study in this area. ...
This paper presents a perceptual model of mutual fund performance that attempts to
go beyond the conventional models. Model presented in this paper is based on the
perception of individual investors about various selected parameters affecting the
performance of mutual fund. As all the conventional as well as contemporary models
available in the wide literature canvas, encompasses a very limited scope and
perspective of mutual fund performance. Considering the global amplification and
increasing awareness of investors, this model is the need of the hour. For assessing
mutual fund performance five determinants were considered. Primary data was
gathered by means of the questionnaire mode. Findings of the present research study
provide a compact cluster of factors playing influential role in framing the perception
of mutual funds. The fact revelations and conclusions of this study make essential
inputs to the academic literature in the form of inferences for investors and for fund
management companies by identifying the influential decision making factors
regarding mutual funds. Hence the determinants which this model ascertains are
highly practical and pertinent to all categories of mutual funds. Nevertheless, to give
robustness to the model by subjecting the theoretical model to undergo through the
structural equation modeling technique of analysis
... In this spirit, for stock splits to be an effective signal of positive information to investors, false signaling needs to be observable and must come at incremental cost (BliegeBird and Smith, 2005). Management's costs of signaling private information through stock splits have been found to be multifold, ranging from administrative and legal expenses (Baker, Phillips, and Powell, 1995) to higher liquidity costs of trading for the firm's shareholders (Conroy, Harris, and Benet, 1990;Gray, Smith, and Whaley, 2003;Ohlson and Penman, 1985). Further, the stock split raises attention to the firm and may lead to a reassessment of the firm's future cash flows by investors which can only be in the interest of currently underpriced firms (Grinblatt, Masulis, and Titman, 1984). ...
Stock splits and their controversies are extensively studied. However, while many studies document post-split signaling evidence, little is known about the nature and form of management signals ahead of stock splits. Inspired by signaling theory, we extend previous research and unravel the role of language in Form 10-K and 10-Q performance reports as positivity signal from management ahead of stock splits. We create a multi-period signaling model and use sentiment analysis to assess language signals in management’s narrative on their firm’s current state and future performance outlook. Our results allude to a pre-split positivity signal. Splitting firms significantly increase the use of positive language over the year leading up to a split announcement (>10% more positivity). Our results further constitute positive signal confirmation after the split before a reversal of tone. This uptake in positive language is highly significant in explaining firm’s splitting likelihood and helps investors to anticipate splits in coming quarters and thereby future corporate decision-making. By and large, the market overreacts to the Form 10-K and 10-Q disclosures that are related to the pre-split positivity signal in the short-term and this overreaction is more pronounced after negative news. It is an intriguing notion to further study the affective characteristics of language signals in corporate communication and their interplay with corporate financial decision-making.
Noise trader models in financial markets distinguish two sets of trading activity based on rationality: (a) informed trading based on rational decisions and fundamental information and (b) noise trading based on non-fundamental noisy signals that lack a deeper meaning. Financial disclosures serve as key intermediaries between companies and the stock market, yet little is known about semantic drivers of information perception, particularly not in relation to these fundamental and non-fundamental decision-making patterns. This work extends previous research by unraveling the role of word choice, semantic orientation and hidden topic structures in U.S. regulated Form 8-K filings in relation to the two groups of trading activity. For this purpose, we use Bayesian filtering and supervised Machine Learning approaches of sentiment analysis to investigate disentangled effects of information perception in financial markets. We identify that news perception linked to non-fundamental decision-making is based on not discerning the full information breadth from financial disclosures and disparate interpretations of textual semantics as well as overall documents. We identify greater information perception ambiguity in relation to price noise, particularly for the case of fact- and emotion-laden content. The news perception differences are a cause for market prices to stray apart from fundamental values.
Scanning heuristics help individuals to optimize information processing effort in face of extensive amounts of new information. The deceptive character of news headlines, however, affects individual news perception and may stray from uncovering the true content of news articles. In absence of an underlying asset, the value and price formation of Bitcoin is majorly driven by investors’ beliefs and perceptions about new information and their derived expectations about the cryptocurrency’s future value. This work extends previous research by unraveling investors’ news perception of Bitcoin-themed online news and the implications of headline scanning heuristics on Bitcoin trading measures. Investors’ anchoring to news headlines explains short-term Bitcoin price reactions. Correspondingly, articles that convey opposing sentiment as their headline introduce uncertainty and are significantly linked to future Bitcoin price volatility.
... Apart from the above two traditional explanations, a number of empirical studies have examined impact of split on several other firm-specific factors like, volatility of stock returns, ownership structure optimal tick size bid-ask spread and transaction cost taxoption value of the stock, etc. [Barker (1956), Choi and Strong (1971), Chottiner and Young (1971), Copeland (1979), Constantinides (1984, Eades et al. (1984), Grinblatt et al. (1984), Ohlson and Penman (1985), Black (1986), O'Hara and Oldfield (1986), Copeland (1987, 1988), Lakonishok and Lev (1987), Lamoureux and Poon (1987), Dubofsky and French (1988), Sheikh (1989), Conroy et al. (1990), Dubofsky Stock split was introduced in our country by the market regulators in the year 1999 as a part of initiatives undertaken enhance efficiency of stock market of our country. So, it seems important to examine the informational efficiency of Indian stock market using split information particularly in the absence of comprehensive empirical study in this area. ...
Non-Performing Assetis one of the key indicators of banking sector to measure the efficiency of performance of banks. A high level of NPAs leads to large number of credit defaults which affect the profitability and wealth of banking companies. This paper describes the consistency level in profit and NPA of public sector banks, private sector banks and foreign banks. The objectives of this study is to find out the trend of NPA and Profit of public, Private & Foreign sector banks and to measure the relationship between NPA and profitability of public, private and foreign sector banks. This study is based on secondary data those are collected from Reserve Bank of India website. This paper finds that in Private sector banks increase in NPA leads to decrease in profit and in foreign banks NPA has less significant effect on profitability. Keywords:Non performing asset, portfolio, wealth, Public Sector Bank, Private Sector Bank, Foreign Bank
... L'arrivée d'une nouvelle information sur le marché boursier peut créer un accroissement des variations du cours de l'action [Ohlson et Penman, 1985] dû à une efficience imparfaite du marché ou à une modification de la fourchette de marché [Amihud et Mendelson, 1987]. ...
... However, the impact of stock split is temporary and the long-run stock returns after the split are, on average, negligible (Fama et al. 1969;Brennan and Copeland 1988;Byun and Rozeff 2003). The literature also finds mixed empirical evidence on the relationship between stock splits and the post-split trading liquidity, optimal stock price, and volatility (Bar-Yosef and Brown 1977;Conroy et al. 1990;Copeland 1979;Dyl and Elliott 2006;Easley et al. 2001;Lakonishok and Lev 1987;Ohlson and Penman 1985). Overall, the long-term benefits of stock splits to shareholders are still unclear. ...
This study examines whether socially responsible companies are likely to conduct a stock split. We argue that these companies, compared to their counterparts, could use their strong corporate social responsibility (CSR) performance to reduce information asymmetry with shareholders, and therefore, are less likely to rely on stock splits to signal their future growth potentials. We find empirical evidence to support our hypothesis and investigate the reasons for the lower frequency of stock splits among CSR oriented firms. We find that more socially responsible firms experience a smaller increase in trading volume and a greater increase in bid-ask spread following a stock split than less socially responsible firms. Furthermore, our study finds that, when more socially responsible firms decide to conduct a stock split, they attract a greater proportion of institutional investors with long-term investment horizons.
... Ferris, Hwang and Sarin (1995) present results of a reduction in depth. Ohlson and Penman (1985) and Koski (1998) report an increase in return volatility. These results indicate that corporate liquidity decreases rather than increases after the split. ...
Corporate action is usually believed to offer some good news to the investors, particularly in case of amalgamation and mergers. In many cases, corporate actions do not involve any potential future positive benefits to the company as is the case with bonus issue and stock splits. Such types of actions of the companies could be called as fictitious corporate actions. It has been noticed by many empirical studies that the market react positively to the announcement of bonus shares and stock splits.
This study analyses the reasons for the issue of bonus shares and stock splits on a sample of 165 companies which have issued bonus shares and 134 companies which have gone for stock splits during January 2000 to September 2006. An effort is also made to find the distinguishing conditions under which a company has to decide whether to issue bonus shares or to go for stock splits. Five variables have been considered for the study: rate of growth of sales and profit, beta and share price increase, and promoter stake. Effort has been made to explore whether there is any significant difference in these variables as applicable to stock split and bonus shares.
The study reveals that top management of the companies decide to issue bonus shares when the investors undervalue the company while they go for stock split when the investors overvalue the company for a long time and promoters have to step in to correct these anomalies. This merely goes on to prove that capital markets are not inherently efficient even in the long run and promoters have to intervene to manage the prices of their stocks through corporate actions. This puts a question mark on the Market Efficiency Hypothesis and an effort has been made to test the ability of NSE to depict semi-strong and strong form of Market Efficiency Hypothesis.
As far as policy implications are concerned, the author suggests that: Companies may resort to bonus shares issue if the rate of growth of share price lag behind the market index and the rate of growth of sales and profit is higher than the companies included in the index. In contrast, they may resort to stock split if the rate of growth of share price is higher than that of the index while the growth in sales and profit is less than the companies included in the index. One should also be cautious while applying this rationale. There are significant number of companies (negative companies) which may resort to fictitious corporate actions even if their rate of growth of sales or profit or both are negative in order to mislead the investors by resorting to false signaling.
... The tax-option hypothesis, proposed by Lamoureux and Poon (1987), suggests that stock splits increase the return volatility of the splitting firms and hence allow the investors to benefit from tax-timing options. The increase in return volatility has received empirical support from the works of Ohlson and Penman (1985), Dravid (1987), and Dubofsky (1991). ...
Theory suggests that stock-splits are cosmetic corporate events as they simply increase the number of outstanding shares and decrease the price of each outstanding share. Hence, there should be no significant effect on the value of the firm. However, empirical evidence suggests that the market generally reacts favourably to stock splits. The contradiction between theory, which expects no change in firm value consequent to stock splits, and the reality, with scores of evidence of significant market reaction, motivates the present study.
The market response to stock splits is investigated with the dataset from an emerging country � India for the period from March 1999 to December 2008. Based on availability of data, analysis was possible for 234 splits. The result of the investigation is in line with the results of many other studies, which shows significantly positive returns on the day of split execution. The regression analysis suggests that the positive reaction can be attributed to the small firm hypothesis and liquidity hypothesis. The result for the post-split period is characterized by abnormally high negative returns which wipes out much more than the positive gain during the split execution. This seems to be mostly explained by the pre-split price increase, firm size, and size of transaction, suggesting that the firms which have experienced a high pre-split increase in price as well as the smaller firms are the ones which suffer the worst returns. The significantly positive co-efficient for transaction size along with the observation that post-split average size of transaction has declined, implies trading intensity by small investors, who face severe negative performance in the post-split period. It is possible that small investors are lured to the market on split execution, while the informed players exit the same when the prices are at their peaks leaving the uninformed small investors with over-priced stocks, whose prices fall rapidly in the post-split period.
These findings may have immense implications for the smaller investors in designing their trading strategies. There may also be implications for the market regulators in protecting the small investors.
... Plethora of studies has been conducted on the economic effects of stock splits. Specifically researchers have investigated the effect of stock splits on share price (Fama et al 1969;Bar-Yosef and Brown 1977;Charest 1978;Reilly and Drzycimski 1981;Grinbalt, Masulis and Titman 1984;Lamourex and Poon 1987;Desai and Jain 1997;Byun and Rozeff 2003 ), earnings ( Lakonishok and Lev 1987;Doran and Nachtmann 1988;Asquith, Healy and Palepu 1989;McNichols and Dravid 1990), risk (Ohlson and Penman 1985;Klein and Peterson 1989;Sheikh 1989;Wiggins 1992;Koski 1998;Reboredo 2003;Julio and Deng 2006) and liquidity (Copeland 1979;Lamourex and Poon 1987;Conroy, Harris and Benet;. ...
The current paper studies the impact of two events i.e stock splits and rights issue announcement on the stock returns of companies listed on the Bombay Stock Exchange. The study consists of a sample of 90 announcements for stock splits and 29 announcements for rights issue during the period 2011-2014. Market model is used to calculate the abnormal returns of securities. Positive Average Abnormal Returns were observed for the two events on the day their announcements, however they are not statistically significant. The study concludes that the Indian stock market is efficient in its semi-strong form.
... There are undeniably limitations in this first attempt, including ignoring possible changes in important institutional settings over the study period, potential non-price competition in the presale market and the well-known age effect in repeat-sales model. Other issues such as market segmentation also needs to be addressed as Ohlson and Penman (1985) and Black (1986) opined that lower priced stocks (and therefore smaller housing units) attracted more noise traders. Other possible causes of the price dispersion such as wage-income dispersion are also not considered due to data limitation. ...
Examination of the causal relationship between housing price and transaction intensity helps us understand the housing market dynamics better. The housing market is a very unique asset market as demand for housing comes from both demand for investment return and demand for a shelter/accommodation. Empirical analysis on this causal relationship therefore provides government with important policy considerations. In this paper, we will examine such correlation between housing price movements and transaction intensity in Hong Kong with a core objective of getting a better understanding of the housing market behavior in this city so that more effective government housing policy could be devised. We examine the price–transaction correlation observed in the Hong Kong housing market by means of a bivariate vector autoregressive (VAR) model, with a time series spanning over the period from 1993 to 2014. Without examining other macroeconomic variables such as employment and gross domestic product, our Granger causality test shows a strong evidence, suggesting that housing price Granger causes transaction intensity in the housing market of Hong Kong, but not vice versa. The findings buttressed by the autoregressive distributed lag (ARDL) model and the bounds test results on cointegration relationships support our conclusion. Based on these results, we question the current government housing policy which aims mainly at suppressing demand and hence transaction intensity, if the objective of government intervention is to bring housing price level to a more affordable level. Housing policy therefore should aim at effectuating the supply channel so that there is a clearer signal of constant and effective supply of housing units, which will eventually help stabilize housing price.
This study examines how changes in tick size and the differential between short-term and long-term capital gain tax rates affect the market response to the announcement of stock distributions. Prior research finds that a stock distribution increases the volatility of the stock, which in turn increases the value of the stock’s tax-timing option. We show that the minimum tick size established by the exchange where the stock is traded affects a stock’s volatility and, therefore, the value of the tax-timing option and the market response to the stock distribution. We document a stronger relation between the market response and changes in volatility among large distributions than among small distributions. We also find a positive relation between the market response and the tax rate differential, although it is only significant for small distributions. Finally, we show that the relationship between the market response and changes in both volatility and tax rate differential is primarily driven by tax-sensitive institutional investors in the distributing firm.
This study explored how the holiday effect impacts the fluctuations in various scale indexes. Using differential and double-difference methods, the researchers of this study analyzed the impact of the lockdown in Wuhan, China on the holiday effect during the COVID-19 pandemic. The research objects used in this study include CSI All Share, CNI1000, CNI 2000, CNI Large Cap., CNI Mid-Cap., and CNI Small Cap. This study found that on behalf of the Chinese market index and the large, medium, and small-scale index, stock volatility is evident on the next day following successive holidays. Meanwhile, greater volatility is observed in small stocks' 4-day vacation (May 1, 11) than in a two-day vacation. The researchers discovered that the sealing effect causes investors to feel uncertain about the increased stock volatility. In terms of size, the net impact of the pandemic on the stock holiday effect is also greater for small stocks than for large stocks. This study's main contribution is the GARCH+DID hybrid method.
In the United States, over 60% of publicly traded firms in the hospitality industry engage in a formal partnership such as a joint venture or a strategic alliance at one point in time. We study the impact of these formal partnerships on firm market return, performance, risk, and sales. Overall, the financial market reacts positively to these partnerships with positive initial market reactions upon announcement as well as higher valuation. Participating in a venture or alliance increases a firm's financial risk, as measured by cash flow, operating, and stock volatility. Further, while there is a negative impact to firm financial performance, there is an increase in sales, particularly for ventures.
p>The Eurobond Market for corporate debt is estimated to exceed $2,000bn worth of corporate and mortgage-backed bonds, of which there is approximately one eighth with complex equity-linked features, more commonly known as convertible bonds. This thesis is directed towards analysing the nature of these securities and proposing solutions for selected valuation problems associated with them. The work leans heavily on option pricing theory and spans subjects associated with both equity derivatives and risky debt.
The thesis starts with a detailed analysis of the features of convertible bonds. The ever-increasing complexity of these financial contracts make them one of the most demanding valuation problems in finance.
Valuation challenge associated with complex securities are addressed by developing the decomposition approach that offers benefits in understanding the nature of the security as well as offering a simplified valuation approach. I take callable and puttable zero-coupon convertible bonds, known as Liquid Yield Option Note, and present a methodology for stripping it into a portfolio of callable zero coupon bond, callable option-to-convert, and callable option-to-put. In addition, the issuer’s requirement to give a notice prior to exercising its option-to-call is specifically added to the decomposition. Its positive value to the bondholder is also a reason for an issuer to delay exercising its call in order to minimise agency costs associated with refinancing and reduce the underwriting risk.
The overwhelming majority of stocks underlying the convertible bonds that trade in the Eurobond Market pay regular dividends. The inertia towards using simplified dividend modelling by assuming stocks are paying continuous dividend yields (or an constant yield on particular dates) can result in significant pricing errors even for short dated call options, and especially when the cumulative amount of distributed dividend is a significant proportion of the initial stock price.</p
By analyzing a sample of Chinese firms that split their stocks via stock dividends and using proprietary trading data to measure investors' gambling preferences, we find that stock splits raise the stocks' lottery characteristics, making them attractive to gambling investors, who willingly pay higher prices for skewed securities and share firm risk with existing shareholders. Split firms take more risk. Our findings suggest that by attracting gambling investors, stock splits facilitate (large) shareholders to reduce wealth exposures to firm risk and increase the firms' risk-taking capacity. Furthermore, due to the influx of gambling investors and more risk-taking, split firms' return comovement with lottery-like stocks increases, while their market risk decreases, suggesting that stock splits induce fundamental changes to the firms' investor base and risk profile.
The magnitude of the underreaction following a stock split is different depending on the number of splits that have already occurred. The first three splits are followed by abnormal profitability and significant underreaction, which are outcomes consistent with managers using splits to signal favorable information about the firm's prospects. However, abnormal profitability fails to materialize and the underreaction gradually dissipates with each subsequent split suggesting the efficacy of a split announcement as a vehicle to convey information is not constant but steadily reduces with each successive split. The underreaction is distinct from any short-term announcement effects and indicates the market does not immediately impound the split's information content. There is no significant change in liquidity around each consecutive split confirming that the underreaction is not explained by microstructure effects. As is the case with other corporate events, the market interprets the content of announcements already made multiple times differently from announcements made less often.
We hypothesize that investors partially think about stock price changes in dollar rather than percentage units, leading to more extreme return responses to news for lower-priced stocks. Consistent with such non-proportional thinking, we find a doubling in price is associated with a 20-30% decline in volatility and beta (controlling for size/liquidity). To identify a causal price effect, we show that volatility jumps following stock splits and drops following reverse splits. Lower-priced stocks also respond more strongly to firm-specific news. Non-proportional thinking helps explain asset pricing patterns such as the size-volatility/beta relation, the leverage effect puzzle, and return drift and reversals.
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Purpose: This paper examines the performance and risk of brand alliances by investigating the market value of brand alliances through the analysis of investors’ response, and look into the different reactions of the stock market to brand alliance-type in terms of co-branding and joint-promotion, as well as into the potential different effects in the contexts of B to B versus B to C. Brand alliances, whereby two or more brands are jointly presented to the consumer, have been investigated extensively. The importance of brand alliances is emphasized by two factors: (1) brands are considered critical elements in business-to-business marketing settings; and (2) firms use brand alliances due to the trading costs and investment necessary to buy brands, the increasingly higher costs of launching a new brand onto the market, the high failure rates in new brand launches and brand extensions, the competitive pressures around product launches and diffusion, and the limitations imposed on the extension of a brand by its own identity. Consequently, brand alliances have exploded over recent years. As indicated later, by accomplishing the purpose of this research we fill a gap in the literature as most of the research on brand alliances revolves around consumers’ perspective.
Methodology/Approach: The methodology followed is based on the event study method. First, the event study estimates the excess returns of share prices generated by events that were unanticipated by the market. To this end, we estimate the market model and the subsequent abnormal returns. To examine the impact of the publication of a brand alliance announcement on the share prices of the company, we use the cumulative abnormal returns calculated over k days of the event window for 55 announcements. In the second step, we analyze the returns of the different brand alliances. In particular, the abnormal returns are used as dependent variable in a regression analysis, wherein the central explanatory variable is brand alliance type (co-branding vs joint promotion). Finally, the third stage of the methodology analyzes the change in the variance of returns between the periods before and after the brand alliance announcements.
Findings: The results show that brand alliance announcements generate positive abnormal returns, which support the hypothesis that brand alliance announcements are positively related to company stock returns. In particular, we observe that the reactions to brand alliances are spread over the event window. In fact, the window (−5,+5) produces returns that stand at 1.6%, which is the greatest abnormal return over the five days around the publication date. The economic impact of a cumulative return of 1.6% in eleven days is tantamount to annual returns of 69.33%. Considering that the average market value of the sample is €17,494 million, it represents an increase of €279 million for the sample stocks on the period (−5,+5). The regression analysis shows that the coefficients of the variable “co-branding” are positive and significant, which supports the hypothesis that co-branding presents higher abnormal returns than joint promotion. However, no differential effect are found between B to B versus B to C paradigms. The results obtained present an increase in the variance of the share prices after the alliance announcement date, which supports the hypothesis that the variance of the company stock returns is positively associated to announcements of brand alliances.
Research Implications: The key implication of the measurement of the market value of brand alliances is that research should be reoriented toward a better understanding of the role of marketing in the value creation of a company. Instead of just concentrating on marketing research into consumer behavior, more emphasis should be given to the core company processes that create shareholder value.
Practical Implications: The managerial implications of the specific results obtained are the following: the result that companies increase their market value when they implement brand alliance strategies, leads to a better ken of the way alliance activities can be managed when dealing with other organizations. In this way, finding a partner to form a brand alliance with could be a useful objective in terms of firm performance. Moreover, the results show that co-branding presents higher abnormal returns than joint promotion, which suggests that co-branding is the most valuable strategic decision (or long-term decision) for companies, as it implies the simultaneous participation of two or more brands in a single product. In this way, deciding on whether a short- or long-term branding strategy is pursued turns to be fundamental.
Originality/Value/Contribution of the paper: The literature has analyzed the consequences of brand alliance, which looks at each partner’s brand attitude after the alliance, the brand equity of the constituent brands after the alliance, and the impact of the allied brand on the evaluation of the host brand. These studies have focused on the area of consumer behavior; that is, by measuring consumers´ attitudes and evaluation. Still, the measurement of dimensions reflecting the other side of the relationship, i.e. the firm, via brand image and equity is critical. Nevertheless, the examination of the impact of brand alliances on the partner company performance and risk has received little attention, despite the fact that “brand perceptions of companies’ products spill over to investment decisions in the market for companies’ stock”.
Bu makalede, 1993-2001 yılları arasındaki dönemde varlık getirileri üzerinde kamuyu aydınlatma aracı olarak finansal raporların etkisi incelenmiştir. Finansal raporlama süreci içerisinde işletmeler, kamuya, yatırım kararı alma veya alrnama konusunda önemli bilgiler üretmektedirler. Bilgi teknolojilerindeki gelişmeye bağlı olarak bilgi, yatırımcıya daha çabuk, düşük maliyetle ve daha güvenilir olarak ulaşmaktadır. Yatırımcı, bu sayede bilgiye ve bu bilginin analizine çabuk ulaşma faydasını sağlamaktadır. Bu kapsamda makalenin sıfır hipotezi finansal raporlama sürecinde bilgi teknolojilerinin geniş kullanımı kamuyu aydınlatma konusunda olumlu yönde etki yaratmamaktadır. Bu hipotez İMKB’de yer alan İMKB-30 endeksinde yer alan işletmelerde test edilmiştir. Belirlenen süre, üçer aylık finansal raporlama süreleri dikkate alınarak 34 alt dönemde incelenmiştir. İşletmelerin finansal raporlarını yayınlandıkları gündeki hisse senedi getiri oranlarının, diğer günlerdeki getiri oranlarıyla aralarındaki fark istatistiksel olarak anlamlılığı açısından test edilmiştir. Yapılan testlerde, finansal raporların getiri oranları üzerinde bir etkisi olduğu ve bu etkinin bilgi teknolojilerindeki gelişmeye paralel olarak yıllar itibariyle gelişme gösterdiği konusunda anlamlı bir kanıta ulaşılamamıştır. Finansal raporların yayınlanmalarından önceki ve sonraki on günlük dönemler de aynı zamanda incelenmiş ve. anlamlı bir sonuca ulaşılamamıştır. Sonuç olarak, bu çalışmanın sıfır hipotezi reddedilememiştir.
This article empirically examines the impact of stock splits on the price movements and returns of the scrips listed on the stock market in India. The study makes use of the standard event study methodology to measure the significance of unusual yield associated with the event. To calculate the returns, the study employs market model. Also, it uses parametric tests, such as t-statistic, and non-parametric test, such as Corrado Rank Test, Generalized Rank Test and Sign Test, to check the significance and robustness of abnormal return (AR), average AR, and cumulative average AR. Indisputably, the results are somewhat different from the evidences found in developed markets. Mostly in these countries, the event witnesses unusual optimistic yields. The results suggest that there is a positive AR adjacent to the effective day (ED) of the event in the short run. However, in the long run, negative ARs in the post-effective to ED+90 days window is witnessed. Further, the analysis also suggests that share splits do not have a positive influence on the share capital of the investors. The results are based on the 10-days event and 90-days estimation window and are the main limitation of the study. Hence, the windows can be both expanded and reduced to have a better holistic impact analysis of the share splits and stock returns of the selected firms.
In this paper, we study the statistical properties of the moneyness scaling transformation, which adjusts the moneyness coordinate of the implied volatility smile in an attempt to remove the discrepancy between the IV smiles for levered and unlevered ETF options. We construct bootstrap uniform confidence bands which indicate that the implied volatility smiles are statistically different after moneyness scaling has been performed. An empirical application shows that there are trading opportunities possible on the LETF market. A statistical arbitrage type strategy based on a dynamic semiparametric factor model is presented. This strategy presents a statistical decision algorithm which generates trade recommendations based on comparison of model and observed LETF implied volatility surface. It is shown to generate positive returns with a high probability. Extensive econometric analysis of the LETF implied volatility process is performed including out-of-sample forecasting based on a semiparametric factor model and a uniform confidence bands' study. These provide new insights into the latent dynamics of the implied volatility surface. We also incorporate Heston stochastic volatility into the moneyness scaling method for better tractability of the model.
Looking into stock market crashes and bubbles in history, a study is essential to understand the development of financial theories and applications in stock trading and investment, it seems existing financial theories are not enough to protect and explain market bubble and crash. Describing the situation in 2000 market crash, where irrationalism touched a new height before the market crash, which is described as irrational exuberance (Shiller, 2015)
Though a lot of research carried on investor psychology a few in-depth work is done of this field in Indian context. Common man suffers from the various form of biases while taking a decision, may be because of ignorance, immaturity, social constraints or personal instinct, which could not be described by the existing rational theories of finance. Most of the common man is not rational while taking an investment decision.
Overreaction or underreaction both are predominant among the investors who are suffering from overconfidence bias. How it is happening among the HNI stock investors in India, that is to be found out through the study. As stock investment is effortless and instant form of compounding money , it inhibits envy, greediness, and fear which leads to irrationality. It means investors are less rational and more emotional while investing in stock. So present rational theories are not enough to explain the behaviour of Indian HNI stock investors. Overconfidence and overreaction are predominant among the investors, which need a proper study relating to the field. There are two main implications of investors overconfidence. The investors take bad bets because they fail to realize that they are at an informational disadvantage. II: The second is that they trade more frequently than is prudent.
Along with the data collection through questionnaire survey method, an in-depth interview was carried out to check the respondents' responses to explore his undergoing thinking process, behavioural biases and stock investment approach. Along with 45 pilot test respondents additional 205 responses were collected from different parts of India for final analysis. Statistical used for testing hypothesis: Non parametric Z Proportion Test to test the different biasness, Chi-Square Test, Phi- value and Cramer’s V test to test the association among the different variables having nominal or non metric data, Regression ( Simple, Multiple and Logistic Regression) analysis to test the cause and effect relationship among the independent and dependent variables. Structural equation model
It was found from the study HNIs are overconfident about their job performance, relationship management and driving skill. But it is very surprising to find that they are not extending such behavior in their stock investment approach, while investing stock they are more careful that they should be humble and cautious. As per the respondents feedback they were overconfident during their initial days of investment career, but later they realized the human limitations and uncertainties in the market.
This paper examines the relationship between stock splits and the ownership mix of firms. Previous studies suggest that firms issue stock splits to lower their stock price into an optimal range so small investors can more easily afford to buy round lots. The results of this paper show a positive relationship between stock splits and institutional ownership but no effect on the firm's number of shareholders. Thus, the percentage of shares owned by individual investors decreases after a stock split. The inverse relationship between institutional ownership and a firm's total assets suggests that small firms use stock splits to attract attention from Wall Street.
What happens when the capital asset pricing model is adjusted for the anchoring and adjustment heuristic of Tversky and Kahneman [1974 Tversky, A., and D. Kahneman. “Judgment Under Uncertainty: Heuristics and Biases.” Science, 185, (1974), pp. 1124–1131.[Crossref], [PubMed], [Web of Science ®] [Google Scholar]]? The surprising finding is that adjusting the capital asset pricing model for anchoring provides a plausible unified framework for understanding almost all of the key asset pricing anomalies. The anomalies captured in the theoretical framework include the well-known size and value effects, high alpha of low beta stocks, accruals, low volatility anomaly, momentum effect, stock splits, and reverse stock splits. The market equity premium is also larger with anchoring. This suggests that the anchoring-adjusted capital asset pricing model may provide the needed unifying structure to behavioral finance.
This paper investigates the market reaction to stock splits, using a set of German firms. Similar to the findings in the U.S., I find significant positive abnormal returns around both the announcement and the execution day of German stock splits. I also observe an increase in return variance and in liquidity after the ex-day. Apparently, legal restrictions strongly limit the ability of German companies to use a stock split for signaling. I find that abnormal returns around the announcement day are consistently much lower in Germany than in the U.S. Further, I find that abnormal returns around the announcement day are not related to changes in liquidity, but (negatively) to firm size, thus lending support to the neglected firm hypothesis. On the methodological side the effect of thin trading on event study results is examined. Using trade-to-trade returns increases the significance of abnormal returns, but the difference between alternative return measurement methods is relatively small in short event periods. Thus, the observed market reaction cannot be attributed to measurement problems caused by thin trading.
Studies on the underlying reasons for stock splits can be broadly categorized into two groups: those argue that firms use stock splits to signal favorable private information to the market and those argue that stock splits are used to improve liquidity. We shed light on this issue by examining the change in institutional holdings around stock splits and find that institutional investors, especially short-term investors, increase their holding of the splitting firm's stock. The change in short-term institutional ownership is positively related to the improvement in firm's information environment, especially for less liquid stocks and stocks that are not widely held by institutional investors. Our evidence supports the liquidity hypothesis instead of the signaling hypothesis of stock splits.
We describe four channels through which breakups can potentially increase idiosyncratic volatility for parent firms. These are: loss of diversification (portfolio effect), change in growth opportunities, change in operational efficiency, and the flow and assimilation of information (information effect). The relevance of each channel depends on the mode of a breakup. We explain conceptually and show empirically, using a sample of 530 breakups (259 spinoffs and 271 equity carveouts), that the portfolio effect is dominant for spinoff parents, while the information effect gains importance for carveout parents. Our novel insight is that the magnitude of the information effect depends on the pre-announcement information set held by investors; we provide a simple state-space model and empirical evidence to support this intuition. We also find a relation between the change in operational efficiency and the change in idiosyncratic volatility for spinoff parents.
Theoretically, stock dividends have no impact on financial position of the announcing company as net worth and total assets remain the same, though empirical evidence across the globe shows that markets react to stock dividend announcements. The present study analyses the market reaction pertaining to stock dividend decisions in the Indian context. Market reaction has been captured in terms of impact on returns, liquidity, and risk. The sample includes 51 ‘pure’ stock dividend announcements from January 1, 2002 to June 30, 2010.
The study finds that the announcement of stock dividends induces an increase in the wealth of the shareholders in India. A consistent pattern of positive average abnormal returns during the pre-announcement window till the announcement day and a pattern of negative average abnormal returns during the post-announcement window have been observed. On cumulating these results, the shareholders of the companies that issued stock dividends gain significant returns.
The justification for such results seems to be that the information about the stock dividends announcement reaches the investors prior to the decision date as it is manda-tory for the issuing company to inform the exchange (where it is listed) about the date of the board meeting. It has been observed that the companies usually inform the exchange seven days prior to the day of the board meeting. In most of the cases, the companies provide the agenda item information along with the board meeting date to the exchange. In such a situation, the moment this information about the agenda item is given to the exchange, this becomes public information and investors start reacting to it.
The cumulative average abnormal return values over various size event windows depict that an investor can earn substantial returns if he purchases the shares on the day the news of board meeting (to announce stock dividends) comes to the market and sells them one day after the announcement day. The investor can also gain if the shares are purchased one day prior to the announcement day and are sold one day after the announcement day.
The trading quantity reduces significantly immediately after these decisions are announced. On a short-term basis, the investors seem to perceive that the announcement of stock dividends provides signals about the firm's bright future prospects. This leads to a decline in trading quantity as investors, who own the shares at the time of announcement, prefer to hold the shares expecting an increase in their wealth in future. In the long-run, a marginally positive impact has been observed.
The announcement of stock dividends reduces variability of returns in the short-run as well as in the long run, lending price stability to the stocks of the announcing companies.
This paper examines the empirical behaviour of share prices around the dates of splits, with a view to detecting the possible creation of anomalous returns. It also examines the determining factors of splits, their effects on liquidity and the influence of the market’s microstructure in the generating of abnormal returns. The evidence obtained from the Spanish capital market indicates that splits generate an average abnormal return of about 1%, principally on the day that the split is effected. This result cannot be explained by an increase in liquidity. It suggests, rather, that certain microstructure phenomena in the market encourage an increase in abnormal returns. Approximately half of these increased returns could be attributed to two factors: changes in the order flow and an increase in the relative spread, induced by an uneven increase in the ask price with respect to the bid.
"Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street," observed legendary speculator Jesse Livermore. History tells us that periods of major technological innovation are typically accompanied by speculative bubbles as economic agents overreact to genuine advancements in productivity. Excessive run-ups in asset prices can have important consequences for the economy as firms and investors respond to the price signals, resulting in capital misallocation. On the one hand, speculation can magnify the volatility of economic and financial variables, thus harming the welfare of those who are averse to uncertainty and fluctuations. But on the other hand, speculation can increase investment in risky ventures, thus yielding benefits to a society that suffers from an underinvestment problem.
Recent development cooperation with Guinea-Bissau, focusing on good governance, statebuilding and conflict prevention, did not contribute to democratization nor to the stabilization of volatile political, military and economic structures. The portrayal of Guinea- Bissau as a failed “narco-state”, as well as Western aid meant to stabilize this state, are both based on dubious concepts. Certainly, the impact of drug trafficking could endanger democratization and state-building if continued unchecked. However, the most pressing need is not state-building facilitated by external aid that is poorly rooted in the social and political fabric of the country. Rather, it is grassroots nation-building that is a pre-condition for the creation of viable state institutions.
There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an efficient market, i.e., a market that adjusts rapidly to new information. It is important to note, however, that in the empirical work to date the usual procedure has been to infer market efficiency from the observed independence of successive price changes. There has been very little actual testing of the speed of adjustment of prices to specific kinds of new information. The prime concern of this paper is to examine the process by which common stock prices adjust to the information (if any) that is implicit in a stock split. In doing so we propose a new event study methodology for measuring the effects of actions and events on security prices.
This paper reexamines the anomalous evidence concerning the efficiency of the listed options exchanges. We focus on the structure of trading costs in that market, and note several costs which generally have been ignored, the largest of which is the bid-ask spread. When we adjust the published trading rules for our estimates of these trading costs, the reported abnormal returns are eliminated.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
This study presents evidence which indicates that stock prices, on average, react positively to stock dividend and stock split announcements that are uncontaminated by other contemporaneous firm-specific announcements. In addition, it documents significantly positive excess returns on and around the ex-dates of stock dividends and splits. Both announcement and ex-date returns were found to be larger for stock dividends than for stock splits. While the announcement returns cannot be explained by forecasts of imminent increases in cash dividends, the paper offers several signalling based explanations for them. These are consistent with a cross-sectional analysis of the announcement period returns.
This paper examines properties of daily stock returns and how the particular characteristics of these data can affect event study methodologies. We find no evidence that either nonnormality in the time-series of daily excess returns or bias in OLS estimates of Market Model parameters affect the specification or power of tests for abnormal performance. However, under plausible conditions, both autocorrelation in excess returns and changes in the variance of daily returns conditional on an event can affect the tests; simple procedures to deal with these issues are sometimes quite useful. We also show that taking into account dependence in the cross-section of the daily excess returns can be harmful, resulting in tests with relatively low power and which are no better specified than those which assume independence.
The dangers of shouting ``fire'' in a crowded theater are well understood, but the dangers of rushing to the exit in the financial markets are more complex. Yet, the two events share several features, and I analyze why people crowd into theaters and trades, why they run, what determines the risk, whether to return to the theater or trade when the dust settles, and how much to pay for assets (or tickets) in light of this risk. These theoretical considerations shed light on the recent global liquidity crisis and, in particular, the quant event of 2007.
Futures markets and public policy
- F Black
- J M Stone
Black, F. and J.M. Stone, 1982, Futures markets and public policy, Unpublished paper (Sloan School of Management, M.I.T., Cambridge, MA).
Is trading self-generating?, CRSP working paper no. 121 (Center for Research in Security Prices
- K R French
French, K.R. and R. Roll, 1984, Is trading self-generating?, CRSP working paper no. 121 (Center for Research in Security Prices, Graduate School of Business, University of Chicago, Chicago, IL).
The adjustment of stock prices to new information
- Fama
Is trading self-generating?
- French
Trading costs for listed options: The implications for market efficiency
- Phillips