Click on Title to view Abstract
“Underwriter Lock-Up Releases, Initial Public Offerings
and After-market Performance”
Terrill R. Keasler
“Evidence and Implications of Increases in Trading
Volume Around Exchange Listings”
Kishore Tandon and Gwendolyn P. Webb
“Informed Trading around Merger Announcements: An
Empirical Test Using Transaction Volume and Open
Interest in Options Market”
Narayanan Jayaraman, Melissa B. Frye, and Sanjiv Sabherwal
“Combining Bond Rating Forecasts Using Logit”
Mark Kamstra, Peter Kennedy, and Teck-Kin Suan
“Internal Finance and Corporate Investment”
Shady Kholdy and Ahmad Sohrabian
“Market Quote and Spread Component Cost Behavior Around
Trading Halts for Stocks Interlisted on the Montreal and
Toronto Stock Exchanges”
Lawrence Kryzanowski and Howard Nemiroff
“Sources of Capital Market Segmentation: Empirical
Evidence from Finland”
Mika Vaihekoski and Kim Nummelin
“Determinants of Foreign Ownership in Newly Privatized
Companies in Transition Economies”
Christopher W. Anderson, Tomas Jandik, and Anil K. Makhija
“Synthetic Trades and Calendar Day Patterns The Case of
the Dollar/Sterling Markets”
Janet S. Thatcher and Lloyd P. Blenman
“Underwriter Lock-Up Releases, Initial Public Offerings and
After-market Performance”
Terrill R. Keasler
Volume 36, No. 2, pp. 1-20
The lock-up agreement between an
underwriter and an issuing firm’s principals prohibits
sale of securities for a period of time following the
offering date. Investment banks must support the stock
following an offering. The lock-up assures investors
that the restricted shares will not enter the market, at
least for a period of time. Negative abnormal returns
prior to the lock-up release show that unrestricted
investors liquidate positions prior to the scheduled
lock-up release. Negative abnormal returns are more
robust for firms that are not influenced by SEC Rule 144
than for firms that are.
“Evidence and Implications of Increases in Trading Volume
Around Exchange Listings”
Kishore Tandon and Gwendolyn P. Webb
Volume 36, No. 2, pp. 21-44
After controlling for market
volume trends and differences in volume measurement
between the Nasdaq and the exchanges, we find that mean
trading volumes increase significantly for Nasdaq stocks
that list on the Amex or the NYSE. Furthermore, stocks
with low (high) pre-listing volume tend to realize the
largest volume increases (decreases) as well as the best
(worst) post-listing performance. Our results support
the hypothesis that stocks with high past trading
volumes tend to experience lower future returns, and
shed new light on the nature and possible causes of poor
post-listing stock performance.
“Informed Trading
around Merger Announcements: An
Empirical Test Using Transaction Volume and Open
Interest in Options Market”
Narayanan Jayaraman, Melissa B. Frye, and Sanjiv Sabherwal
Volume 36, No. 2, pp. 45-74
This paper provides empirical
evidence on the level of trading activity in the stock
options market prior to the announcement of a merger or
an acquisition. Our analysis shows that there is a
significant increase in the trading activity of call and
put options for companies involved in a takeover prior
to the rumor of an acquisition or merger. This result is
robust to both the volume of option contracts traded and
the open interest. The increased trading suggests that
there is a significant level of informed trading in the
options market prior to the announcement of a corporate
event. In addition, abnormal trading activity in the
options market appears to lead abnormal trading volume
in the equity market. This finding supports the
hypothesis that the options market plays an important
role in price discovery.
“Combining Bond Rating Forecasts Using Logit”
Mark Kamstra, Peter Kennedy, and Teck-Kin Suan
Volume 36, No. 2, pp. 75-96
Companies sometimes use
statistical analysis to anticipate their bond ratings or
a change in the rating. However, different statistical
models can yield different ratings forecasts, and there
is no clear rule for which model if preferable. We use
several forecasting methods to predict bond ratings in
the transportation and industrial sectors listed by
Moody’s bond rating service. A variant of the
ordered-logit regression-combining method of Kamstra and
Kennedy 1998 yields statistically significant,
quantitatively meaningful improvements over its
competitors, with very little computational cost.
“Internal Finance
and Corporate Investment”
Shady Kholdy and Ahmad Sohrabian
Volume 36, No. 2, pp. 97-114
This paper examines Pecking
Order/Free Cash Flow behavior in small ($25-$50
million), medium ($100-250 million), and large ($1000
million and over) firms. The purpose is to offer an
explanation for the important role of cash flow on the
investment expenditure of firms that is more complete
than the commonly given accounts. The Pecking order
theory (PO) emphasizes the value-enhancing influence of
cash flow, while the free cash flow hypothesis (FCF)
underscores its value-destroying effect. Using the
vector error correction model, we find that although the
overall behavior of small firms support the pecking
order theory, the cash flow of these firms does not have
any causal effect on their investment. We further find
evidence of free cash flow theory in large firms.
“Market Quote and Spread Component Cost Behavior Around Trading
Halts for Stocks Interlisted on the Montreal and Toronto
Stock Exchanges”
Lawrence Kryzanowski and Howard Nemiroff
Volume 36, No. 2, pp. 115-138
We use intraday and transactions
on halted securities that interlisted on the Toronto
Stock Exchange and Montreal Exchange to decompose the
spreads and examine quote depths. Our results show that
order-processing costs differ for trading halts at the
open compared to halts during the rest of the trading
day. We find that the adverse-selection cost component
of the spread is higher around trading halts and highest
at the trading halt. We also find that print-media
articles that appear within the four-day window centered
on the halt have no impact on the time-series behavior
of the spread cost.
“Sources of Capital Market Segmentation: Empirical Evidence
from Finland”
Mika Vaihekoski and Kim Nummelin
Volume 36, No. 2, pp. 139-160
Because Finland has experienced
profound economic changes and financial deregulation
since the mid-1980s, we use it as a laboratory to
explore issues related to time-varying global equity
market integration. Using a Finnish perspective, we
construct two different portfolios of Finnish firms and
a conditional one-factor international asset pricing
model. We examine whether the segmentation varies over
time and across assets. We use time-series variables for
changing market integration (lagged foreign equity
ownership, difference between Finnish and German
short-term interest rates, and a portfolio-specific
liquidity measure) and cross-sectional variables (size,
and book-to-market ratios and industry sector) to show
variation in integration.
“Determinants of Foreign Ownership in Newly Privatized Companies in
Transition Economies”
Christopher W. Anderson, Tomas Jandik, and Anil K. Makhija
Volume 36, No. 2, pp. 161-176
We investigate determinants of
foreign ownership in newly privatized firms. We analyze
data on privatized Czech firms to address two related
general questions. First, what characteristics
distinguish transaction firms that attract a foreign
investor? Second, how do firm-specific characteristics
influence the size of the foreign equity stake? Our
results suggest that foreign investors i) seek safe,
profitable firms in which they can exert unchallenged
influence on corporate governance and then ii) structure
their equity stakes to mitigate agency costs and
political risk.
“Synthetic Trades
and Calendar Day Patterns The Case
of the Dollar/Sterling Markets”
Janet S. Thatcher and Lloyd P. Blenman
Volume 36, No. 2, pp. 177-200
Significant day of the week
patterns are shown to exist in the dollar/sterling
market. These patterns are associated with the returns
to synthetic and actual forward trades as well as to
spot trades. These trading strategies, geared to buying
or selling sterling, reflect different timing, if not
valuation, considerations on the part of traders.
Nevertheless, pronounced calendar patterns are observed
on Wednesdays for all the trading strategies evaluated.
This is attributable to significantly different risks on
Wednesdays. The observed end-of-the-week patterns in
forward returns persist and reinforce the returns at the
start of the next week of trading. Furthermore, the
overall returns to forward speculation on Fridays and
Mondays are of opposite sign. Our results on calendar
day patterns are thus supported by both parametric and
non-parametric tests. We provide evidence that the
frequency of synthetic trading opportunities is
inversely related to maturity. We also find that the
period of market turbulence analyzed did not trigger
abnormal opportunities for covered interest arbitrage.