Abstracts of Volume 34, Number 4, November 2003
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Dave Jackson, Jeff Madura
What
Can ‘Nine-Eleven’ Tell Us about Closed-end Fund
Discounts and Investor Sentiment?
Timothy R. Burch, Douglas
R. Emery, Michael E. Fuerst
Does an
Industry Effect Exist for Initial Public Offerings?
Aigbe Akhigbe, Stephen F.
Borde, Ann Marie Whyte
Motives
in the Acquisitions of Nasdaq Targets Turing the
Aftermath of the 1987 Crash
Vijay Gondhalekar, Yatin
Bhagwat
Pricing
U.S. Dollar Index Futures Options: An Empirical
Investigation
Vivek Bhargava, John M.
Clark
Market
Segmentation and Information Asymmetry in Chinese Stock
Markets: A VAR Analysis
Jian Yang
Palani-Rajan Kadapakkam,
Lalatendu Misra
Dave Jackson, Jeff Madura
Volume 38, No. 4, pp. 497-513
We find that profit-warning
announcements elicit a strong negative market response
that is not sensitive to timing of the warning in
advance of the earnings announcement. Share prices begin
to adjust about five days before a profit warning, and
the market response is not complete until about five
days after the warning. The accumulated response over
the 11-day period ending five days after the
announcement is -21.7%. The profit warning effect over
the two-day announcement period is 32 times the
valuation effect upon subsequent release of the actual
earnings. There is no evidence of a reversal after this
period, and therefore no sign that the market response
is excessive.
Keywords: profit warnings
JEL Classifications: G14
What Can ‘Nine-Eleven’ Tell Us About Closed-end Fund
Discounts and Investor Sentiment
Timothy R. Burch, Douglas
R. Emery, Michael E. Fuerst
Volume 38, No. 4, pp. 515-529
We use the horrific events of
September 11, 2001 ("nine-eleven") as a natural test of
the hypothesis that closed-end mutual fund discounts
from fund net asset values reflect small investor
sentiment. Because nine-eleven was a sudden, unforeseen,
and significant negative exogenous shock to the world,
the capital markets, and investor sentiment, our test
avoids many of the problems of extant studies. Discounts
worsened dramatically following the event, and then
recovered alongside the broader market. This finding is
consistent with the hypothesis that discounts reflect
the sentiment of small investors, who took their cues
from the broader market’s overall movement.
Keywords: investor sentiment, closed-end
fund discounts
JEL Classifications: G14
Does an Industry Effect Exist for Initial Public Offerings?
Aigbe Akhigbe, Stephen F.
Borde, Ann Marie Whyte
Volume 38, No. 4, pp. 531-551
We examine the impact of initial
public offerings (IPOs) on rival firms and find that the
valuation effects are insignificant. This insignificant
reaction can be explained by offsetting information and
competitive effects. Significant positive information
effects are associated with IPOs in regulated industries
and the first IPO in an industry following a period of
dormancy. Significant negative competitive effects are
associated with larger IPOs in competitive industries,
those in relatively risky industries, those in high
performing industries, and those in the technology
sector. IPO firms that use the proceeds for debt
repayment appear to represent a more significant
competitive threat to rival firms relative to IPO firms
that use their proceeds for other purposes.
Keywords: Initial public offering, IPO,
intra-industry effects, competitive effects, information
effects
JEL Classifications: G14
Motives in the acquisitions of NASDAQ targets during the
aftermath of the 1987 crash
Vijay Gondhalekar, Yatin
Bhagwat
Volume 38, No. 4, pp. 553-569
After the crash of 1987, the
Nasdaq composite index stayed below the pre-crash level
for nearly two years. Takeover activity surged in this
after-crash period. We compare the motives in the
acquisitions of Nasdaq targets during the after-crash
period with those in the ten-year period before the
crash. We find that the announcement period return to
acquirers and the proportion of acquirers with positive
gains declines in the after-crash period. For both the
periods, agency is the motive for takeovers that have
negative total gains (acquirer + target), but synergy
and hubris are co-motives for takeovers that have
positive total gains. The proportion of takeovers in
which the managers of acquirers act against the interest
of the shareholders increases after the crash.
Keywords: synergy, agency, hubris, crash,
takeovers
JEL Classifications: G34
Pricing U.S. Dollar Index Futures Options: An Empirical
Investigation
Vivek Bhargava, John M.
Clark
Volume 38, No. 4, pp. 571-590
This paper develops a pricing
model and empirically tests the pricing efficiency of
options on the U.S. Dollar Index (USDX) futures
contract. Empirical tests of the model indicate that the
market consistently overprices these options relative to
the derived model. This overpricing is more pronounced
for out-of-the-money options than for in-the-money
options and more pronounced for put options than for
call options. To validate the above results, delta
neutral portfolios are created for one- and two-day
holding periods and consistently generate positive
arbitrage profits, indicating that on average the market
overprices the options on the USDX futures contracts.
Keywords: USDX futures option pricing
JEL Classifications: G13
Market Segmentation and Information Asymmetry in Chinese
Stock Markets: A VAR Analysis
Jian Yang
Volume 38, No. 4, pp. 591-609
This study examines the market
segmentation and information asymmetry patterns in
Chinese stock markets. The recursive cointegration
analysis confirms that each of six markets is not linked
with other markets in the long run. Further, the result
from data-determined forecast error variance
decomposition clearly shows that foreign investors in
the Shanghai B-share market are better informed than
Chinese domestic investors in two A-share markets and
foreign investors in Shenzhen and Hong Kong markets over
time. The finding challenges a widespread assumption of
less informed foreign investors in the literature, but
suggests that foreign investors could be more informed
in emerging markets.
Keywords: market segmentation, information
asymmetry, Chinese stock markets, directed acyclic
graphs, forecast error variance decomposition
JEL Classifications: G15, G32
Palani-Rajan Kadapakkam,
Lalatendu Misra
Volume 38, No. 4, pp. 611-633
We examine the linkages between
returns on Indian Global Depositary Receipts (GDRs) in
London and their underlying stocks in India. GDR returns
are sensitive to returns observed earlier in India. This
sensitivity is more pronounced for more liquid GDRs.
Although arbitrage is not feasible for GDRs that sell at
a premium, these GDRs are, nevertheless, sensitive to
Indian returns. The sensitivity is greater for GDRs
selling at a discount, where costly arbitrage is
feasible. GDR returns have a significant but small
effect on subsequent returns of the underlying stocks,
with more liquid GDRs having a slightly greater impact.
Keywords: Indian stocks, GDRs,
international market linkages, emerging markets,
arbitrage restrictions, liquidity
JEL Classifications: G14, G15, N25