Abstracts of Volume 42, Number 3, August 2007
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IPO Pricing, Block Sales and Long Term Performance
Kuntara Pukthuanthong-Le, Nikhil
Varaiya
Short- and Long-Term Effects of Multimarket Trading
Vanthuan Nguyen, Bonnie F. Van
Ness, Robert A. Van Ness
Deal Size, Bid Premium and Gains in Bank Mergers: The
Impact of Managerial Motivations
Atul Gupta, Lalatendu Misra
Aron A. Gottesman, Gordon S.
Roberts
Trading Volume and Market Volatility: Developed vs.
Emerging Stock Markets
Eric Girard, Rita Biswas
The Impact of Changes in the FTSE 100 Index
Bryan Mase
IPO Pricing, Block Sales and Long Term Performance
Kuntara Pukthuanthong-Le, Nikhil
Varaiya
Block sales following IPOs are related to the IPOs’ value
relative to an estimate of intrinsic value,
opening-trade return and IPO size. Overvalued IPOs
experience more block sales than undervalued IPOs. IPOs
with high block sales outperform IPOs with low block
sales from twenty days after IPO through lockup
expiration; however, IPOs with high block sales
underperform IPOs with low block sales from lockup
expiration through the third year after the IPO. The
results indicate that block traders are advantaged
relative to other traders; whether the advantage is
based on superior information or superior valuation
capabilities is unknown.
Keywords: Initial public offering,
block sales, large trades, long-horizon performance
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Short- and Long-Term Effects of Multimarket Trading
Vanthuan Nguyen, Bonnie F. Van
Ness, Robert A. Van Ness
We analyze short and long term effects of multimarket trading
by examining the entries of multiple markets into
transacting three ETFs, DIA, QQQ and SPY. We find that
large scale entries improve overall market quality,
while small scale entries have ambiguous effects. Our
results show that the competition effect dominates the
fragmentation effect over a long horizon and that market
fragmentation leads to a decline in trading costs.
Further, we find that the order handling rules help
mitigate the fragmentation effect and facilitate the
competition effect. We do not find that multimarket
trading harms price efficiency or increases price
volatility.
Keywords: Exchange traded funds,
multimarket trading, competition, fragmentation,
consolidation
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Deal Size, Bid Premium and Gains in Bank Mergers: The Impact
of Managerial Motivations
Atul Gupta, Lalatendu Misra
Do mergers with greater target relative to acquirer size
create more value than mergers with smaller relative
sized targets? Do larger bid amounts represent wealth
transfer from acquirer or do they signal greater
expected merger gains? We hypothesize that the
relationship between aggregate merger gains, relative
size and bid premiums is asymmetric across mergers made
by value-enhancing versus value-reducing managers. We
use a large sample of bank mergers to test these
predictions and find that the value response to
different explanatory variables is asymmetric. Our
findings provide new insights into how the market values
merger bids.
Keywords: Bank mergers, managerial
motivations, merger gains
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Aron A. Gottesman, Gordon S.
Roberts
We investigate the relation between corporate loan spreads
and collateralization. We use propensity scoring to
create a matched sample of pairs of loan facilities from
the DealScan database. We find that noncollateralized
loans are associated with lower spreads even after
controlling for risk.
Keywords: Bank, borrower, loan,
contract terms, collateral
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Trading Volume and Market Volatility: Developed vs. Emerging
Stock Markets
Eric Girard, Rita Biswas
We investigate the relation between volatility and volume in
22 developed markets and 27 emerging markets. Compared
to developed markets, emerging markets show a greater
response to large information shocks and exhibit greater
sensitivity to unexpected volume. We find a negative
relation between expected volume and volatility in
several emerging markets, which can be attributed to the
relative inefficiency in those markets. Previous
research reports that the persistence in volatility is
not eliminated when lagged or contemporaneous trading
volume is considered. Our findings show that, when
volume is decomposed into expected and unexpected
components, volatility persistence decreases.
Keywords: Stock index returns,
trading volume, emerging markets, volatility, TARCH
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The Impact of Changes in the FTSE 100 Index
Bryan Mase
This paper investigates FTSE 100 index membership changes,
which are determined quarterly by market capitalization
and should have no information content. Return reversal
around index additions and deletions suggests that
buying (selling) pressure moves prices temporarily away
from equilibrium, consistent with short-term downward
sloping demand curves. In contrast to widely reported
results for the S&P 500, there is no evidence of
permanent price effects. Further results suggest that
investor awareness and monitoring due to index
membership do not explain the price effects. There is
statistically significant anticipatory trading in stocks
that just fail to be promoted to the FTSE 100.
Keywords: FTSE 100 index, index
trackers, price pressure, return reversal, stock market
index changes, stock market liquidity
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