Abstracts of Volume 44, Number 1, February 2009
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Price Clustering:
Evidence Using Comprehensive Limit-Order Data
Chaoshin Chiao and Zi-May Wang
Short Selling and
the Weekend Effect in Nasdaq Stock Returns
Stephen E. Christophe, Michael G.
Ferri and James J. Angel
Division Manager
Lobbying Power and the Allocation of Capital
Chris R. McNeil and Thomas I.
Smythe
Pedigree or
Placement? An Analysis of Research Productivity in
Finance
Kam C. Chan, Carl R. Chen and
Hung-Gay Fung
The Diversification
Discount Puzzle: Evidence for a Transaction Cost
Resolution
Raj Aggarwal and Shelly Zhao
Entrepreneurial
Financing and Costly Due Diligence
Chris Yung
Price Clustering: Evidence Using Comprehensive Limit-Order
Data
Chaoshin Chiao and Zi-May Wang
Employing comprehensive limit-order data which identify
investor types, this paper examines the clustering
pattern of limit-order prices. First, limit orders,
particularly those submitted by individual investors,
tend to cluster at integer and even prices. Second,
non-marketable limit-order prices cluster more than
marketable limit-order prices, indicating that
aggressive limit orders generally embed more
information. Third, investors choosing even-priced limit
orders are not penalized by lower execution ratios.
Fourth, investors (particularly individual investors)
strategically exhibit front-running behavior. Fifth,
price clustering indeed creates price barriers. Finally,
the degree of price clustering using trade data is
significantly underestimated, compared to that using
limit-order data.
Keywords: price clustering, limit
order, investor type, trading case, front running,
order-driven market, Taiwan Stock Exchange
Short Selling and the Weekend Effect in Nasdaq Stock Returns
Stephen E. Christophe, Michael G.
Ferri and James J. Angel
We examine daily short selling of Nasdaq stocks to explore
whether speculative short selling causes a significant
portion of the weekend effect in returns. We identify a
weekend effect in speculative short selling whereby it
constitutes a larger percentage of trading volume on
Mondays versus Fridays. We find an opposite effect in
dealer short selling, consistent with market makers
adding liquidity and stability. Our main finding is that
speculative short selling does not explain an
economically meaningful portion of the weekend effect in
returns, even among the firms most that are most
actively shorted. This finding contradicts some prior
studies.
Keywords: Short sale; speculative
trading; weekend effect
Division Manager Lobbying Power and the Allocation of Capital
Chris R. McNeil and Thomas I.
Smythe
We investigate whether division manager lobbying power
impacts the allocation of capital in multi-divisional
firms. We find that firm-level disparities in division
manager lobbying power (measured by tenure,
time-in-position, board membership, and top executive
status) affect capital allocation in expected ways.
Managers with greater relative lobbying power compete
for capital expenditures from a position of strength.
Evidence is also provided which suggests that division
manager ownership mitigates lobbying efforts.
Furthermore, disparity in division manager lobbying
power is associated with lower firm excess value. These
results support the view that division manager influence
activities impact the operation of internal capital
markets.
Keywords: Capital Budgeting
Pedigree or Placement? An Analysis of Research Productivity
in Finance
Kam C. Chan, Carl R. Chen and
Hung-Gay Fung
We examine pedigree and placement effects of research
productivity in finance and find a notable placement
effect: authors who are currently affiliated with
“elite” institutions tend to be more productive,
especially among the top three finance journals. The
placement effect, however, weakens in more recent years.
We also observe a pedigree effect in the top three
journals, where there is a higher concentration of
publications by authors with degrees from “elite”
institutions. We provide rankings of the institutions
that are best at developing and training scholars.
Keywords: Research productivity,
ranking, pedigree, placement, financial economists
The Diversification Discount Puzzle: Evidence for a
Transaction Cost Resolution
Raj Aggarwal and Shelly Zhao
The literature on the corporate diversification discount and
the relative efficiency of internal versus external
capital markets provides mixed results. We argue that
transaction cost economics is useful in understanding
this puzzle. According to transaction cost economics,
diversified firms should outperform single segment firms
in industries with higher external transaction costs
(e.g., emergent industries) and under-perform in
industries with low external transaction costs and high
agency and other internal costs (e.g., some mature
industries). This paper provides evidence supporting
these contentions.
Keywords: Corporate
diversification, transaction cost economics, internal
capital markets
Entrepreneurial Financing and Costly Due Diligence
Chris Yung
In the traditional solution to the adverse selection problem,
entrepreneurs indirectly signal quality via security
choice, typically debt. This paper models an alternative
solution. The costly due diligence of venture
capitalists directly reveals the quality of projects,
thereby reducing information asymmetry. It is shown that
this mechanism necessitates profit-sharing, a
contractual feature usually associated in the literature
with managerial agency costs rather than adverse
selection.
Keywords: Entrepreneurial
financing, venture capital, asymmetric information, due
diligence
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