Search results

The purpose of this paper is to empirically test whether stock liquidity and investor sentiment have interactive effects on seasoned equity offers (SEOs) price discounts in Australia.

The authors focus on the implicit cost borne by firms when issuing seasoned equity capital. This cost is measured as the relative difference between the SEO offer price and the last close price prior to the announcement of the issue. The primary measure of investor sentiment is a composite index constructed similar to that in Baker and Wurgler (2007).

The results show that, in periods of deteriorating investor sentiment, the increase in SEO price discounts for firms with illiquid stocks is larger than the corresponding increase for firms with liquid stocks. This suggests that, as sentiment wanes, investors become even more concerned about illiquidity, leading to even greater required compensation for holding illiquid assets. The authors find that information asymmetry is positively related to SEO price discounts but this relation is not affected by changing investor sentiment.

Collectively, the empirical results provide support for the argument that price discount of SEOs represents compensation to investors for bearing costs associated with illiquidity. The results also lend some support to the behavioural argument that pricing of equity offers is dependent upon investor sentiment, particularly for firms with illiquid stocks.

The ability for firms to raise capital in a cost-effective manner is critical for firm growth and stability. Investors require compensation for bearing the costs of illiquidity of their investments in equity. Accordingly, firms need to be conscious of their stocks’ existing liquidity and its influence on the cost of raising additional capital which, in turn, affects their operational stability and investment opportunities.

Ultimately, the implications of this study will assist firms in capital-raising decisions, investors in making portfolio investment decisions, and investment banks in setting offer prices on equity issues.

To the best of the authors’ knowledge, this is the first study to examine the interaction between investor sentiment and SEO price discounts in Australia.

The purpose of this paper is to examine semi-strong market efficiency by observing the behavioral finance implications of Jim Cramer’s recommendations in bull vs bear markets. The authors extend the literature by analyzing investor reaction through the lenses of prospect theory, overreaction, and herding.

The authors test for abnormal returns in response to Mad Money buy and sell recommendations. The authors use a sample of buy and sell recommendations from MadMoneyRecap.com from July 28, 2005 through February 9, 2009. The 3.5-year time period is the most recent and comprehensive set of Mad Money recommendations that has been tested to date.

The results indicate market inefficiency at the semi-strong level. Furthermore, the findings highlight the loss aversion tendencies of investors in regards to prospect theory of Kahneman and Tversky (1979) as well as the disposition effect of Shefrin and Statman (1985). Evidence also exists consistent with the herding and overreaction hypotheses.

The evidence suggests contrarian behavior in which investors respond positively to good news in bad times – perhaps, in effort to stay the course and at least break even. This behavior may suggest that losers tend to hold on to losses in hopes of recouping them. Thus, positive information in bad times could further persuade market participants to hang on to or buy more of losers, while also persuading non-shareholders to buy in as well.

Though other studies including Kenny and Johnson (2010) have estimated abnormal returns in response to analyst recommendations, to the knowledge, none has examined behavioral implications of investor reaction to buy and sell recommendations in both bull and bear markets. Furthermore, the study captures a longer bull and bear market and covers two definitions of such markets.

The purpose of this paper is to systematically consolidate and analyze papers in behavioral finance in the past 20 years, and to provide an overall introduction to scholars and professionals in the industry who may be interested in behavioral finance in the future.

The research is based on searching keywords in databases of ISI Web of Science (WOS). Survey data covers the period from 1995 to 2013, with 124 journals and 347 articles. The authors are committed to finding the number of publications and times cited in the field of behavioral finance to measure the contribution of active researchers.

More research papers in behavioral finance are emerging, making it a significant area of study. Most of the papers can be classified as empirical or theory. The number of papers in the review class should be increased to assist scholars and professionals in understanding behavioral finance and its application. A number of personal and institutional main contributors have been making a considerable impact on the field of behavioral finance. With the vigorous development of financial markets all around the world, more and more scholars are becoming involved in behavioral finance research.

Articles published earlier than 1995 or not included in the WOS database cannot be included in the research; however, this does not diminish the contribution of older scholars in any way. Moreover, the research does not include non-SCI/SSCI articles.

Unlike a traditional literature review, which classifies and elaborates different research paths (Subrahmanyam, 2007), the research adopts the ISI WOS database as a tool for analysis. This new literature review methodology enables us to systematically consolidate and analyze papers in behavioral finance.

This paper aims to establish the relation between corporate governance – as represented by investor protection at both the legal and firm levels – and stock market liquidity.

This paper avails of the unique features of Hong Kong- and China-based stocks that are traded on the Hong Kong Stock Exchange so as to test whether differences between “common law” and “civil law” legal environments contribute to differences in stock liquidity. In addition, by constructing an internal corporate governance index score for each firm based on board size, board independence and information on the audit and remuneration committee, we document whether firms with better corporate governance scores have narrower spreads, greater depth and higher trading volumes.

Overall, results provide support for a linkage between corporate governance issues – as investor rights protection at both the environment and firm protection levels – and stock market liquidity.

This paper recognizes that investor protection constitutes a single component of the desirability of investing in a firm’s stock. Nevertheless, it does appear to constitute an important component of a stock’s attractiveness.

The practical implications are clear, namely, that good corporate governance of firms leads to their attractiveness as investment vehicles (for both the shorter and the longer terms).

The paper has clear social implications. In particular, the paper serves to highlight that prospects for enduring wealth creation are contingent on the safeguards accorded to the equity ownership of a firm’s stock.

The originality lies in taking advantage of the unique features of the Chinese and Hong Kong firms on the Hong Kong Exchange, so as to examine the contrasting influences of common law and civil law on stock liquidity. Thus, the authors allow for the effects of corporate governance across the two legal environments (China and Hong Kong) to be compared and contrasted while maintaining other influences unchanged across Chinese and Hong Kong shares.

The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX), during a period when the market becomes fragmented.

This study uses intraday trading volume data in five-minute intervals prior to and after firm-specific announcements to measure individual and institutional abnormal volume. There are 70 such intervals per trading day and 254 trading days in the sample period. The first 10 minutes of trading (from 10.00 to 10.10 a.m.) is excluded to avoid the effect of opening auction and to ensure consistency in the “starting time” for all stocks. The volume transacted during five-minute intervals is aggregated and attributed to individual or institutional investors using Broker IDs.

Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements.

The study is Australian focused, but the results are applicable to other limit order book markets of similar design.

The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure.

The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure.

These results will help regulators to design markets that are less predatory on individual investors.

The purpose of this paper is to investigate the impact of managerial overconfidence on corporate financing decision and the moderating effect of government ownership on the relationship between managerial overconfidence and corporate financing decision.

Pooled OLS, fixed effect models (FEM), and Tobit regressions are employed to examine the relationship between managerial overconfidence, government ownership and corporate financing decision of publicly listed companies in Malaysia for the period of 2002-2011.

The authors conclude that: first, CEO overconfidence is significantly and negatively related to corporate financing decision; second, a higher degree of managerial overconfidence would result in lower leverage in GLCs, whereas the effect does not significantly exist in NGLCs; third, a larger ownership of government in a firm will reduce the negative effect of managerial overconfidence on corporate financing decision; fourth, the moderating effect of government ownership on the association between managerial overconfidence and corporate financing decision in GLCs is more effective than NGLCs; and fifth, government intervention plays its role as moderating effect on the relationship between managerial overconfidence and corporate financing decision in firms with lower ownership concentration but not in firms with high ownership concentration (more or equal than 50 percent).

The finding implies that the moderating effect of government ownership on the association between managerial overconfidence and corporate financing decision in GLCs is more effective than NGLCs.

The authors make the first attempt to test the moderating effect of government ownership on the relationship between ownership concentration and corporate financing decision.

The purpose of this paper is to: first, test if information-adjusted noise model (IANM) can be applied in China; second, quantify noise trader risk, overreaction, underreaction and information pricing errors in that market; and third, explain the relationship between noise trader risk and return.

The authors use a behavioural asset pricing model (BAPM), CAPM, the information-adjusted noise model and model proposed by Ramiah and Davidson (2010).

The findings show that noise traders are active 99.7 per cent of the time on the Shenzhen A-share market. Furthermore, our results suggest that the Shenzhen market overreacts 41 per cent of the time, underreacts 18 per cent of the time and information pricing errors occur 40 per cent of the time.

Various methods have been applied to the Chinese stock market in an effort to measure noise trading activities and all of them failed to account for information arrival. Our study uses a superior and alternative model to detect noise trader risk, overreaction and underreaction in China.