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Profit Warnings and Timing
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
Return Linkages between Dual Listings
bnder Arbitrage Restrictions: A Study
of Indian Stocks and Their London Global Depositary Receipts
Palani-Rajan Kadapakkam, Lalatendu Misra
Profit Warnings and Timing
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
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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
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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
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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
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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
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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
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Return Linkages Between Dual Listings Under Arbitrage Restrictions: A Study
of Indian Stocks and Their London Global Depositary Receipts
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
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