Net Selling Research Articles

Improving the Accounting of Current Assets in Accordance With International Financial Reporting Standards

This article interprets the key points of the international Financial reporting standard N 2 and discusses the issues of its practical application. In order to make it better understandable to the reader, examples are given on disclosing the essence of inventories, determining the cost of finished products, goods and work in progress, estimating inventories, net selling price and inventory impairment. Their impact on the company's financial statements is also reflected in the form of an excerpt from the statement of financial position and the income statement.

예상치 못한 외국인 순매도로 인한 비대칭적 변동성

This paper investigates whether the unexpected net selling by foreign investors is regarded as a bad news for domestic investors and causes asymmetric volatility beyond the bad news of the market. Stocks are sorted into five groups by the ratios of foreign investors' holding stock, and analyze if the lower ratios would lead to any difference in the asymmetry. We estimate bivariate GARCH model, diagonal BEKK, and find that stocks with lower proportion of foreign investors tend to show higher asymmetric volatility. Since stocks with lesser foreign investors tend to higher proportions of local investors, we can conclude that stocks with higher proportions of local investors tend to show higher asymmetric volatility. The effect of firm size was further analyzed to determine whether this was the cause of the asymmetric volatility. The stocks of five groups were again sub-divided by firm size into three groups, large, mid-cap, and small stocks. Within each group, additional asymmetry due to the unexpected net selling by foreign investors was evident in small and mid-cap stocks. Thus we claim that domestic individual investors' risk aversion would be a possible cause for the asymmetric volatility along with a bandwagon effect. Bandwagon effect arise since individual traders are aware that foreign investors are well-informed traders and choose to follow their action.

Hedging with futures during nonconvergence in commodity markets

Hedging in grain futures markets offers market participants the opportunity to mitigate the price risk in spot markets by taking offsetting positions in futures. The performance of a traditional minimum variance hedge ratio (MVHR) relies on the correlation between the spot and futures price changes. During 2005–2010, delivery-location cash prices for several crops decoupled from the prices for their related expiring futures contracts—raising concerns over the hedging effectiveness of these contracts. We investigate how short hedgers, like farmers, performed during periods with and without convergence in corn, soybean, and wheat markets. We show that, ex post, MVHR, often does not minimize the variance of wheat producers’ profits during nonconvergence when compared to a range of other hedging choices. We also find that the performance of MVHR weakens during years with low carryover. We further assess hedging performance of MVHR and other hedge ratios in achieving higher net selling prices, and find that nonconvergence particularly impairs their performance in the wheat market where the nonconvergence anomaly was the most prominent. Taken together, our results raise questions on the role of futures markets as risk management tools during nonconvergence episodes regardless of how the hedge ratio is chosen.

Credit default swaps and corporate debt structure

Whether and how credit default swaps (CDSs) affect corporate debt structure remains an unanswered question. We find that firms use more public debt relative to bank debt when CDSs referencing their debt start trading. The results are robust to the endogeneity of CDS trading. Furthermore, the increase in public debt is concentrated in senior bonds and notes, which are the most common CDS reference assets. The effect of CDS trading is most pronounced when bond underwriters take a net selling CDS position and for informationally opaque firms. These findings suggest that the hedging and informational roles of CDSs have real effects on corporate debt structure.

The Dark Side of Investor Conferences: Evidence of Managerial Opportunism

ABSTRACT Although the shareholder benefits of investor conferences are well-documented, evidence on whether these conferences facilitate managerial opportunism is scarce. We examine whether managers opportunistically exploit heightened attention around the conference to “hype” the stock. We find that (1) managers increase the quantity of voluntary disclosure leading up to the conference, (2) these disclosures are more positive in tone and increase prices to a greater extent than post-conference disclosures, and (3) these disclosures are more pronounced when insiders sell their shares immediately prior to the conference. In circumstances where pre-conference disclosures coincide with pre-conference insider net selling, we find evidence of a significant return reversal––large positive returns before the conference and large negative returns after the conference––and that the firm is more likely to be named in a securities class action lawsuit. Collectively, our findings are consistent with some managers hyping the stock prior to the conference.

Share Repurchases and Insider Trading Behavior: Evidence from Korea

Using the context of open-market share repurchases in Korea, we examine insider trading behavior around share repurchase disclosures. In particular, we investigate managerial opportunism as a motivation for share repurchases by analyzing how insider trading behavior differs between direct share repurchases with a strong signal effect and indirect share repurchases with a weak signal effect. We obtained the following research findings. First, in direct share repurchases, insiders become net sellers after share repurchase disclosure. Second, insider net selling is the highest when a company’s stock is overvalued rather than when its liquidity is the highest. Third, insider buy trades are followed by insider sell trades in direct share repurchases. Fourth, this negative relationship is more pronounced in firms with low ownership concentration. Finally, in direct share repurchases, opportunistic firms experience inferior stock performance compared with non-opportunistic firms. Overall, our findings support the managerial opportunism hypothesis, that is, in direct share repurchases, managers engage in informed trades based on the market confirmation bias that a share repurchase is a signal of undervaluation.

METHODS OF VALUATION OF ITEMS OF FINANCIAL REPORTING OF UKRAINIAN ENTERPRISES: UNIFICATION OF NATIONAL AND INTERNATIONAL STANDARDS

The purpose of the paper is to unify the methods of valuation of items of financial reporting of Ukrainian enterprises on the basis of national and international standards. Methodology. The theoretical aspects of the study are based on international accounting and financial reporting standards, as well as national accounting regulations (standards). The applied aspects consist in specifying the methods of valuation of certain objects of accounting (assets, liabilities, income, expenses) and their reflection in the financial statements. The results of the paper made it possible to determine the conditions for the implementation of international accounting and financial reporting standards in Ukraine. It was shown that their implementation began in 2007 and was completed in 2012 by public joint stock companies due to the requirements for placement of securities on stock markets. The impact on the implementation of international accounting and financial reporting standards by Ukrainian enterprises in connection with the signing by Ukraine of the Association Agreement with the European Union was determined. The characteristics of the Anglo-American and continental accounting models, their regulatory standards, existing differences between US GAAP and IFRS/IAS, work on their harmonization with a view to creating an international accounting model were presented. The methods of valuation of items of financial reporting were systematized: historical cost, present value, net selling price, fair value or amount of expected compensation. Their advantages, disadvantages and scope of application were determined. The cost approach to the valuation of financial reporting items and the prospects for its use were examined in more detail. It was shown that enterprise value is characterized by indicators reflected in balance sheet, off-balance sheet and financial statements. The information model for determining the value of an enterprise on the basis of financial statements was proposed. The methods of value determination depending on the organizational and legal form of an enterprise were differentiated. The sources of formation of its market and fundamental value have been clarified. The informational capacity of the items of the financial statements of an enterprise was estimated. The practical implications include the creation of an information model for determining the value of the company according to financial reporting, the substantiation of recommendations for regrouping its items for the needs of management accounting, and the creation of additional reporting forms – a value statement and a value-added statement. Value/originality. The methodological recommendations for the harmonization of the systems of financial and management accounting of added value were substantiated in terms of: recognition of income generated by fully depreciated assets; capitalization of financial costs; use of 8-class accounts; off-balance sheet accounting to reflect non-financial information about capital and integrated added value of a company; simplification of the tax system by introducing a single value added tax, which will absorb income tax and lead to further harmonization of financial and tax accounting.

Authorised participants as shock absorbers in fixed-income ETFs

This paper uses unique regulatory propriety data to analyse ETF secondary markets from a financial stability perspective. We find that ETF secondary markets are somewhat concentrated, but that a subset of Authorised Participants are active in both primary and secondary markets and act as a buffer between these. Only around a third of the net selling pressure in the secondary market manifests in redemptions in the primary market and this result holds across observed periods of mild market stress. However, the high yield fixed income segment may be more fragile during periods of stress.

Legal Protection on Pharmaceutical Product Patents by the Government on Covid-19’S Remdevisir and Favipiravir

Background: The implementation of patents by the Government for pharmaceutical products can be carried out in terms of very urgent needs for the benefit of the community, such as medicines that are still protected by patents to overcome Coronavirus Disease 2019 (Covid-19) in Indonesia. Aim: To analyze the implementation of Patents by the Government according to Law Number 13 of 2016 concerning Patents and legal protection for pharmaceutical product patent holders for the Implementation of Patents by the Government against remdevisir drugs and favipiravir. Method: Research method based on normative juridical approach from various legal materials through literature studies. Findings: To overcome the Covid-19 disease in Indonesia, the government needs to establish an access policy for pharmaceutical products as stated in Presidential Regulation Number 100 of 2021 concerning the Implementation of Patents by the Government against Remdesivir Drugs and Presidential Regulation Number 101 of 2021 concerning the Implementation of Patents by the Government against the Favipiravir Drug, on November 10, 2021. Patent holders of Remdevisir and Favipiravir medicinal pharmaceutical products are entitled to legal protection for the exercise of exclusive rights and payment of compensation during the Implementation of Patents by the Government in the amount of 1% of the net selling value of Remdesivir and Favipiravir drugs.

Overallocation and secondary market outcomes in corporate bond offerings

Bond underwriters, lacking “Greenshoe options” and formal systems to track “flipping” activity, have fewer tools than equity underwriters to manage secondary market order flow uncertainty. We show that bond underwriters respond by selectively “overallocating” some issues to attain net short positions. Overallocations are economically substantive, facilitate the syndicate's price stabilization efforts, and are largely offset in the days after issuance. These issues on average experience more net selling by institutional investors and, despite large syndicate purchases, appreciate less in the secondary market. Thus, overallocation is an observable indicator that underwriters anticipate weakness in net secondary market demand.

Mapping local food self-sufficiency in the U.S. and the tradeoffs for food system diversity

The demand for ‘local food’ by U.S. consumers has grown markedly over the last several decades, accompanied by confusion over how to define local food. Is ‘local’ food defined by the location of the farm, food processing factory, distribution warehouse, or all three? Is ‘local’ food defined by geographic, political, or biophysical boundaries? Is ‘local’ solely farm-to-table or can it include factories? This study evaluates food commodity flow ‘localness’ using jurisdictional boundaries and physical distance to investigate the potential for food system transformation and the tradeoffs inherent to ‘localizing’ food production. We take a supply chain approach by making data-driven distinctions between farm-based flows of food and industrial, energy and nonfood (IENF) crops, and manufacturing/distribution flows of food and agriculturally-derived industrial inputs. We analyze the diversity, distance (a proxy for environmental impact), political boundaries, population, weight, and price (net selling value) of food commodity flows. The diversity of a community's food supply has an optimal range of zero to four-hundred miles. We find tradeoffs between food system diversity and local food sourcing, sustainability, and self-sufficiency. As communities look to improve food system resilience, they will need to balance food-miles and the other values associated with local food.

Market timing of CEOs and foreign investors' reaction

Excess return, cumulative abnormal return, market to book ratios and liquidity risk are applied as proxies for evaluating the chief executive officer’s (CEO) market timing. The result indicates that managers have total succeeded in timing the market for SEO events. Firms implement seasonal equity offering (SEO) issuance after experiencing a strong increase of stock price, and then underwent a significant reversal of stock price. Besides that, CEO will time the market when they realize the liquidity risk of firms drop to the point where institutional investors have low consideration about risks. Foreign investors reacted strongly when the information about the SEO was announced, specifically, they changed their trading behavior from being a net buying to being a net selling or reducing buying. This reaction is especially strong in companies with low market liquidity. And as a result, foreign investors react more quickly to the information of new stock issuance, their stock return will increase sharply after SEO.

Information Leakage Around SEC Comment Letters

We investigate whether sophisticated investors obtain information about Securities and Exchange Commission (SEC) comment letters before the public release date. Specifically, we examine mutual fund trading behavior around dates firms receive a comment letter. We find significant abnormal net selling by mutual funds immediately after a firm receives a comment letter. Additional tests find that abnormal net selling is greater when firms receive a second-round letter, where information leakage is more likely (e.g., firms with high board member connectedness and higher dedicated institutional ownership) and when comment letters address more critical issues (e.g., the need to restate prior results or related party transactions). We also find that funds with high abnormal net selling in the private phase avoid significant future share price declines. In sum, we find consistent evidence that mutual funds appear to trade on information obtained during the private phase of the SEC comment letter process. This paper was accepted by Brian Bushee, accounting. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2021.4259 .

The Sound of Silence: What Do We Know When Insiders Do Not Trade?

This paper examines the information content of insider silence, periods of no insider trading. We hypothesize that, to avoid litigation risk, rational insiders do not sell own-company shares when they anticipate bad news; neither would they buy, given unfavorable prospects. Thus, they keep silent. By contrast, insiders sell shares when they do not anticipate significant bad news. Future stock returns are significantly lower following insider silence than following insider net selling, especially among firms with higher litigation risk. We examine two quasinatural experiments where new laws result in changes in shareholder litigation risks for insiders. In both cases, with higher shareholder litigation risks, stocks where insiders stay silent earn significantly lower returns than other stocks.This paper was accepted by Karl Diether, finance.

Institutional investment activities and stock market volatility amid COVID-19 in India

This article examines institutional investors' investment activities and the impact of their trading styles on market volatility amidst COVID-19 in India. Specifically, it seeks to offer a comprehensive analysis of foreign portfolio investors’ (FPIs) and domestic mutual fund managers’ (MFs) investment on equity and debt securities. It examines whether their trading activities drive market volatility during the pandemic period. Also, it explores the impact of COVID-19 on the Indian equity market. This study finds that the growth of COVID-19 does not significantly affect the stock market volatility during the study period. Precisely, the findings reveal that the FPI's net selling of equity and their overall trading activities in the debt instruments positively impact the market volatility. Findings also show that the FPI's momentum buys and contrarian sales induce market volatility, whereas the MF's trading style does not significantly influence the volatility. The Granger causality tests indicate that the FPI's net sales of equity instruments cause the return volatility and that the market volatility does not drive the equity net sales. Findings also reveal that mutual-fund managers' trading behavior does not Granger cause market volatility; instead, volatility causes MF's net selling of debt instruments.

V-Shaped Disposition Effect, Stock Prices, and Post-Earnings-Announcement Drift: Evidence from Korea

This study investigates the impact of the V-shaped disposition effect on asset prices in the Korean stock market, which is characterized by a high proportion of retail investors. By utilizing a specified dataset containing stock-level information on the trading activities of different types of investors, we find evidence to support the presence of V-shaped net selling propensity in the Korean stock market. In addition, we find that net selling pressure has a positive effect on the cross-section of subsequent stock returns, and this relationship appears only when accounting for individual trading. Furthermore, this net selling propensity of retail investors delays the incorporation of good news into stock price, while helps stock price reflect its bad news. We show that good (bad) news lead to positive (negative) drifts in stock prices following earnings announcements in the presence (paucity) of investors exhibiting the V-shaped disposition.

Information demand and net selling around earnings announcement

Previous literature has shown the effectiveness of information dissemination channels on reducing information asymmetry from the supply-side. This paper mainly focuses on investigating the effects of information diffusion from the demand-side, i.e., investors’ voluntary demand for firm-specific information proxied by Baidu Search Volume Index. By taking the earnings announcement as an example for information asymmetry, we observe a net-selling behavior for investors during the pre-announcement periods that are closely related to changes of returns around the earnings announcements. More importantly, our empirical tests prove that the increased investors’ information demands help to alleviate the net-selling phenomenon as well as its further effects on earnings announcements returns that are resulted from the high information asymmetry during pre-announcement periods. In that sense, we conclude that investors’ information demand contributes to reducing information asymmetry by incorporating information into stock prices.

Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire; good news travels slow

In this paper, we decompose attention allocation into two components – the familiar and the surprising – with opposite implications for US purchases of foreign stocks. On the one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand, surprise-induced attention is associated with net selling of foreign stocks because US investors tend to pay more attention to negative than to positive economic surprises from foreign countries. Our findings suggest that information asymmetries between locals and non-locals are more pronounced when it comes to good news, with information regarding bad news being relatively symmetric.

Do Lower Foreign Flows and Higher Domestic Flows Reduce Indian Equity Market Volatility?

This study examines the relationship that both domestic and foreign institutional net equity flows have with the India stock markets. The motivation behind is the study to examine whether increased net equity investments from domestic institutional investors has reduced the influence of foreign equity flows on the Indian stock market volatility. Our results indicate that only during periods in which domestic equity inflows surpass foreign flows by a significant margin, as seen during 2015–2018, is the Indian stock market volatility not significantly influenced by foreign equity investments. However, during periods of re-emergence of strong foreign net inflows, the Indian market volatility is still being impacted significantly, as has been observed since 2019. Furthermore, we find that both large-scale net buying and net selling by domestic funds increased the stock market volatility as observed during 2015–2018 and COVID-impacted year 2020 respectively. The implications of this study are multi-fold. First, the regulators should discuss with industry bodies before enforcing major structural changes like reconstituting of mutual fund investment mandate in 2017 which forced domestic funds to quickly change portfolio allocation amongst large-cap, mid-cap and small-cap stocks resulting in higher stock market volatility. Second, adequate investor educational and awareness programmes need to be conducted regularly for retail investors to minimize herd behaviour of investing during market rise and heavy redemptions at times of fall. Third, the economic policies should be stable and forward-looking to ensure foreign investors remain attracted to the Indian stock markets at all times.

Explaining global imbalances: the role of central-bank intervention and the rise of sovereign wealth funds*

Neoclassical economic theory views current-account imbalances as the result of (individual) decisions to save more than to invest domestically. Monetary analysis in the Keynesian tradition rejects such approaches and emphasizes that a country's net savings are the result, not the cause, of net selling of goods and services to foreigners. The latter, in turn, depends on global demand patterns and absolute advantages between countries. We complement this Keynesian approach, taking a closer look at the financial account of the balance of payments: a necessary condition for countries to net-sell goods and services to foreigners is the willingness of domestic sector(s) to accumulate net foreign assets. While previous analysis of global imbalances has partially discussed the role of central banks' reserve accumulation it has failed to incorporate the macroeconomic role of sovereign wealth funds (SWFs). We analyse eight surplus countries' external positions and find that the public sector typically purchases and manages significant amounts of foreign assets via both central banks and SWFs. This, in turn, supports current-account surpluses. We then consider the particular case of Switzerland where, contrary to other surplus countries, public-sector purchases of foreign assets had been absent for a long time, yet set in massively after 2008.