Proxy For Private Information Research Articles

The moderating effect of private information on the relation between financial reporting quality and corporate dividend efficiency

AbstractWe examine the effect of private information on the linkage between financial reporting quality and dividends. While prior studies show that better reporting quality mitigates agency problems regarding dividends, this effect can depend on capital suppliers' private information sources. In a sample of Japanese firms, we measure dividend efficiency regarding over‐ and underpayments and use unique main bank relationships as a proxy for private information. Reporting quality enhances dividend efficiency, and this linkage is observed only for firms without main bank relationships. The results suggest that high‐quality reporting streamlines dividends, particularly when capital suppliers do not have private information sources.

Do Traders Front-Run News? Evidence From Form 8-K Disclosures of Class Action Lawsuit Settlements

Using a novel and unique dataset of class action settlement announcements from Form 8-K disclosures as a proxy for private information, we tested whether traders front-run on the announcements and whether traders capture cumulative abnormal return (CAR) surrounding the disclosures. Although overall volume does rise, there is no statistically significant evidence of front-running Form 8-K disclosures and no CAR surrounding the disclosures. This study, nonetheless, contributes to the literature by providing further evidence from a new dataset of class action litigation settlements that there is no front-running of news. The findings contribute to the contrary – albeit less popular – collection of studies that show traders do not have access to private information upon which to exploit through front-running to capture CAR.

Foreign investors, private information, and price discovery

We examine the relation between intra-day price discovery and proxies for financial openness and investor accessibility using a sample of intra-day price and quote data of 1,504 stocks from 23 emerging markets. We measure price discovery by weighted price contribution across segments of the trading day. There is a reliable relation between price discovery in early trading and direct foreign ownership, controlling for other factors. We project foreign ownership onto proxies for private information and investor recognition. The residual from the projection regression captures the impact of unknown factors. We find that the role of private information is much more important than investor recognition and unknown factor in facilitating price discovery.

Examination of Information Release on Return Volatility: A Market and Sectoral Analysis

This paper examines the role of information release in explaining return volatility in Australian equities. The study utilised proxies of greater accuracy than have previously been used to examine the effect of private and public information on return volatility. Analyst price targets (PTR) and Morningstar stock star ratings (MSR) were proxies for private information and Australian Securities Exchange (ASX) announcements was a proxy for public information. Analysis was conducted at both the aggregate market level and the sectoral levels. Sectoral analysis is important because Australia operates as a ‘two-speed economy’ in which some sectors perform higher than others. The limited number of studies that highlight this distinction warranted the need to perform this study. Data was collected for ASX 200–listed firms for the period 2013 to 2017. The findings provide insights into how information disclosures instigate varied volatility within the entire market and across sectors. The results also suggest that PTR have the largest effect on return volatility at both the aggregate market and the sectoral levels, thereby further indicating that investors rely heavily on this information when undertaking investment decisions. In contrast, MSR had a negligible effect, which is likely due to the lower degree of informational content. Although investors rely on these information proxies, they do not realise the diverse effect that each private information proxy has on sectoral return volatility. Public information has a minor effect on return volatility at both the aggregate market and sectoral levels. These mixed results indicate that information flow varies depending on the information type (i.e. private or public) with each sector interpreting the same information differently, as highlighted by the varying levels of volatility. The research findings provide a valuable guide to investors regarding the appropriate information proxy to generate excess returns as well as to hedge against future losses.

Inferring private information from online news and searches: Correlation and prediction in Chinese stock market

In this paper, we employ the difference between Baidu News (information supply) and Baidu Index (information demand) as the novel proxy for private information. The empirical results show that online news and searches are positively correlated with stock performance indicators. While, private information displays negative correlation with turnover and volatility. Besides, online news and searches hold solid predictive power for indicators. By comparison, private information only demonstrates reliable predictability with volatility. All these findings have some implications for investors who are interested in investing in Chinese stock market.

Is the IPO Offer Price Revision Really a Proxy for Private Information?

By IPO market regime, I decompose the effect of revealed private information on the initial return of IPOs (Initial Public Offerings) into adjusted and unadjusted private information and find: (i) investment banks partially adjust the offer price in return for revealed private information in all but the non-hot IPO market; (ii) the economic importance of private information associated with IPOs (and hence agency costs) is procyclical; and (iii) industry information spillovers between IPOs occur only in the hot and very-hot IPO markets.

Institutional Investors, Private Information, and the Cost of Capital

We study the relation between institutional shareholdings, private information in stock prices and the cost of capital. Using the probability of informed trading as a proxy for private information, we find that institutional ownership reduces private information in stock prices, and firms with high private information faces a higher cost of capital compared to those with low private information. More importantly, we find that the effect of private information on the cost of capital becomes insignificant for firms that have high institutional ownership. Our findings imply that investors do not require a higher rate of risk-adjusted return for private information risks when holding stocks of firms with high institutional ownership.

Which Firms Follow the Market? An Analysis of Corporate Investment Decisions

We test whether stock market mispricing or private investor information in stock prices affects corporate investment. We develop an econometric methodology that disentangles stock-price movements that are relevant for investment from those that are not. We combine this decomposition with proxies for private information and mispricing to devise unbiased tests for the effects of mispricing and information on investment. We depart from much of the literature by finding that stock market mispricing does not affect investment, especially that of large firms and firms subject to mispricing. In contrast, we confirm previous evidence that managers incorporate private investor information when making investment decisions. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Credit Derivatives, Corporate News, and Credit Ratings

The market for credit default swaps (CDS) represents an interesting venue to study if and how public and private information is incorporated in market prices. This OTC market is neither regulated nor supervised and exclusively made up by institutional traders that buy and sell credit risk. Considering the key importance of rating announcements for market participants, this paper investigates announcement and anticipation effects, conditioning on public information and using proxies for private information about CDS underlyings. Analyzing an international sample of frequently traded firms during the period 2000-2005 on a daily basis yields the following results. First, CDS markets significantly react to rating downgrades and, even stronger, to reviews for downgrade, while the magnitude of anticipation effects is the other way round. Second, the CDS market response is stronger for firms with high general media coverage. Moreover, rating-related wire news prior to rating events significantly explain the anticipation of CDS markets when general media coverage is high. Third, the run up is more pronounced the higher a firm's number of major bank lenders and there is a signifcantly higher number of days with large positive abnormal price changes and no news (or no negative news) before rating events than in the full sample. These findings are consistent with the view that private information of banks spills over to these markets through their CDS trading.

The role of private information in return volatility, bid–ask spreads and price levels in the foreign exchange market

Trading volume and order flow have both been closely associated with informed trader activity in the market microstructure literature. Using theory that explains regular intraday patterns in trading data, we transform these two variables into proxies for private information and examine their relationships with bid–ask spreads and return volatility. We use a unique and unusually rich high-frequency intraday dataset from the world's largest financial market, namely, the electronic inter-dealer spot foreign exchange market. Our analysis takes account of institutional features peculiar to this order-driven market. Our empirical results strongly affirm our theoretical understanding of how these markets work. They also reveal how the structure of the inter-dealer spot FX market affects exchange rate volatility. Finally, we also explore how private information contributes to the evolution of prices.

Industry specialization and performance: a study of mutual funds

Résumé De nombreux articles concluent que les investisseurs ayant des avantages informationnels détiennent des portefeuilles plus spécialisés et obtiennent des performances supérieures à celle du portefeuille de marché. Cet article étudie l’impact des avantages informationnels sur la performance de 224 fonds sectoriels et 1135 fonds actions gérés activement sur le marché américain. Nous utilisons le degré de concentration sectorielle pour mesurer les avantages informationnels des gestionnaires de fonds. Un lien positif et significatif entre la performance et le degré de concentration sectorielle est mis en évidence pour les fonds sectoriels. Ce lien est moins significatif pour les fonds actions. Ces résultats sont stables par rapport au benchmark et aux modèles de performance.

An Examination of the Differential Impact of Regulation FD on Analysts' Forecast Accuracy

AbstractRegulation fair disclosure (FD) requires companies to publicly disseminate information, effectively preventing the selective pre‐earnings announcement guidance to analysts common in the past. We investigate the effects of Regulation FD's reducing information disparity across analysts on their forecast accuracy. Proxies for private information, including brokerage size and analyst company‐specific experience, lose their explanatory power for analysts' relative accuracy after Regulation FD. Analyst forecast accuracy declines overall, but analysts that are relatively less accurate (more accurate) before Regulation FD improve (deteriorate) after implementation. Our findings are consistent with selective guidance partially explaining variation in the forecasting accuracy of analysts before Regulation FD.