Buy Sell Research Articles

Buy Low and Sell High

Buy Low and Sell High

Empirical Investigation of the Ability of Sensitivity of Stock Prices to Earnings News in Predicting Earnings Management and Management Forecast Errors

This paper presents an evidence that a firm’s Sensitivity of Stock Price to Earnings News (SSPEN), as measured by surplus stock demand over its supply, affects on incentives to manage earnings and, in turn, Management Forecast Errors (MFE). In particular, we find a tendency for firms rated a Sell (Buy) to engage more (less) frequently in extreme, income-decreasing Earnings Management (EM), indicating that they have relatively stronger (weaker) incentives to create accounting reserves especially in the form of earnings baths than other firms. In contrast, firms rated a Buy (Sell) are more (less) likely to engage in earnings management that leaves reported earnings equal to or slightly higher than management forecasts. The result of empirical evidence from Iranian firms in Tehran Stock Exchange (TSE) showing the existence of a meaningful relationship between SSPEN and EM. Generally, SSPEN can be used to predict EM and Forecast Errors (FEs).

Evolution of Liquidity: An Integrated Order Strategy Model of Uninformed and Informed Traders

This paper presents an integrated microstructure model of risk-averse uninformed and informed traders for the evolution of liquidity. Under an actively monitoring market, limit order book as a medium for information and order strategies of traders, thereby market order arrival of informed traders could leak out fundamental information and limit order arrival of informed traders could deceive the market, so informed traders might trade via a variety of order combinations in order to maximize their expected utilities. Our theoretical analysis corroborates the findings: (1) uninformed traders recognize that the bid and ask are positively (negatively) associated with arrival rates of market buy (sell) order; (2) liquidity evolution of uninformed traders depend on whether the bid and ask prices are sufficiently adjusted to the private information of market recognition; (3) liquidity evolution of informed traders are in response to the dynamic adjustment of prices to information, so they demand (supply) liquidity when the value of their information is high (low). Our model complements the empirical and experimental evidences for evolution of liquidity of Anand, Chakravarty and Martell (2005) and Bloomfield, O'Hara and Saar (2005).

Do Institutions Really Exploit Individuals? The Intraday Losses and Offsetting Returns of Discount and Premium Retail Investors

This paper investigates the trading performance of retail brokerage investors on the Australian Securities Exchange (ASX) from 1990 to 2005. We document average losses per day, before transaction costs, of USD$120,000 (AUD$190,000) or 27 basis points per day from individual investors buying (selling) higher (lower) than the closing price on the day. This loss is robust across calendar years, stock size, order type, time of day and broker service offerings. Net of this loss, individual buy trades are statistically indistinguishable to sells at a 254-day/1 year window. We find that this result is due to the off-setting returns of discount and non-discount broker retail investors: Discount broker retail investors lose -1.85 percent while non-discount broker retail investors earn 1.23 percent from trade during the same trading window. This dichotomy in individual investor behaviour is consistent with the Grossman and Stiglitz (1980) information equilibria. Our findings have implications to studies analysing individual investor behaviour.

Stock Selection Skills and Career Choice: Buy Side vs. Sell Side

Theory suggests the most profitable way to exploit stock picking skill is to set up an investment fund, yet in practice buy-side and sell-side stock analysts coexist. We examine the relative merits of stock picks from institutional investors and brokerage analysts, and the extent to which institutions use sell-side analysts' recommendations. We find that sell-side analysts' recommendations are informative. Although mutual fund purchases significantly outperform their sales the difference, in performance is largely concentrated on the day of the trade. Mutual funds tend to trade in the direction of recommendation revisions but their trade direction is not incrementally informative.

Who is a Winner in Volatile Markets? Evidence from Chinese Funds

The proliferation of institutions has drawn an attention in the financial economists' interest on the effect of institutional trading on market volatility for a few decades. Existing research on institutional investors, however, has not considered separating a bull market from a bear market, an important macroeconomic factor, in studying the role of institutional trading in market volatility. In addition, few studies have focused on emerging markets in developing countries. Particularly, who can identify the change in macroeconomic fundamentals, make more rational decisions, and eventually dominate the Chinese emerging stock market, institutions or individuals? Addressing this gap, this study examines the impact of institutional trading on the Chinese emerging volatile markets, from bearish markets (2001-2003) to bullish markets (2004-2006), effectively integrating the institutional (de)stabilizing effect into a more completely developed perceptive. In particular, we investigate the relationship between the level of institutional ownership and a firm's abnormal returns on large market movement days. We find that institutions are able to make quicker and more rational adjustments in their trading strategies as compared to the delayed market reactions due to a change in macroeconomic trend and a supervising regulatory policy issued at the beginning of 2004. Institutions use different trading strategies from bearish markets (2001-2003) to bullish markets (2004-2006), on large market movement days, such as selling against a rising market in bearish markets while continually pushing the entire stock index up in bullish markets. Moreover, institutions successfully predict the tendency of future stock market although the Chinese stock market is more volatile than others. Meanwhile, we find that institutions buy (sell) less than individuals on large price swing days, consistent with the notion that institutions are more rational than individuals in emerging markets. Further, systematic risk in the Chinese stock market is twenty-four times than that in US, reflecting a significant difference between an emerging market and a developed market. Overall, these results indicate that institutions become a winner in the Chinese stock market.

Significant issuance date returns in seasoned equity offerings: An options-based resolution of a puzzle

The significant negative issuance day returns associated with seasoned equity offerings (SEOs) have been a puzzle. In this paper we provide two explanations for this empirical regularity. First, using an option-based argument, we contend that issuance day returns are negative because of SEO related declines in volatility that reduce the option value of equity. Our empirical examination of US SEOs between 1983 and 2003 strongly supports this contention. Second, we find that the negative issuance date return is also related to market liquidity around the issuance date. Our findings are robust to various sub-samples and the uncertainty resolution argument, and are not driven by SEO buy–sell order imbalances.

Uma análise da alocação de contratos futuros sobre commodities em portfólios diversificados

O trabalho analisou o impacto da introdução dos contratos futuros agropecuários (de café arábica, soja, milho, açúcar cristal, etanol e boi gordo), negociados na Bolsa de Valores, Mercadorias e Futuros - BM&FBovespa, no risco e no retorno de uma carteira diversificada, composta por ações, títulos, ouro e dólar, entre agosto de 1994 e dezembro de 2007. Foram realizados estudos para o intervalo de tempo completo e para subdivisões de dois e três períodos, além de uma análise bianual. Foram consideradas quatro diferentes estratégias com tais derivativos: posições compradas e vendidas em contratos de primeiro vencimento e de prazos superiores a seis meses. Com o uso da Teoria do Portfólio, observaram-se expansões da fronteira eficiente na análise bianual e para os períodos 1994-1998 e 1999-2003, porém estas não foram estatisticamente significativas, conforme metodologia de Gibbons, Ross e Shanken (1989).

Portfolio Returns and Target Prices

In this paper we examine the profitability of trading strategies based on target prices embedded in equity research reports. We adopt target prices as information signals to build our portfolio strategy. At the first stage, we exploit implicit returns (difference between the current price and the target price) as a buying or short selling signal to open every transaction in the portfolio. Next, we use raw and adjusted target prices as a closing transaction signal. We build three different strategies to verify if the overshooting of target prices revealed by several studies could affect the profitability of a trading strategy based on these target prices. We have formed four portfolios within every strategy to verify whether analysts' target prices have any investment value. We find that all strategies deliver positive abnormal returns against the market. In particular, the highest and lowest implicit return classes exhibit the highest stock returns and abnormal returns. In the last part control these returns for systematic risk, factors through the CAPM and the Fama & French three factor model. The positive performances of our strategies persist and, in particular, our strategies beat the market with consistent abnormal returns in all the four implicit return classes analyzed. From the three factors equation, it seems that analysts tend to advise buying stocks with risk above the average market risk, with growth profile and with large market value. Conversely analysts advise selling value stocks and those with a negative beta.

Bid ask spread in a competitive market with institutions and order size

Large orders, particularly from institutions, are quite common these days and hence there is interest to know if institutional trading has any bearing on the price effect associated with large trades. Recent empirical studies contradict earlier evidence of negative price effect on selling large blocks and find no price effect associated with large trades. Existing theoretical framework suggests a monotonic and increasing adverse price effect for large trades, where the motivation for a large trade is private information. We model a trading system where pure information, information-liquidity, and pure liquidity traders trade small and large sizes. The pure information traders strategically choose an order size. Institutions trade only large sizes because of their low execution costs for large trades; they are information-liquidity traders whose ability to use an information signal to determine their trades is subject to a binding liquidity constraint. We show that in such a market a separating equilibrium where trade size is informative does not exist and hence there is no price effect for large trades. Trade size may be revealing only if there is a buy sell asymmetry (large buy size is not equal to large sell size) or the corresponding price effect is asymmetric (price effect due to a large buy is not equal to that of a large sell). Further for a pooling equilibrium to exist, where trade size is not informative, the width of the market denoted by the ratio of order size (large size/small size) needs to be small, while the shallowness (inverse depth) of the market denoted by the ratio between pure information and institutional trades and the information signal needs to be stronger (higher). Our results on bid and ask prices and spread confirm recent empirical evidence on price effect of large and institutional trades found in the literature.

NET BUYING (SELLING) INVESTOR ASING DAN PERUBAHAN KURS TERHADAP PERGERAKAN INDEKS PASAR

The article tested net buying selling in Jakarta Stock Exchange. JSX index stated an amazing leap during 2006 however the performance was affect by foreign investor rather than domestic investors. The research indicates that net buying selling forces by foreign investors and the fund transfer during transaction will affect the foreign exchange rate (USD to IDR). The study argues the increasing rate of net buying selling also increase the volatility of exchange rate. Using TARCH model, the research found significant result that supported the argument. The research also test the robustness of data using stationary test. Therefore, the result statistically hold and TARCH model plus AR (1) also hold during the analysis.

Limit Order Clustering and Price Barriers on Financial Markets: Empirical Evidence from Euronext

We investigate trade price and limit order price clustering on Euronext, a European stock market which is based on a computerized limit order book. We find evidence of widespread and pervasive trade price and limit order price clustering at increments of five and ten cents. Thus, investors appear to be naturally drawn to certain prominent numbers when placing limit orders. This tendency provides salient points in the order book where latent liquidity can accumulate. We also show that limit order clustering at round numbers generates price barriers. This means that there are price levels (whole integers and halves) for which a given stock spends an inordinate amount of time, thus possibly hampering the market's ability to process information efficiently. Besides, we observe that the next price levels showing the strongest clustering effect are just above (beyond) dimes and nickels for the limit buy (sell) orders. It is consistent with a strategic undercutting/overbidding behavior of some limit order traders who possibly anticipate clustering tendencies on dimes and nickels and try to step-ahead of the quotes and gain price priority.

Senior Housing

Classic views of senior housing choice have correctly noted that household family size shrinks with age and resources devoted to elderly housing consumption can then be redirected to other areas. The debate is about the best way to undertake this change. The alternatives are numerous: Sell and buy smaller vs. sell and rent smaller are special cases of the rent-or-buy decision. Accumulated home equity may be used for retirement leisure, unexpected expenses associated with health matters or different kinds of elder care. The equity need not be withdrawn or exhausted if various reverse amortization mortgage plans are employed. Moving in with younger family members is often discussed but nearly as often dismissed as unsuitable for a host of reasons, nonetheless it must be included in the mix of options. This study looks at an intergenerational solution to the housing problem facing the elderly. It describes how a unique combination of family systems, property rights, investment goals, and tax benefits can produce optimal solutions for some families. A theoretical model is presented wherein an older family member optimizes health, housing and bequest options, while at the same time in the same transaction a younger family member seeks an optimal investment.

Factors Associated With Buying and Selling Syringes Among Injection Drug Users in a Setting of One of North America's Largest Syringe Exchange Programs

We performed analyses of syringe buying and syringe selling among Vancouver injection drug users, recruited from May 1996 and followed up between November 2002 and August 2003, in the context of one of North America's largest syringe exchange programs (SEPs). An interviewer-administered questionnaire, approximately 45 minutes in duration, was used to collect information regarding risk factors for HIV infection and sources of sterile syringes. Seventy participants (15%) reported syringe selling and 122 (26%) reported syringe buying. Syringe sellers were more likely to be female, reside in unstable housing, need help injecting, and have visited the SEP at least once weekly. Syringe buyers were more likely to need help injecting, have difficulty finding new syringes, have binged on drugs, and have visited the SEP at least once weekly. Syringe buying most frequently occurred when the SEP was closed.

Re-examination of the Ex-Dividend Day Behaviour of Canadian Stock Prices

We examine the ex-dividend day price and volume behaviour in the Canadian stock market and show evidence on the co-existence of both the tax and short-term trading effects. By examining the abnormal returns as well as abnormal volumes around ex-day we find strong evidence of short-term trading which is consistent the presence of dividend-capturing activities around the ex-dividend day. By examining the abnormal returns before (after) the ex-dividend day, we also find evidence of the buying (selling) pressure created by short-term traders.

Cancellations of Limit Orders

Recent data from the NYSE shows that more than 20 percent of all the orders submitted to the SuperDot are cancellation orders. In fact, there are more cancellation orders than there are market buy orders or market sell orders. Of all the limit orders that are submitted in any particular day, 40 percent of them are cancelled by the end of the day. This paper investigates into the motivation behind these cancellations. The paper finds that order cancellation plays an important role in several trading strategies adopted by some limit order traders. These strategies are the order splitting strategy, the undercutting strategy, and the limit order replacement strategy. These three trading strategies, which involve cancellations, account for up to 85 percent of all the cancellation orders in the sample. The paper also finds that, subsequent to cancellations, limit order traders are most likely to withdraw from trading. If they choose to re-enter the market, they are most likely to resubmit the limit orders with more aggressive limit prices, than to replace the cancelled orders with market orders. The paper also shows that the decision of traders to cancel their orders is influenced by certain market and order characteristics. A limit order trader is more likely to cancel his limit buy (sell) order when there is a positive (negative) change in the bid (ask), and when there is an increase in the price of the stock, after the order is submitted. He is also more likely to cancel his limit order when the spread increases after he submits his order and as the day proceeds. However, he is less likely to cancel his orders at the last half hour of trading.

A conceptual framework of global account management capabilities and firm performance

Global account management (GAM), a collaborative process between a multinational customer and a multinational supplier by which the worldwide buying–selling activities are centrally coordinated between the two organizations, has become a critical task for many multinational corporations. A framework for determining GAM dyadic strategic performance and joint profits is introduced. In this framework, three GAM-related capabilities determine GAM performance. These capabilities are Collaborative Orientation, GAM Strategic Fit, and GAM Configuration. In an attempt to establish a research agenda on GAM issues, we develop propositions for each construct. This conceptual framework should help improve understanding of GAM as a dyadic phenomenon and provide a platform on which future empirical study can be conducted. At a practical level, this framework serves as the basis for formulating GAM strategies.

Partnership Dissolution, Complementarity, and Investment Incentives

We study a partnership that anticipates its possible dissolution. In our model, partnerships form in order to take advantage of complementary skills; although new opportunities may arise that make partners’ skills useless. We characterize the optimal, incentive-compatible partnership contract that can be implemented by a simple call option, and then analyze the commonly used buy–sell provision. We show that this dissolution rule gives rise to inefficiency, either in the form of excessive dissolutions combined with underinvestment or efficient dissolutions combined with overinvestment. However, supplementing the buy–sell provision with the right to veto may restore efficiency.

Why do Corporate Insiders Trade? The UK Evidence

Previous research shows that corporate insiders engage in profitable transactions by trading securities of their own firms around specific events. The objective of this study is to specifically analyse all the events that preceded insider trading transactions and their explicit trading gains. We contrast this hypothesis with the signalling of undervaluation. Using a large sample of UK companies, we test the proposition that corporate insiders time their trades and that the market impact of insiders' transactions varies based on the information on which they trade on. We find that (i) insiders buy (sell) shares prior to stock price decline (run up), (ii) the event date abnormal returns are positive for buy and negative for sell transactions, (iii) the post-event abnormal returns following [+1, +10] buy (sell) trades are positive (negative), suggesting that insiders convey information to the market and that other investors follow these trades, (iv) in the longer term [+2, +160] companies do not seem to regain their pre-trade valuation, (v) the pre- and post-event abnormal performance depends on the news that precedes the trades. Overall, our results suggest that insiders time their trades and they are capable to better assess the value of their firm. Outsiders, aware of that superior view, follow insiders' behaviour in the short-term and fortify the exceptional returns gained by directors. We also find evidence that insiders use this signalling effect to sometimes camouflage their trades and overcome regulators' monitoring.

Simple Trading Rules and the Market for Internet Stocks

We investigate the profitability of moving average trading rules for Internet stocks based on the Dow Jones Internet Composite Index. Consistent with previous studies e.g. Brock et al. (1992), returns after buy signals exceed returns after sell signals. The average buy–sell spread is large and significant even after accounting for transaction costs. Bootstrap simulations based on a version of the dynamic CAPM show that the model is able to replicate the pattern of buy and sell returns. Simulated buy–sell spreads amount on average to more than 39% of the actual spread. However, actual profits are still too large to be explained in terms of risk compensation.