Sell Trades Research Articles

Efficiency and sustainability of bond market: Evidence from aftermarket trading of US corporate bond offerings

We find that for bond offerings that are non-self-marketed, there is a significantly larger proportion of institutional-sized sell trades than buy. In stark contrast, for self-marketed offerings by underwriters, immediate post-offer trading is characterized by a larger proportion of institutional-sized buy trades than sell. We also find evidence suggesting that retail investors, who are initially shut out of the offering deals, buy bonds in the secondary market at a higher price. Our evidence suggests that certain institutional investors receiving allocations of non-self-marketed offerings flip them for a quick profit. The systematic disparity in aftermarket trading immediately following self-marketed versus non-self-marketed bond offerings suggests that the offering process is inefficient, which may have implications on the sustainability of bond offering process.

ESTIMATION OF A HIGH-DIMENSIONAL COUNTING PROCESS WITHOUT PENALTY FOR HIGH-FREQUENCY EVENTS

This paper introduces a counting process for event arrivals in high-frequency trading, based on high-dimensional covariates. The novelty is that, under sparsity conditions on the true model, we do not need to impose any model penalty or parameters shrinkage, unlike Lasso. The procedure allows us to derive a central limit theorem to test restrictions in a two-stage estimator. We achieve this by the use of a sign constraint on the intensity which necessarily needs to be positive. In particular, we introduce an additive model to extract the nonlinear impact of order book variables on buy and sell trade arrivals. In the empirical application, we show that the shape and dynamics of the order book are fundamental in determining the arrival of buy and sell trades in the crude oil futures market. We establish our empirical results mapping the covariates into a higher-dimensional space. Consistently with the theoretical results, the estimated models are sparse in the number of parameters. Using this approach, we are also able to compare competing model hypotheses on the basis of an out-of-sample likelihood ratio type of test.

Trade price clustering in the corporate bond market

PurposeIn this paper, the authors document the existence of price clustering in the US corporate bond market.Design/methodology/approachUsing a sample of 8,422,593 corporate bond trades in 2014, the authors find that over 18% (1,522,284 trades) of all bond trades end in a clustered price, defined as a price ending in 00, 25, 50, or 75.FindingsOverall, the authors find that both bond rating category and risk, as measured by standard deviation of prices, play a role in price clustering; speculative grade bonds account for the majority of clustered prices. Clustered prices are more likely to have higher coupon rates, higher prices, and higher standard deviations of price than bonds with non-clustered prices. Regardless of size, both buy and sell dealer trades with customers (relative to interdealer trading) lead to an increase in price clustering. Dealers appear to use clustered prices when purchasing from and selling to institutions and, therefore, may use a clustered price to insulate themselves from the risk of asymmetric information. Additionally, the prevalence of clustered prices for retail-sized dealer sell trades suggests that dealers exercise dealer power over retail-sized traders.Originality/valueThis paper contributes to the literature on price clustering by examining trade price clustering of corporate bonds. It is different from previous papers on price clustering in equities. Given that bonds tend to be priced off of yield, it is unusual that trade prices cluster. It also demonstrates what kind of bonds cluster and with which customers dealers trade at clustered prices. It parallels other research in demonstrating dealer power over retail-sized traders.

What’s hidden behind bulk deals? A study on Indian stock market

Purpose Emerging market, like India, is characterised by poor institutional structure, weaker regulations and higher information asymmetry which may lead to stock price manipulation. This study shed some light on such manipulation by investigating front-running behaviour around the bulk deals of stocks traded at the National Stock Exchange (NSE) from 2010 to 2019.Design/methodology/approach The authors employ an event study methodology to identify front-running in pre-event period of bulk deals. The bulk deals are classified into Only Buy, Only Sell, Partial Buy and Partial Sell trades. They are further subsampled based on the category of investors. Through cross-sectional regression, the authors also identify factors explaining such front-running.Findings The results show that the front-runners can achieve 5%–7% returns within a week around the event day. Abnormal Returns (AR) before the deals are higher for “Buy” deals than “Sell” deals. The authors also examine the role of volume and delivery in explaining the AR and cumulative abnormal returns (CAR). Lagged CAR, change in volume and change in delivery explain the AR. The results are robust after controlling for Bullish and Bearish Periods.Originality/value To the best of authors’ knowledge, this is the first study that explores the front-running in “Partial Buy” and “Partial Sell” bulk deals. Further, it investigates whether the category of investors has any role in front running. It empirically tests the asymmetric market reaction between “Buy” and “Sell” trades. Finally, it examines the role of volume and delivery in front-running.

What Is the True Valuation Motive for Increasing Share Repurchases? An Analysis of Firm, Institutional and Short Selling Trading Behavior

This study investigates the valuation motive for increasing share repurchases: we analyze the trading dynamics between short sellers, institutional investors, and the firm itself around share repurchases. We find that firms repurchase more intensely against increased short selling and that institutional investors trade in parallel with the repurchasing firm. Results suggest that firms disagree with short sellers’ intrinsic valuation of the firm, which is consistent with findings of recent studies such as Muzere (2019) and Bargeron and Bonaime (2020).

Quasi‐Indexer Ownership and Insider Trading: Evidence from Russell Index Reconstitutions*

ABSTRACTUnderstanding the association between quasi‐indexer ownership and insider trading is important given the externalities that insider trading can impose on shareholders, the importance of quasi‐indexers in the capital markets, and their mixed monitoring incentives. The prior literature has produced an inconsistent set of results regarding this association. These results are difficult to interpret because the association between them is likely endogenous, and prior studies have not employed effective identification strategies to address this issue. In this study, we examine the effects of quasi‐indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi‐indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher quasi‐indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Our evidence on the profitability of buys is mixed. In addition, we find firms with higher quasi‐indexer ownership are more likely to have and/or more strictly enforce blackout policies. Overall, our results suggest that quasi‐indexers can reduce the agency costs associated with insider trading through their direct and indirect monitoring activities.

A Comparative Study on the Principles of Online Buying and Selling from the Perspectives of Islamic Law and Indonesian Positive Law


 
 
 The study aims to analyze the comparative perspectives between Islamic Law and Indonesian Positive Law in the practices of online buying and selling (trading). This study uses a juridical and normative approach with a specification of descriptive-analytical research. The data comes from primary law, secondary law, and tertiary law, and the researcher used a qualitative method to analyse the data. The shift and development of offline-based buying and selling (trading) practices to online practices today has required special regulation in the Indonesian Positive Law. The absence of specific rules regarding the practice of online buying and selling indicates that these activities should be subjected to the existing positive Indonesian laws. The principle of freedom of making contracts in the Civil Code (KUH Perdata) provides freedom to make any trade agreements. For the sake of legal certainty in the execution of online buying and selling, the parties must refer to the provisions of the Civil Code, the Information and Electronic Transaction Law (ITE Law), and the Consumer Protection Law (UUPK Law) that are relevant to the trading practice. In addition to these provisions, Islamic Law within the scope of mu’amalah also provides guidelines for the practice of direct buying and selling, but not online buying and selling; however, Islamic law also provides freedom in mu’amalah. The existence of these provisions makes it interesting to conduct a comparative study on the principles of online trading practices from the perspectives of Islamic law and Indonesian positive law. Islamic Law considers it legal to conduct online buying and selling if the terms and conditions of buying and selling are fulfilled, if it provides benefits and negates harm, and if it does not conflict with Al-Qur’an and Al-Hadith, and if it can be designated as al-‘adatu muhakkamah (a custom which is defined as law). According to the Indonesian positive law, in principle, online trading is legal as long as it fulfills the provisions of trading, that is the fulfillment of the terms, elements, principles, rights, and obligations of the parties regulated in the provisions of the Civil Code, Information and Electronic Transaction’s Law, and Consumer Protection Law, along with providing legal assurance and protection for the parties.
 
 
 
 Keywords: comparative study, online buying and selling, Islamic law, Indonesian positive law
 
 
 
 
 

The Impact of Margin and Short Selling on Stock Pricing Efficiency – Based on the Growth Enterprise Market and the Science and Technology Innovation Board

This paper takes the margin and short selling targets of the science and technology innovation board and the growth enterprise board of China’s stock market as the research object, and selects the sample interval from July 2019 to November 2020, Uses the unbalanced data panel model, discusses the effect of short selling and margin trading on the pricing efficiency of stock from the perspectives of the reaction speed and information content of stock information. The results show that margin trading is generally beneficial to the improvement of the pricing efficiency of the stock market; the effect of margin trading and short selling on the improvement of pricing efficiency of different stocks is different. The imbalance of power between margin trading and margin trading has a negative impact on the pricing efficiency of the stock market. The conclusion is helpful for subsequent scholars to continue to study the development level of the securities market and provide suggestions for the development direction of China’s securities market.

Performance Evaluation of Short Selling and Margin Trading

Performance Evaluation of Short Selling and Margin Trading

Insiders’ Foreknowledge of Earnings Results and Rule 10b5-1 Sales Trades

This article investigates the source of 10b5-1 plan insiders’ superior trade performance. Specifically, this article examines whether insiders trade on their private information about the firm’s future earnings performance through 10b5-1 sell trades and the features of 10b5-1 plan trades that are exploited to achieve superior trade performance. I find strong evidence that insiders use 10b5-1 plans to sell stock before disappointing earnings results. However, there is no evidence of earnings management around 10b5-1 sales, consistent with insiders’ good trade timing deriving from their foreknowledge about unfavorable earnings news rather than their ability to influence the timing and recognition of earnings performance. Restricting the sample to insiders who trade both before and after the implementation of Rule 10b5-1, I find that these insiders traded aggressively on earnings information even in the pre-10b5-1 era, but then shifted aggressive trading into 10b5-1 plans after the availability of planned trading, implying an unintended consequence of Rule 10b5-1. Finally, I document that strategic 10b5-1 trades tend to be infrequent, irregularly timed, close to the plan initiation date, and executed during traditional earnings blackout periods, revealing problematic features within 10b5-1 plans.

Investors' trading behaviour and stock market volatility during crisis periods: A dual long‐memory model for the Korean Stock Exchange

AbstractThis study examines the impact of investors’ buy and sell trades on Korean stock market volatility across two crisis events, the Asian crisis of 1997 and the 2008 global financial crash. We investigate the trading behaviour of domestic vs. foreign and institutional vs. individual investors. Our results suggest that the buy and sell trades have an asymmetric effect on volatility that depends on the type of investor trading and on the phase of the business cycle. Buy orders appear to be more informative than sell orders since they mostly lower volatility in the pre‐crisis periods, while sell and post‐crisis buy trades affect volatility positively regardless of who trades (institutional or individual investors) and on what information (member, non‐member). Most importantly, decomposing total buy and sell trades into trader‐type categories reveals that some institutional investors are more informed traders that stabilize the market compared to individuals that always increase volatility. Foreign investors reduce volatility with their purchases and total trading activity in the whole Asian crisis sample, but only in the pre‐crisis period before the recent global financial turmoil.

Do institutional investors play hide-and-sell in the IPO aftermarket?

We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutions that sell IPO shares through non‑lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket. This trading behavior is consistent with institutional investors hiding their sell trades and presumably breaking their laddering agreements with the lead underwriters. The asymmetry is the strongest in cold IPOs and is limited exclusively to the first month after the issue, when the incentives not to be detected are the strongest. We show that the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Investors' Trading Behaviour and Stock Market Volatility During Crisis Periods: A Dual Long-Memory Model for the Korean Stock Exchange

This study examines the impact of investors’ buy and sell trades on Korean stock market volatility across two crisis events, the Asian crisis of 1997 and the 2008 global financial crash. We investigate the trading behaviour of domestic vs. foreign and institutional vs. individual investors. Our results suggest that the buy and sell trades have an asymmetric effect on volatility that depends on the type of investor trading and on the phase of the business cycle. Buy orders appear to be more informative than sell orders since they mostly lower volatility in the pre-crisis periods, while sell and post-crisis buy trades affect volatility positively regardless of who trades (institutional or individual investors) and on what information (member, non-member). Most importantly, decomposing total buy and sell trades into trader-type categories reveals that some institutional investors are more informed traders that stabilize the market compared to individuals that always increase volatility. Foreign investors reduce volatility with their purchases and total trading activity in the whole Asian crisis sample, but only in the pre-crisis period before the recent global financial turmoil.

Institutional Ownership and Insider Trading: Quasi-Experimental Evidence

Understanding the association between quasi-indexer ownership and insider trading is important given the externalities that insider trading can impose on shareholders, the importance of quasi-indexers in the capital markets, and their mixed monitoring incentives. The prior literature has produced an inconsistent set of results regarding this association. These results are difficult to interpret because the association between them is likely endogenous, and prior studies have not employed effective identification strategies to address this issue. In this study, we examine the effects of quasi-indexer institutional ownership on insider trading using the plausibly exogenous discontinuity in quasi-indexer ownership around the Russell 1000/2000 index cutoff. Using both regression discontinuity and instrumental variable research designs, we find higher quasi-indexer ownership leads to less insider trading (both buys and sells) and less profitable sell trades. The effects for sells are concentrated among insider trades that, ex ante, are more likely to be based on private information. Our evidence on the profitability of buys is mixed. In addition, we find firms with higher quasi-indexer ownership are more likely to have and/or more strictly enforce blackout policies. Overall, our results suggest that quasi-indexers can reduce the agency costs associated with insider trading through their direct and indirect monitoring activities.

Return, Volatility and Equity Fund Flows Linkages: Evidence from an Emerging Market

This study examines the dynamic linkages among market return, market volatility, and equity fund flows of institutional and retail investors both foreign and local into Malaysian Stock Exchange, Bursa Malaysia. Using a total of 1661 daily observations of aggregate trade data for a period from 1st October 2009 to 30th June 2016, this study finds that market return has an effect on buy trades of local investors, sell trades of foreign institutions and local retailer as well as net flows of foreign institutions and retailers. On the equity flows-market return relation, the finding shows that the buy trades of foreign retail investors, net flows of foreign institutions and foreign retailers affect market return. This study also provide evidence that market volatility is significantly impact foreign institutional investors buy trades as well as local retailer net flows of equity. Furthermore, this study reveal that there are insignificant results for the equity flows-market volatility relation. The findings of this study is crucial and will benefit most to portfolio fund managers, traders, foreign and local investors dealing with Bursa Malaysia.

Do Institutional Investors Play Hide-and-Sell in the IPO Aftermarket?

We document a robust buy/sell asymmetry in the choice of the broker in the IPO aftermarket: institutional investors are less likely to sell than buy through the lead underwriters. Consistent with investors hiding their sell trades, the asymmetry is the strongest in cold IPOs and it is limited exclusively to the first month after the issue. Contrary to the conventional view, the intention to flip IPO allocations is not an important motive for hiding sell trades from the lead underwriters; institutions that sell shares through non-lead brokers tend to have bought them through the lead underwriters in the IPO aftermarket, consistent with institutions breaking their laddering agreements. We find that hiding sell trades is an effective strategy to circumvent underwriters' monitoring mechanisms: the more institutions hide their sell trades, the less they are penalized in subsequent IPO allocations.

Insider-trading, discretionary accruals and information asymmetry

Using US data for the period from 2004 to 2012 and alternative discretionary accruals measures, we examine whether insiders manipulate earnings in an asymmetric information environment to profit from their informed trades, and whether the intervening information environment influences the relationship between earnings management and insider trading. We show that insider trading dominated by sell trades has a positive association with discretionary accruals. The incremental effect of information asymmetry as well as the interaction with insider trading is also prevalent in this relation, confirming the moderating effect of asymmetric information. Further, we show that the active involvement of some key insiders in high discretionary accruals is for personal benefit more in growth firms than in value firms. Our results also suggest that earnings management allows for insiders’ opportunistic, rather than routine, buy and sell trades. Our findings highlight that regulators should oversee and scrutinise both insider trading and earnings management to mitigate the risk of the opportunistic behaviour of insiders to avoid future corporate scandals.

Are investors consistent in their trading strategies? An examination of individual investor-level data

While it has been demonstrated that momentum or contrarian trading strategies can be profitable in a range of institutional settings, less evidence is available concerning the actual trading strategies investors adopt. Standard definitions of momentum or contrarian trading strategies imply that a given investor applies the same strategy to both their buy and sell trades, which need not be the case. Using investor-level, transaction-based data from China, where tax effects are neutral, we examine investors' buy-sell decisions separately to investigate how past returns impact differentially on the trading strategies investors adopt when buying and selling stock. After controlling for a wide range of stock characteristics, extreme price changes and portfolio value, a clear asymmetry in trading is observed; with investors displaying momentum behavior when buying stocks, but contrarian behavior when selling stocks. This asymmetry in behavior is not driven purely by reactions to stock characteristics or extreme stocks. We discuss behavioral and cultural explanations for our findings.

ESTIMATION FOR THE PREDICTION OF POINT PROCESSES WITH MANY COVARIATES

Estimation of the intensity of a point process is considered within a nonparametric framework. The intensity measure is unknown and depends on covariates, possibly many more than the observed number of jumps. Only a single trajectory of the counting process is observed. Interest lies in estimating the intensity conditional on the covariates. The impact of the covariates is modelled by an additive model where each component can be written as a linear combination of possibly unknown functions. The focus is on prediction as opposed to variable screening. Conditions are imposed on the coefficients of this linear combination in order to control the estimation error. The rates of convergence are optimal when the number of active covariates is large. As an application, the intensity of the buy and sell trades of the New Zealand Dollar futures is estimated and a test for forecast evaluation is presented. A simulation is included to provide some finite sample intuition on the model and asymptotic properties.

Stock Market Liquidity and Trading Activity in China

We study marketwide liquidity and trading activity in China. Trading activity increases in up markets more than in down markets, which is consistent with the disposition effect and the large number of unsophisticated retail investors in China. Whereas, on average, liquidity and trading activity are lower around holidays, in more recent times, trading activity has been significantly lower before holidays and higher afterward. Aggregate short selling and margin trading activity boost trading activity, but short selling also increases spreads, indicating lower liquidity. We also document the increased influence of global factors in China.