Trading Hypothesis Research Articles

Spillover effects of MSCI inclusion announcement: Evidence and implications from China

We investigate the price reactions of stocks that would not be included in the MSCI global indices to the MSCI inclusion announcement. We document a positive revaluation effect for connected stocks, but not for unconnected stocks. Based on the institutional background and existing theories, we propose three non-competing hypotheses: the signaling hypothesis, the speculative trading hypothesis, and the market integration hypothesis. With a series of tests, we demonstrate that the market integration hypothesis can explain this phenomenon. Specifically, the price revaluations of connected stocks are proportional to firm-specific conditional market risk, and this relationship is stronger in firms with high transparency and liquidity and is dampened by the existence of B- or H-shares. Our paper provides new evidence and insights into the impact of global index inclusion on asset prices and the degree of market integration.

The forward premium anomaly and the currency carry trade hypothesis

In this paper, we examine whether the currency carry trade hypothesis can consistently explain the forward premium bias (anomaly) across different regimes of interest rates differentials. To investigate this, we consider a nonlinear extension of the forward premium regression allowing for interest rates differentials threshold effects. Using the US dollar as home currency, we provide clear-cut evidence that the currency carry trade hypothesis can offer an explanation of the forward premium anomaly only when interest rates differentials are positive. When they are negative, or close to zero, the hypothesis fails to explain the forward premium anomaly. We show that the negative interest rates differentials regime covers periods of financial crises and distressed market conditions which may lead investors to seek safe-haven currencies and thus, adopt anti-carry trade strategies.

Price clustering and the panic trading hypothesis: evidence from an African coup d'état

Price clustering and the panic trading hypothesis: evidence from an African coup d'état

Price clustering and the panic trading hypothesis: evidence from an African coup d'état

Price clustering and the panic trading hypothesis: evidence from an African coup d'état

PRICE CLUSTERING BEHAVIOR IN VIRTUAL REAL ESTATE MARKETS

We analyze 21,209 intraday transactions in the virtual real estate market and document significant price clustering at round numbers 0, 00, and 000 as ending digits, consistent with the negotiation hypothesis. The clustering increases with price level and pricing uncertainty proxied by the number of buyers and sellers in the NFT market. Moreover, market venue influences price clustering dynamics. Digits 9, 99, and 999 as ending prices are overrepresented in the sample, consistent with the left digit effects. However, we do not find support for the psychologically feeling right hypothesis or the strategic trading hypothesis.

Gender and Mutual Fund Liquidity

AbstractWe examine whether US mutual funds managed by females have a higher portfolio liquidity than those of their male counterparts. Single female managers’ holdings are 8–25% more liquid than those of single‐male‐managed funds. When there is a transition from a male to a female manager, fund holdings liquidity increases compared with a male to male transition. The findings are consistent with the risk‐averse and conservative decision‐making behaviour of female managers. We do not find evidence to support the excessive trading hypothesis that predicts a higher portfolio liquidity for overconfident male fund managers. Our findings add to growing evidence that gender affects professionals’ investment choices.

Equity closed‐end fund discounts and taxes

AbstractAfter documenting CRSP errors in classifying the tax status of distributions, we make use of two important institutional features that the related literature has ignored: (i) tax rate changes and (ii) non‐taxable distributions. We find that taxable distributions lead to discount reductions, and the reduction is greater during high tax periods than during low tax periods. By contrast, non‐taxable distributions have no discernible impact on the discount, consistent with a tax‐based explanation. Importantly, we are able to rule out a competing short‐term trading hypothesis. Taken together, our results highlight the importance of personal taxes in explaining closed‐end fund discounts.

Analytical properties of Hasbrouck and generalized information shares

This paper discusses analytical properties of Hasbrouck information share (HIS) and generalized information share (GIS). We reject the conventional designation of lower and upper bounds for HIS. Moreover, we show the difference between the GIS across the two markets is larger than the corresponding difference between the average HIS. Thus, the dominance-satellite relationship is more prominent when using GIS to measure the role of price discovery. Using the data of dual-class shares of Berkshire Hathaway Inc., we find approximately 74.34% of the price discovery occurs in the B-shares market, which is consistent with the stealth trading hypothesis.

Exchange-Traded Funds Ownership and Stock Volatility

This study investigates whether exchange-traded funds (ETFs) increase the nonfundamental volatility of stocks in their baskets via the arbitrage channel. Since the price and the net asset value of the ETF underlying stocks are tied by arbitrage, liquidity shocks to the ETFs may propagate to the underlying stocks through arbitrage trading, which is called the liquidity trading hypothesis. We test the implications of this hypothesis using a sample of ETFs that track the KOSPI200 index. We address the potential endogenous relationship between ETF ownership and stock volatility using the KOSPI200 index reconstitution event as an instrumental variable in the two-stage least squares regression framework; we find the effect of ETF ownership on stock volatility is positive and significant. We also provide empirical evidence that foreign and domestic institutional investors exhibit more frequent trading in the opposite direction and higher-order imbalances for stocks with higher ETF ownership. In summary, our findings suggest that the growth of the ETFs in the Korean stock market may have had an unintended consequence of the higher volatility of ETFunderlying stocks.

Industry investor sentiment in the global shipping industry

ABSTRACT This article investigates the influence of industry investor sentiment on excess stock returns of matched, global listed shipping and non-shipping firms. We document a weak insignificant association of industry investor sentiment on excess stock returns for shipping firms and a strong significant positive association for non-shipping peers. These results are mimicked by the trading behavior of both groups. As shipping is not a frequently traded asset with a concentrated, predominantly professional ownership, arbitrageurs limit the influence of noise traders and are the major driver in the formation of stock prices. On the contrary, the noise trader hypothesis holds for non-shipping peers due to a relatively dispersed ownership of non-shipping peers.

Does Energy Demand Security Affect International Competitiveness? Case of Selected Energy-Exporting OECD Countries

International competitiveness and energy security are important topics on the energy policy agenda of energy-exporting and -importing nations. High dependence on energy rents challenges exporters’ economies and influences their ability to compete on international markets. The goal of this study is to investigate how energy demand security affects the international competitiveness of developed energy exporters. This research employs an econometric approach aimed at modeling the Heckscher–Ohlin and Ricardo international trade hypotheses. Introduced modifications allow for the measurement of international competitiveness on a country level, not per industry, and includes a series of energy variables in addition to relative resource endowment and productivity differentials. This study (based on Norway, the Netherlands, Canada and the USA over the period of 1997–2017) proves that energy security does not play a role in the shaping of international competitiveness of high-income energy-exporting countries.

ROLE OF SOCIAL MARKETING IN COMMUNICATION FOR DEVELOPMENT

The knowledge base of behavior modification methods that are appropriate and successful for public health interventions has outrun the growth of community-based health education efforts. However, data from several large-scale studies suggest that social marketing ideas and practices could be able to assist bridge the divide. The idea is that the two C4D paradigms (persuasive and participative) are complementary rather than mutually exclusive. The use of a shopper direction to create and promote intercession procedures, trade hypothesis as a model from which to conceptualize administration conveyance and program investment, crowd investigation and division techniques, the use of developmental exploration in program planning and pretesting of mediation materials, and channel examination for conceiving dispersion frameworks are all covered in this article. Paying attention to such elements may result in more cost-effective programs that reach a larger audience. This research focuses on the theoretical evaluation of the role of social media. Paying attention to these elements may result in more cost-effective programs that reach a larger audience. This work examined the importance of social marketing in communication for development and social change theoretically. A two-dimensional grid for Development and Social Change is offered based on the Communication Mode and Object of Change. It includes social marketing and other persuasive and participative communication tactics. As a result, the research supports Convergent Communication for Development.

Tick Size and Informed Trading: Evidence from the Taiwanese Stock Market

We adopt the Sandås model for order-book equilibrium to examine informed trading on the Taiwanese stock market, a purely order-driven call-auction market. We find that adverse-selection cost is low for well-known stocks with high liquidity and low volatility, but cost is high for monitoring the order books of those stocks. Our empirical results show that the impact of adverse selection is greatest at the beginning of each trading day and that informed traders engage in stealth trading, supporting the stealth trading hypothesis. Finally, with the special tick size rules on the market, both adverse-selection cost and monitoring cost decline as tick size decreases.

Courting innovation: The effects of litigation risk on corporate innovation

In this study, we examine the impact of class action litigation shocks on corporate innovation. Our experimental design is based on an unanticipated court ruling that reduces the risk of shareholder class action lawsuits for firms located within the jurisdiction of the US Ninth Circuit. Innovation output by firms headquartered in this area increased significantly after this decision compared with that of firms elsewhere. This result is consistent with our trading hypothesis, which states that the threat of litigation leads to managerial myopia. The increase in innovation is more pronounced at high-tech firms and firms operating in a competitive environment. Other measures of ex ante litigation risk indicate that firms with the greatest litigation risk experience the greatest increase in innovation after this decision. We conclude that a reduction in the threat of class action litigation leads firms to increase innovation.

The Impact of Serious Safety Incidents on Airline Stocks

The impact of commercial airplane crashes on the shareholder wealth of US-listed airline stocks has been the focus of many prior studies, but none have explored the concomitant impact on trading volume. We expand the scope of prior studies to include near crashes. We examine 262 ‘incidents’ from 1962 to 2018 (220 with return evidence) and document a significant (negative) wealth impact for crashes with fatalities and casualties, and an insignificant impact for incidents with no casualties. We find that log-transformed trading volume spikes upward in the three-day crash-period window and that trading volume remains abnormally high in the three plus weeks that follow the crash when casualties occur. We interpret the high level of post-event trading to be consistent with a noise trader hypothesis: naïve trading hoping to take advantage of airline stock over-reaction – which we do not detect.

THE DYNAMICS OF SHORT-TERM ETF FLOWS AND RETURNS BEFORE AND DURING COVID-19 PANDEMIC

Abstract: This paper investigates the relationships between flows and returns for Beta ETF WIG20TR and WIG20 index before and during covid crisis . Four alternative hypotheses are tested, including the price pressure hypothesis, information hypothesis, feedback trading hypothesis, and smoothing hypothesis. A Vector Autoregressive (VAR) model is used to analyze the relationships between each flows and returns. The sample periods were from 7 January 2019 to 31 August 2020, with having 407 observations. Sub-sample during covid crisis is since 12 March 2020 to 31 August 2020. This paper will also shows what is influenced by the hypotheses from the investor's point of view and what it means in practice. ETF can more easily spread risk for investors. The COVID-19 pandemic has resulted in panics as well as the temporary closure of businesses in most economies. The COVID-19 pandemic has brought the most challenging social and economic crisis the world has faced since World War Two.

Stock volatility and trading

Both, rational and behavioral models predict that stock and market volatility affect trading by investors. Tax-induced trading hypothesis predicts that investors increase realization of capital losses short term and capital gains only long term as volatility increases. Behavioral models predict that disposition biases of holding on to losers and disposing of winners intensifies with volatility. We document that market and stock volatility influence stock trading. Evidence on trading in response to rise in market volatility supports tax-loss harvesting hypothesis – abnormal trading of losers increases and winners decreases. However, evidence on trading patterns conditional on individual stock volatility is in support of both tax-loss-harvesting and behavioral models: trading in both losing stocks (tax-loss-harvesting hypothesis) and winning stocks (disposition effect hypothesis) increases with rise in stock volatility.

Did Real Estate Professionals Anticipate the 2007-2008 Financial Crisis? Evidence from Insider Trading in the REITs

This research examines whether real estate professionals detected the property bubble and foresaw the consequent financial crisis of 2007-2008. By analysing the insider trading activities within REITs from 1996 to 2010, we find that REIT insiders reduced their holdings significantly during the real estate boom period as early as 2004, before the financial crisis. Difference-in-difference analysis reveals that REIT insiders cashed out their positions more aggressively than insiders in real estate and construction firms. The findings support the informed trader hypothesis that managers and employees in REITs anticipated the burst of the real estate bubble and the imminent financial crisis, and shifted their wealth away from the real estate market to avoid potential losses. We find no evidence to support the biased belief hypothesis (Cheng et al., 2014) that REIT insiders were over-optimistic during the real estate boom period or that their inside trading behaviour was affected by local market performance.

Information aggregation in Arrow-Debreu markets: An experiment

Studies of experimental and betting markets have shown that markets are able to efficiently aggregate information dispersed over many traders. We study information aggregation in Arrow–Debreu markets using a novel information structure. Compared to previous studies, the information structure is more complex, allows for heterogeneity in information among traders—which provides insights into the way in which information is gradually disseminated in the market—and generates situations in which all traders hold identical beliefs over the traded assets’ values, thus providing a harsh stress test for belief updating. We find little evidence for information aggregation and dissemination in early rounds. Nonetheless, after traders gain experience with the market mechanism and structure, prices converge to reveal the true state of the world. Elicited post-market beliefs reveal that markets are able to efficiently aggregate dispersed information even if individual traders remain uninformed, consistent with the marginal trader hypothesis. (This abstract was borrowed from another version of this item.)

Order Flows, Investor Sentiments and Feedback Trade in Index Futures Market

This paper examines the presence of feedback trading, and investor sentiment drove feedback trading by traders in the Nifty 50 index futures contract in India. The results of the study using high-frequency data sampled at 10 min interval using VAR and contemporaneous VAR model as applied to market microstructure settings reveals negative evidence of feedback trade and investor sentiment-driven feedback trade in Nifty 50 futures contract. Further, consistency with noise trading hypothesis, order flows in Nifty 50 futures contract is less informative when traders are overly optimistic.