tests for price effects of new issues of seasoned securities do new issues of seasoned securities cause significant price movements in the neighborhood of the issue day this paper presents an empirical comparison of three competing hypotheses the sec view that a new issue causes a permanent price decline the underwriter view that there is only a temporary price decline during the distribution period and the efficient market hypothesis emh that implies the absence of any price effects several empirical tests of the competing hypotheses using data on new issues of utility stocks traded on the nyse reject the sec and underwriter views in favor of the emh

demand curves for stocks do slope down new evidence from an index weights adjustment weights in the toronto stock exchange 300 index are determined by the market values of the included stocks public floats in november 1996 the exchange implemented a previously announced revision of its definition of the public float this revision which increased the floats and the index weights of 31 stocks conveyed no information and had no effect on the legal duties of shareholders affected stocks experienced statistically significant excess returns of 2 3 percent during the event week and no price reversal occurred as trading volume returned to normal levels these findings support downward sloping demand curves for stocks an obvious event with which to examine the slope of demand curves for stocks is one that changes supply in the absence of new information a shift in supply should not affect stock prices if demand curves for stocks are flat scholes 1972 using a sample of secondary equity distributions asks whether stocks are unique works of art or merely abstract claims to residual cash flows with many close substitutes as is assumed in much of finance theory scholes finds that the negative price impact of secondary offerings depends on the seller s identity implying the revelation of unfavorable informationand rules out a pure supply effect mikkelson and partch 1985 also using a sample of registered and unregistered secondary offerings find weak evidence of downward sloping demand curves but are unable to cleanly distinguish this explanation from the alternative explanation based on unfavorable information a different class of events additions to widely followed stock market indexes ostensibly provides a setting where information effects should not be present shleifer 1986 documents a permanent price increase for stocks

is bitcoin really untethered this paper investigates whether tether a digital currency pegged to the u s dollar influenced bitcoin and other cryptocurrency prices during the 2017 boom using algorithms to analyze blockchain data we find that purchases with tether are timed following market downturns and result in sizable increases in bitcoin prices the flow is attributable to one entity clusters below round prices induces asymmetric autocorrelations in bitcoin and suggests insufficient tether reserves before month ends rather than demand from cash investors these patterns are most consistent with the supply based hypothesis of unbacked digital money inflating cryptocurrency prices

asset prices and institutional investors empirical evidence indicates that trades by institutional investors have sizable effects on asset prices generating phenomena such as index effects asset class effects and others it is difficult to explain such phenomena within standard representative agent asset pricing models in this paper we consider an economy populated by institutional investors alongside standard retail investors institutions care about their performance relative to a certain index our framework is tractable admitting exact closed form expressions and produces the following analytical results we find that institutions optimally tilt their portfolios towards stocks that comprise their benchmark index the resulting price pressure boosts index stocks while leaving nonindex stocks unaffected by demanding a higher fraction of risky stocks than retail investors institutions amplify the index stock volatilities and aggregate stock market volatility and give rise to countercyclical sharpe ratios trades by institutions induce excess correlations among stocks that belong to their benchmark index generating an asset class effect institutions finance their additional purchases of index stocks by taking on leverage a policy prescription that calls for a reduction in leverage while reducing the riskiness of institutional portfolios would also reduce the ability of institutions to tilt their portfolios towards index stocks depressing the index level

do stock investors value corporate sustainability evidence from an event study this paper analyzes the impacts of index inclusions and exclusions on corporate sustainable firms by studying a sample of us stocks that are added to or deleted from the dow jones sustainability world index over the period 2002 2008 the impacts are measured in terms of stock return risk and liquidity we cannot find any strong evidence that announcement per se has any significant impact on stock return and risk however on the day of change index inclusion exclusion stocks experience a significant but temporary increase decrease in stock return liquidity deteriorates after the announcement day and bounces back significantly near the day of change systematic risk shows little change after announce ments but idiosyncratic risk is higher after announcements the overall results support harris and eitan s the journal of finance41 4 815 829 1986 price pressure hypothesis which posits that event announcement does not carry information and any shift in demand and hence the corresponding price change and liquidity change is temporary

information costs and liquidity effects from changes in the dow jones industrial average list we examine the stock market effect of changes in the composition of the dow jones industrial average djia unlike s p 500 listing studies we find that the price and the trading volume of newly listed djia firms are unaffected we attribute this result to a lack of index fund rebalancing since index trading is limited for most of our sample period and index funds mimic the s p 500 not the djia firms removed from the index however experience significant price declines we consider information signaling price pressure imperfect substitutes and information cost liquidity explanations for these asymmetric findings the evidence is consistent with the information cost liquidity explanation which holds that investors demand a premium for higher trading costs and for holding securities that have relatively less available information

flows price pressure and hedge fund returns the authors studied how capital flows affect hedge fund returns and found that funds with high inflows outperform funds with high outflows during the month of the flows this immediate reaction combined with feedback trading gives rise to a cycle flows exert price pressure this effect on returns induces more flows and these flows cause further price pressure the cycle is so strong that it takes two years for a full return reversal and it contributes to the observed persistence in hedge fund performance the impact of flows on returns has clear implications for performance evaluation one third of estimated hedge fund alphas are due to flows

errors in recorded security prices and the turn of the year effect errors in recorded security prices are a source of misspecification in the market model if recorded price errors are sufficiently nonrandom they result in biased returns and in biased and inconsistent estimates of market model regression coefficients this paper argues that tax induced flow supply pressures cause end of the year recorded price errors to be nonrandom enough to create the appearance of anomalous turn of the year stock return behavior empirical tests of returns and market model regression coefficients during the turn of the year period cannot reject this errors in variables explanation of the turn ofthe year effect the turn of the year toy effect or january effect refers to the anomal ous behavior of stock returns during the last five trading days in december and the first five trading days in january this anomaly is of particular interest to financial researchers because it appears to be a small firm effect and the source of the majority of size related anomalies see keim 1985 reinganum 1981 and roll 1983a 1983b the interest in the toy effect is justified because of its implications concerning the validity of the capital asset pricing model capm and market efficiency in this paper we show that there is a price related effect operating during the toy period first we show that the magnitude of the toy return is inversely related to price when we control for price most of the size related toy effect found by reinganum 1983 and roll 1983a disappears second the data indicate that all firms have unusually high returns during the toy period compared with their returns during the rest of the year third we find seasonal shifts in the market model betas associated with the toy period furthermore we test the hypothesis that the toy effect is an errors in variables problem due to the use of the one eighth pricing convention in recording security prices and the accommodation of tax induced flow pressures by liquidity traders such as market

the value of active investing can active institutional investors remove excess comovement of stock returns this study uses cremers and petajisto s 2009 method to separate active institutional investors from passive ones and shows that active investors can alleviate the anomalous comovement of stock returns focusing on 2 events linked to the excess comovement anomaly standard poor s 500 index additions and stock splits i find that if an event stock has more active institutional investors trading in the post event period the anomalous comovement effect disappears in contrast if an event stock experiences a massive exit of active investors this anomaly persists the exit of active institutional investors also results in a strong price synchronicity effect

the effect of transaction size on off the run treasury prices this paper examines intra day trading data from the inter dealer broker market for u s treasury securities and measures the degree of price pressure in the off the run treasury market as is well known securities that would appear to be very close substitutes i e on the run and off the run treasury bonds behave as if there is some degree of market segmentation this is the first systematic study of the off the run treasury note and bond market focused entirely on a price pressure effect using intra day data the paper analyzes price pressure through matched pairs of securities that differ only in liquidity

market risk and asset prices abstract this paper examines the implications for the properties of asset prices of stochastic shifts in market demand which are not attributable to news about asset fundamentals this introduces an additional component of uncertainty into asset price movements and alters the trading motives of agents market risk is shown to contribute to the risk premium on assets and exacerbates asset price volatility

discussion of anomalous stock returns around internet firms earnings announcements abstract trueman wong and zhang twz investigate an apparent anomaly in the pricing of internet firms around their earnings announcements which they attribute to price pressure the discussion addresses three concerns the paper is unusual in choosing an event earnings announcements that does not appear to have an obvious non information related reason for triggering unjustified changes in demand for the firm s shares relatedly there are limitations to the tests made of the price pressure hypothesis finally the discussion elaborates on twz s brief mention of the difficulties with implementing a profitable trading strategy based on the stock return pattern they document

intradaily price volume adjustments of nyse stocks to unexpected earnings the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price volume transactions data a differential price adjustment process was observed with stocks having large positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises volume transaction frequency and size were found to be directly related to the absolute degree of surprise but very favorable earnings surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade the stock market s microstructure has received increasing attention from researchers especially from an empirical perspective as transaction data on prices and volume have become more readily available 1 an important subset of this research has been the study of stock price adjustments to significant news events specifically publicly announced information with economic content should be quickly reflected in prices in an unbiased manner this paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes trading volume and transaction frequency and size we examine the transaction to transaction and time series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements the degree of surprise is measured by a comparison of actual with forecasted earnings for 325 new york stock exchange nyse firms these firms are subdivided into five earnings surprise categories in order to determine whether the speed and path of their price volume adjustment processes are different one question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different another is whether any adjustment is distinguished by a few large trades or a large number of smaller

regression discontinuity and the price effects of stock market indexing the russell 1000 and 2000 stock indexes comprise the first 1000 and next 2000 largest firms ranked by market capitalization small changes in the capitalizations of firms ranked near 1000 move them between these indexes because the indexes are value weighted more money tracks the largest stocks in the russell 2000 than the smallest in the russell 1000 using this discontinuity we find that additions to the russell 2000 result in price increases and deletions result in price declines we then identify time trends in indexing effects and the types of funds that provide liquidity to indexers

the price effect of option introduction this paper examines the price effect of option introduction from 1974 to 1980 the introduction of individual options causes a permanent price increase in the underlying security beginning approximately three days before introduction the price effect appears to be associated with introduction and not announcement throughout the sample period excess returns volatility declines with option introduction systematic risk is unchanged there is a positive relation between the price increase and a measure of activity in the options market copyright 1989 by american finance association

stock reaction to dividend savings of convertible preferred calls free cash flow or price pressure effects abstract calls of in the money convertible preferred stock typically induce dividend savings for the firm since preferred dividends exceed common stock dividends prior research finds that these savings are negatively related to stock returns at call announcement and argues that the market expects managers to abuse the increased free cash flow this paper finds that dividend savings are closely related to call size suggesting other explanations larger calls experience a more negative announcement reaction consistent with temporary liquidity effects there is a price reversal during the conversion period which is greater for larger calls

beating the equity benchmarks one of investment management s leading cottage industries is the creation maintenance and advocacy of portfolio benchmark indexes whether an investment manager specializes in equity fixed income currencies commodity futures or real estate he knows his performance will be compared with the performance of a benchmark index the dominant benchmark for u s equity portfolios is the standard poor s 500 with the s p

the nestle crash on november 17 1988 the board of directors of nestle ag decided to allow foreign investors to hold nestle registered stock reversing a longstanding practice this decision had a tremendous impact on the prices of the firm s three classes of common stock as well as on the prices of several other corporations traded on the zurich stock exchange these price changes can be explained by the hypothesis that demand curves slope down

signaling sustainability leadership empirical evidence of the value of djsi membership we explore the relationship between corporate sustainability reputation and firm value by asking whether signaling sustainability leadership through membership on a recognized sustainability index is value generating increasingly stakeholders are demanding that firms demonstrate their commitment to sustainability one signal that companies can send to stakeholders to indicate that they are sustainability leaders is membership on a recognized best in class sustainability index this article explores both the short term and the intermediary impact on north american firms of being included or removed from the dow jones sustainability world index djsi our results provide evidence that being added to the djsi results in a sustained increase in a firm s share price suggesting that the benefits of being included on the djsi outweigh the costs associated with applying this article also notes a temporary decrease in the value of firms for the first 10 days after their removal from the djsi however this effect is eliminated within the next ten trading days

an anatomy of the s p game the effects of changing the rules this study analyzes the effects of changes in s p 500 index composition from january 1986 through june 1994 a period during which standard and poor s began its practice of preannouncing changes five days beforehand the new announcement practice has given rise to the s p game and has altered the way stock prices react we find that prices increase abnormally from the close on the announcement day to the close on the effective day the overall increase is greater than under the old announcement policy although part of the increase reverses after the stock is included in the index the s p game is based upon the perceived price reaction of a stock to news that it will be added to the s p 500 the game involves buying the shares of the stock ahead of s p 500 funds and then selling after index fund demand is satisfied the opportunity to play the s p game arose in october 1989 when standard and poor s p began its practice of preannouncing changes to the s p 500 before that time s p announced the change in composition after the close of trading with the change becoming effective by the following morning s open with no lead time index funds bought the shares of the newly included stock on the day following the announcement the buying pressure caused prices to rise for additions during the period 1976 through 1983 for example shleifer 1986 found an abnormal price increase of 2 79 percent on the day following the announcement using roughly the same sample period harris and gurel 1986 reported a 3 13 percent average increase

stock and option market divergence in the presence of noisy information we examine market behavior of the stock and option markets upon the arrival of noisy information in the form of cnbc s mad money recommendations if stock and option markets are not equally efficient they should respond differently to noisy information with the less efficient market more susceptible to noise we find that the stock market is less efficient than the option market the abnormal difference between option implied and actual stock returns is negative and significant upon exposure to noisy information this difference may yield an economically significant monthly trading profit of up to 5 we conclude that the stock market is more susceptible to noisy information than the option market and is therefore less efficient published by elsevier b v

new evidence on stock price effects associated with changes in the s p 500 index since october 1989 standard and poor s has when possible announced changes in the composition of the s p 500 index one week in advance because index funds hold s p 500 stocks to minimize tracking error index composition changes since this date provide an opportunity to examine the market reaction to an anticipated change in the demand for a stock using post october 1989 data the authors document significantly positive negative postannouncement abnormal returns that are only partially reversed following additions deletions these results indicate the existence of temporary price pressing and downward sloping long run demand curves for stocks and represent a violation of market efficiency copyright 1997 by university of chicago press

market microstructure and securities values evidence from the tel aviv stock exchange abstract this paper examines the value effects of improvements in the trading mechanism selected stocks on the tel aviv stock exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions this event was associated with a positive and permanent price appreciation the cumulative average market adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5 5 in addition we find positive liquidity externalities spillovers across related stocks and improvements in the value discovery process due to the improved trading method finally there was a positive association between liquidity gains and price appreciation

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

global standards and ethical stock indexes the case of the dow jones sustainability stoxx index the increased scrutiny of investors regarding the non financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of holding the market against the cost of having positions in companies that are subsequently found to have questionable business practices the availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a socially responsible investment sri benchmark at relatively low cost the increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds this article examines whether these incentives have been so far detectable with particular reference to the dow jones sustainability stoxx index djssi that focuses on the european corporations with the highest csr scores among those included in the dow jones stoxx 600 index the aim of the article is twofold first we analyse the performance of the djssi over the period 2001 2006 compared to that of the surrogate complementary index sci a new benchmark that includes only the components of the dj stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances second we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion deletion in the djssi in both cases the results suggest that the evaluation of the csr performance of a firm is a significant criterion for asset allocation activities

the only game in town stock price consequences of local bias abstract theory suggests that in the presence of local bias the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region using data on u s states and census regions we find clear cut support for this proposition most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita regions with low population density e g the deep south are home to relatively few firms per capita which leads to higher stock prices via an only game in town effect

high stock returns before holidays existence and evidence on possible causes on the trading day prior to holidays stocks advance with disproportionate frequency and show high mean returns averaging nine to fourteen times the mean return for the remaining days of the year over one third of the total return accruing to the market portfolio over the 1963 1982 period was earned on the eight trading days which each year fall before holiday market closings examination of hourly pre holiday stock returns reveals high returns throughout the day pre holiday stock returns in the post test 1983 1986 period are also examined this paper explores a seeming empirical regularity in the pattern of daily stock index returns surrounding holidays the trading day prior to holidays on average exhibits high positive returns over one third of the return earned by the market over the twenty year test period accrued on the eight trading days which annually fall before holidays intimations of the pre holiday strength have appeared in the academic literature in an examination of the frequency of dow jones industrial average advances on days surrounding weekends during the 1901 to 1932 period fields 1934 finds a disproportionate frequency of advances on trading days preceding long holiday weekends roll 1983a finds high returns accruing to small firms on the trading day prior to new year s day lakonishok and smidt 1984 note that prices also rise in all deciles of market capitalization on the last trading day before christmas and conclude that the high christmas returns of large companies might be considered another mystery a number of stock market advisors have also noted the pre holiday strength merrill 1966 finds a disproportionate frequency of dow jones industrial average advances on days preceding holidays during the 1897 to 1965 period and fosback 1976 has noted high preholiday returns in sp further hourly returns and closing bid ask data are examined to determine when high returns accrue on preholidays tests are also conducted showing that pre holiday strength is not

demand curves for stocks do not slope down evidence using an exogenous supply shock we analyze the price impact of an exogenous share sale of inside blockholders who were forced to sell a part of their shareholdings following a regulatory change in india the affected firms experience a negative excess return of 4 3 during the issue week crucially the price impact reverses within around 16 days of the event our results are consistent with the view that long term demand curves for stocks are flat this view is echoed in classical finance theories the short term price reaction to a sale is probably due to temporary price pressure

changes in the standard and poor s 500 list l harris and e gurel 1986 and a shleifer 1986 examined changes in the standard and poor s list both studies presented evidence inconsistent with efficient markets looking at newer data and at bond and option prices the authors find that case against market efficiency is not compelling copyright 1991 by university of chicago press

capital mobility and asset pricing we present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each investment in that market with the greatest amount of capital earns the lowest risk premium intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return the bargaining power of an investor depends on potential access to alternative intermediaries in equilibrium the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets and can be reduced by competition among intermediaries

elasticity of substitution and the perverse export supply response abstract this paper re examines the possibility of perverse export supply response in the south in a 2 2 2 trade model we find that such perverse response is impossible if the elasticity of substitution in the production of the basic good in the south is greater than or equal to unity

institutional ownership and changes in the s p 500 several recent articles have provided new evidence for the existence of price pressures by examining the price and volume effects associated with changes in the s p 500 the present study extends this work by examining actual changes in institutional holdings following both additions to and deletions from the s p 500 the results show that changes in institutional holdings in response to additions or deletions from the s p 500 are positively correlated in addition to providing further evidence for the existence of price pressure effects the results also provide evidence of the very large institutional elasticities of demand for stock in two recent articles in this journal shleifer 1986 and harris and gurel 1986 present important new evidence of the existence of price pressures by examining the price and volume effects associated with changes in the composition of the standard and poor s s p 500 market index specifically these authors interpret the strong increases in trading volume and economically and statistically significant increases decreases in share prices on the first trading day following additions to or deletions from the s p 500 as the result of increased decreased demand by institutional index funds rather than from information effects concerning the future return distributions of the newly listed delisted firms the results of similar price and volume studies conducted by woolridge and ghosh 1986 and lamoureux and wansley 1987 are also generally consistent with the predictions of the price pressure hypothesis while both schleifer 1986 and harris and gurel 1986 suggest that changes in institutional index fund holdings are responsible for the observed abnormal returns in response to s p 500 changes over the years between 1966 and 1983 their joint failure to examine actual institutional ownership changes following listing or delisting from the index does not allow for direct tests of this possibility this study presents results of such tests

equilibrium prices in the presence of delegated portfolio management abstract this paper analyzes the asset pricing implications of commonly used portfolio management contracts linking the compensation of fund managers to the excess return of the managed portfolio over a benchmark portfolio the contract parameters the extent of delegation and equilibrium prices are all determined endogenously within the model we consider symmetric fulcrum performance fees distort the allocation of managed portfolios in a way that induces a significant and unambiguous positive effect on the prices of the assets included in the benchmark and a negative effect on the sharpe ratios asymmetric performance fees have more complex effects on equilibrium prices and sharpe ratios with the signs of these effects fluctuating stochastically over time in response to variations in the funds excess performance

capital gains taxes and equity trading empirical evidence individual investors have an incentive to defer selling appreciated stock until it qualifies for tax favored long term capital gains treatment shackelford and verrecchia 2002 show that these incentives can affect equity trading around public disclosures this article provides some empirical support for their theory with evidence of price increases and equity constrictions around announcements of quarterly earnings and additions to the s p 500 index we find share returns rise and trading volume falls with the incremental taxes saved by deferring the sale of appreciated property the price increases however are temporary reversing in subsequent trading days the results are consistent with buyers believing the compensation to sell before long term qualification through higher prices is less costly than holding an inappropriately weighted portfolio this finding that personal capital gains taxes affect equity trading adds to a growing literature that challenges longstanding assumptions that firm value is independent of shareholders and their taxes

investing in the presence of massive flows the case of msci country reclassifications almost 10 trillion is benchmarked to msci s developed emerging frontier and standalone market indexes reclassifications from one index to another require thousands of investors to decide how to react we study a comprehensive sample of past reclassifications to inform this decision on average reclassified markets prices substantially overshoot between the announcement date and the effective date prices fall when a market moves from an index with more benchmarked ownership to one with less such as from emerging to frontier and vice versa but largely revert within a year we identify alpha maximizing responses to reclassifications for both benchmarked and more flexible investors

anatomy of a government intervention in index stocks price pressure or information effects in a massive intervention designed to deter speculators the hong kong monetary authority hkma bought hang seng index stocks in august 1998 these stocks experienced a 24 abnormal return during the intervention period the abnormal returns are not reversed over the next eight weeks refuting the hypothesis that returns are due to temporary liquidity effects cross sectional analysis of daily abnormal returns during the intervention period reveals that these returns are related to overall intervention activity rather than stock specific intervention this evidence is consistent with information effects rather than price pressure effects

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

the dartboard column second hand information and price pressure this study analyzes the effect of second hand information on the behavior of security prices and volume using analysts recommendations published in the monthly dartboard column of the wall street journal for the two days following the publication of the recommendations average positive abnormal returns of 4 percent nearly twice the level of abnormal returns documented in previous research on analyst recommendations and average volume double normal volume levels on the two days following publication of the recommendations are documented the positive abnormal return on announcement is partially reversed within 25 trading days the authors conclude that the positive abnormal return on announcement of the recommendations is a result of naive buying pressure as well as the information content of the analysts recommendations

order imbalance liquidity and market returns traditionally volume has provided the link between trading activity and returns we focus on a hitherto unexplored but intuitive measure of trading activity the aggregate daily order imbalance on the new york stock exchange signed order imbalances increase decrease following market declines rises which reveals that investors are contrarians on aggregate order imbalances in either direction either excess buy or sell orders reduce liquidity market wide returns are strongly affected by contemporaneous and lagged order imbalances market wide returns reverse themselves after high negative imbalance large negative return days the magnitude of this reversal is partially predictable from the level of the imbalance and return even after controlling for aggregate market volume and liquidity market returns are affected by order imbalance

price and volume effects of changes in msci indices nature and causes abstract using changes in the msci standard country indices for 29 countries between 1998 and 2001 we document that stock returns and volumes exhibit index effects in international markets similar to those detected by the studies of us stocks the stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change though part of the gain is lost after the actual change date the stocks that are deleted from the indices on the other hand witness a steady and marked decline in their prices trading volumes increase significantly and remain at high levels after the change date for the added stocks there are also considerable cross country variations in these effects tests using data on various measures reflecting the different hypotheses fail to turn up any evidence in support of information effects our evidence appears to be more supportive of the downward sloping demand curve hypothesis there is some evidence of price pressure and mild evidence of liquidity effect particularly in japan and uk

why are convertible bond announcements associated with increasingly negative issuer stock returns an arbitrage based explanation while convertible offerings announced between 1984 and 1999 induce average abnormal stock returns of 1 69 convertible announcement effects over the period 2000 2008 are more than twice as negative 4 59 we hypothesize that this evolution is attributable to a shift in the convertible bond investor base from long only investors towards convertible arbitrage funds these funds buy convertibles and short the underlying stocks causing downward price pressure consistent with this hypothesis we find that the differences in announcement returns between the traditional investor period 1984 1999 and the arbitrage period 2000 september 2008 disappear when controlling for arbitrage induced short selling associated with a range of hedging strategies post issuance stock returns are also in line with the arbitrage explanation average announcement effects of convertibles issued during the global financial crisis are even more negative 9 12 due to a combination of short selling price pressure and issuer issue and macroeconomic characteristics associated with these offerings

financial asset demand is elastic evidence from new issues of federal home loan bank debt abstract we estimate the slope of the demand curve for newly auctioned fhlb discount notes and investigate the impacts of arbitrage risk and heterogeneity of investor beliefs on demand elasticity our unique dataset of roughly 2900 observations of two price quantity pairs the first from a pre auction dealer survey the second from actual auction results provides the quantity shift necessary to identify demand in contrast to previous findings of downward sloping demand curves for equities we show that demand for newly issued fhlb notes is nearly perfectly elastic during normal market conditions we find however that frictions like arbitrage risk and to a lesser extent heterogeneity of investor beliefs negatively affect elasticity and explain the nearly 50 drop in elasticity observed during the recent financial crisis

s p 500 index additions and earnings expectations stock price increases associated with addition to the s p 500 index have been interpreted as evidence that demand curves for stocks slope downward a key premise underlying this interpretation is that index inclusion provides no new information about companies future prospects we examine this premise by analyzing analysts earnings per share eps forecasts around index inclusion and by comparing postinclusion realized earnings to preinclusion forecasts relative to benchmark companies companies newly added to the index experience signi cant increases in eps forecasts and signi cant improvements in realized earnings these results indicate that s p index inclusion is not an information free event studies that examine the prices of common stocks when they become included in the standard poor s s p 500 index have appeared regularly in leading nance journals since 1986 fascination with the eiect of s p index inclusion on stock prices appears to stem from the possibility that inclusion in the index is an information free eventfinformation free in the sense that s p makes no claim that inclusion represents an endorsement of the newly included stock s future prospects 1 indeed s p makes an a rmative claim to the contrary company

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

index composition changes and the cost of incumbency abstract this paper provides evidence of information effects and portfolio rebalancing effects that occur when stocks are added to or excluded from the sp however the portfolio rebalancing effects dominate the industry information effects

stock price effects and costs of secondary distributions abstract this study does not support the view that a large number of shares can be sold at the prevailing market price and at a small cost a significant stock price decrease is observed at the initial announcement of secondary distributions the price declines are greater for offerings by officers and directors and for larger offerings but are significant for all types of sellers and for large and small offerings there is no significant price decline at the offering when secondaries are announced in advance underwriting and other selling costs are substantial and are positively related to relative offering size

price reaction of ethically screened stocks a study of the dow jones islamic market world index this paper investigates the short term effects on the price of the ethically screened stocks of the dow jones islamic market world index djimwi quarterly revisions using a sample of 8 250 stocks from may 1999 through june 2012 we find a significant price reaction of the ethically screened stocks following additions and deletions the results show that additions deletions from emerging stock markets tend to experience a greater and significantly positive negative price response than additions deletions from the developed markets further tests reveal that the price reactions following djimwi revisions are likely to be driven by shifts in investor sentiment rather than changes in firm fundamentals

price and volume effects associated with changes in the s p 500 list new evidence for the existence of price pressures attempts to identify price pressures caused by large transactions may be inconclusive if the transactions convey new information to the market this problem is addressed in an examination of prices and volume surrounding changes in the composition of the s p 500 since these changes cause some investors to adjust their holdings of the affected securities and since it is unlikely that the changes convey information about the future prospects of these securities they provide an excellent opportunity to study price pressures the results are consistent with the price pressure hypothesis immediately after an addition is announced prices increase by more than 3 percent this increase is nearly fully reversed after 2 weeks the efficient market hypothesis emh predicts that security prices reflect all publicly available information therefore one corollary of the emh is that you can sell or buy large blocks of stock at close to the market price as long as you can convince other investors that you have no private information 1 this statement assumes that securities are near perfect substitutes for each other if so the excess demand for a single security will be very elastic and the sale or purchase of a large number of shares will have no impact on price in contrast to the emh scholes 8 kraus and stoll 5 hess and frost 4 and others propose two hypotheses which predict that a large stock sale purchase will cause the price to decrease increase even if no new information is associated with the transaction the imperfect substitutes hypothesis ish also known as the distribution effect hypothesis assumes that securities are not close substitutes for each other and hence that long term demand is less than perfectly elastic under this hypothesis equilibrium prices change when demand curves shift to eliminate excess demand price reversals are not expected because the new price reflects a new equilibrium distribution of security holders the price pressure hypothesis pph assumes that investors who accommodate demand shifts must be compensated for the transaction costs and portfolio risks that they bear when they agree to immediately buy or sell securities which they otherwise would not trade these passive suppliers of liquidity are attracted by immediate price drops rises associated with large sales purchases they are compensated for their liquidity service when prices rise drop to their fullinformation levels the pph like the emh assumes that long run demand is

drips and the dividend pay date effect on the day that dividends are paid we find a significant positive mean abnormal return that is completely reversed over the following days this dividend pay date effect has strengthened since the 1970s and is consistent with the temporary price pressure hypothesis the pay date effect is concentrated among stocks with dividend reinvestment plans drips and is larger for stocks with a higher dividend yield greater drip participation and greater limits to arbitrage over time profits from a trading strategy that exploits this behavior are positively related to the dividend yield and spread and negatively associated with aggregate liquidity

the russell reconstitution effect significant returns were associated with the annual reconstitution of the russell equity indexes from 1996 through 2002 which can be explained by both transitory price pressure and the permanent effects of index membership on the one hand the return effects represent a significant cost to index funds that rebalance on the reconstitution date on the other hand supplying immediacy at this time can be highly profitable this strategy is typically undiversified however and involves high trading costs and price risk as positions are unwound indeed dramatic intraday return volatility characterizes the day of reconstitution these factors explain the persistence of the reconstitution effects documented here

the price response to s p 500 index additions and deletions evidence of asymmetry and a new explanation we study the price effects of changes to the s p 500 index and document an asymmetric price response there is a permanent increase in the price of added firms but no permanent decline for deleted firms these results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions a possible explanation for asymmetric price effects arises from the changes in investor awareness results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of s p 500 index additions and deletions the long held assumption that stocks have perfect substitutes and the perfect elasticity of demand that follows from it is central to modern finance theory if securities have almost perfectly elastic demand then any supply or demand shocks that are devoid of information should have no effect on the prevailing price early empirical research on whether price changes occur in the absence of new information focused on block trades equity issues and stock splits but was unable to exclude information effects around these events since there is no obvious reason to believe ex ante that index changes contain new information they constitute a natural framework for testing whether stocks have almost perfectly elastic or horizontal demand curves a stock s excess return around such changes could be consistent with a downward sloping demand curve with the advent of indexed mutual funds in 1976 and the public announcement of s p index changes in the same year there is much evidence that such announcements are accompanied by an increase in price for firms added to the index if stocks have a short term downward sloping demand curve the price should be momentarily affected by a demand shock due to indexing but that effect

do demand curves for currencies slope down evidence from the msci global index change traditional portfolio balance theory derives a downward sloping currency demand function from limited international asset substitutability historically this theory enjoyed little empirical support we provide direct evidence by examining the exchange rate effect of a major redefinition of the msci international equity index in 2001 and 2002 the index changes implied large changes in the representation of different countries in the msci world index and therefore produced strong exogenous equity flows by index funds our event study shows a strong announcement effect in which countries with a decreasing equity representation vis a vis the u s depreciated against the dollar

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

the s p500 index effect reconsidered evidence from overnight and intraday stock price performance and volume abstract this study focuses on s p500 inclusions and deletions examining the impact of potential overnight price adjustment after the announcement of an s p500 index change we find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event more importantly observing the tick by tick stock price performance and volume effects on the key days during the event window for the first time we find evidence of consistent trading patterns during trading hours a separate analysis of nasdaq and nyse listed stocks allows for a detailed examination of the price and volume effect at an intra day level we find that index funds appear to cluster their rebalancing activities near to and after the close on the event date suggesting that they are more concerned with tracking error than profit

the effect of additions to or deletions from the tse 300 index on canadian share prices in this paper we examine shares that have been added to or deleted from the tse 300 index to determine whether abnormal price movements have occurred we apply the dummy variable approach to event study methodology and adjust the estimated standard errors for arbitrary heteroscedasticity and clustering of events we also use a non parametric method of inference like authors of u s studies we find that the market reacts positively to inclusion and negatively to deletion albeit not significantly in the latter case the information content of inclusion does not account for the entire share price response lending support to the hypothesis of increased purchases by index funds jel classification g14 ce texte examine les titres qui ont ete ajoutes ou soustraits de l indice tse 300 pour determiner si des mouvements anormaux de prix s en sont suivis on utilise l approche des variables fictives dans le cadre d une methodologie qui etudie l impact d evenements et on ajuste les erreurs standards pour tenir compte de l heteroskedasticite arbitraire et de l agglomeration d evenements on utilise aussi une methode non parametrique d inference comme dans des etudes americaines du meme type on decouvre que les marche reagit positivement a l inclusion et negativement a la soustraction d un titre mais que l effet n est pas significatif dans ce dernier cas le contenu informationnel de l inclusion n explique pas entierement le mouvement dans le prix du titre ce qui apporte un support a l hypothese de l impact des achats accrus par des fonds indexes

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade