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175
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Introduction
Skills and Expertise
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August 2000 - present
Publications
Publications (175)
This paper examines whether larger tick sizes improve or hinder price efficiency for small‐capitalization stocks using data from implementing and terminating the Tick Size Pilot Program (TSPP). We show that the TSPP led to increases in various liquidity measures, and its termination restored them to their pre‐TSPP levels. We also find evidence that...
Using exogenous changes in hidden liquidity from the Tick Size Pilot Program, we show that hidden liquidity on lit venues has significant effects on various measures of market quality and order submission strategies after controlling for the impact of dark pools and stock attributes. We find that spreads, depths, trading volume, and trade size incr...
In this article, we explore the role of preopening price signals in price discovery and liquidity. NYSE Rule 48 suspends the responsibility of designated market makers for disseminating preopening price indications in the event of extreme marketwide volatility. Rule 48 speeds up the opening of stocks at the expense of lower liquidity. The absence o...
This paper explores whether journal referees take into account the author’s scholarly credentials in their decisions using the stochastic process underlying the Yule-Simon distribution as a descriptive model of the peer-review process. We provide evidence that referees consider the author’s publication record valuable information in their decision-...
This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds...
This study compares the extent of informed trading across investor types in the Korean stock market using intraday quote and trade data. We estimate for each stock the probability of information‐based trading (PIN) using trades that are initiated by foreign investors, domestic institutional investors, and local individual investors separately. The...
This paper provides empirical evidence that the squared correlation coefficient between order imbalance and earnings surprise (COE) measures market underreaction and predicts the post‐earnings announcement drift. We find strong evidence that COE during the announcement period predicts price movements (returns) during the post‐announcement period in...
We show that firms that employ the majority voting method for director election exhibit higher institutional ownership than firms that employ the plurality voting method, especially after the 2010 amendment to NYSE Rule 452. Firms that adopt majority voting in a bylaw or charter exhibit increases in institutional ownership and share price. These re...
Using limit order books across all US exchanges, we show that while liquidity for small orders (e.g., the quoted and effective spreads) decreases, liquidity for large orders (e.g., the cumulative depth and the price impact of multiple trades) improves after the implementation of the Tick Size Pilot Program. We find significant spillover effects on...
This paper analyzes the role of passive blockholders in corporate governance using data on Schedule 13G filings. We show that firm value increases with the number and aggregate ownership of passive blockholders after controlling for other possible determinants of firm value. More importantly, we show that the informational efficiency of prices (IEP...
Prior studies have provided a number of possible explanations for delayed market reactions to earnings announcements. However, there has been relatively little effort to predict the magnitude of the post-earnings announcement drift (PEAD). We show that the squared correlation coefficient (ρ2) between order imbalance and earnings surprise determines...
We analyze the effect of a firm's innovation activities on its likelihood to be acquired and the takeover premium using a large sample of M&A transactions. We show that firms with larger innovation outputs and R&D investments are more likely to be acquired, receive unsolicited bids, and receive multiple bids. The takeover premium increases with the...
This paper examines the pricing of volatility risk and idiosyncratic volatility in the cross-section of corporate bond returns for the period of 1994-2016. Results show that bonds with high volatility betas have low expected returns and this negative relation appears in all segments of corporate bonds. Further, bonds with high idiosyncratic bond (s...
This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds...
In this study we analyze how the price impact of trades and the bid-ask spread are related to foreign stock ownership using data from 20 emerging markets. We show that while the price impact of trades increases with the percentage of shares held by foreign investors, the bid-ask spread decreases with foreign ownership. We interpret these results as...
This study shows that market volatility affects stock returns both directly and indirectly through its impact on liquidity provision. The negative relation between market volatility and stock returns arises not only from greater risk premiums but also greater illiquidity premiums that are associated with higher market volatility. Consistent with ou...
We show that the noninformation component of trading costs is priced in the cross-section of stock returns using intraday
data for NYSE/AMEX stocks. More importantly, we show that the noninformation component is much larger and more strongly related
to stock returns than is the adverse-selection component, indicating that the noninformation compone...
This paper provides a review of the literature on high-frequency trading and discusses various initiatives taken by regulatory authorities around the world to address its potential detrimental effects on market quality and investor welfare. Empirical evidence to date generally suggests that high-frequency trading has improved market quality during...
Manuscript Type
Empirical
Research Question/Issue
This paper examines the relation between internal corporate governance and the market for corporate control by analyzing how firms' internal governance mechanisms are related to states' antitakeover statutes (ATS). Specifically, we test two competing hypotheses concerning the effect of ATS on inter...
We explore the relation between corporate governance and the informational efficiency of prices (IEP). We find that IEP increases with the quality of corporate governance in a large cross-section of firms. We also show that analyst forecasts and corporate voluntary disclosures are channels through which corporate governance affects IEP [Maybe more...
In this study we analyze the relation between institutional investment duration and corporate governance using a new metric of investment duration that accounts for firm-specific investment durations of each institution. We conjecture that institutional investors that hold a firm’s shares for a longer duration have greater incentives and ability to...
In this study we analyze how the price impact of trades and the bid-ask spread are related to foreign stock ownership using data from 21 emerging markets. We show that while the price impact of trades increases with the percentage of shares held by foreign investors, the bid-ask spread decreases with foreign ownership. We interpret these results as...
We show that the noninformation component of trading costs is priced in the cross-section of stock returns using intraday data for NYSE/AMEX stocks. More importantly, we show that the noninformation component is much larger and more strongly related to stock returns than is the adverse-selection component, indicating that the noninformation compone...
In this study we compare the extent of informed trading across investor types in the Korean stock market using intraday quote and trade data from January 2006 to September 2013. We estimate for each stock the probability of information-based trading (PIN) using trades that are initiated by foreign institutional investors, domestic institutional inv...
In this study we analyze dealer exit, survival, and competitive equilibrium in the NASDAQ Stock Market using data from a unique period that entails major changes in regulatory and competitive environments. We decompose the forces that affect dealer survival into market factors and dealer attributes. Market factors encompass those variables that aff...
This paper shows, both analytically and empirically, that the market reaction to earnings announcements and post-earnings announcement drift depend on both the information content of earnings and the information asymmetry between traders. Specifically, we show that ERC = k (1 - p2) and PEAD = k p2, where ERC is the earnings response coefficient, PE...
In this study we show that market uncertainty (measured by VIX) exerts a large market-wide impact on liquidity which gives rise to co-movements in individual asset liquidity. The effect of VIX on stock liquidity is greater than the combined effects of all other common determinants of stock liquidity. We show that the uncertainty elasticity of liqui...
We analyze a mechanism – avoidance of low-priced stocks – through which the prudent-person rule affects institutional investment and show how reverse stock splits change institutional investment through this mechanism. We show that both the number of institutional investors and the percentage of shares that are held by institutional investors incre...
This study examines the relation between the bid-ask spread from the daily CRSP data and the bid-ask spread from the intraday TAQ data. We show that the CRSP-based spread is highly correlated with the TAQ-based spread across stocks using data from 1993 through 2009. The simple CRSP-based spread provides a better approximation of the TAQ-based sprea...
In this paper we analyze how stock market liquidity affects the abnormal return to target firms in mergers and tender offers. We predict that target firms with poorer stock market liquidity receive larger announcement day abnormal returns based on the following considerations. First, target firms with poorer stock market liquidity receive greater l...
This study shows that the price impact of a trade decreases with the duration between trades (DBT) for out-of-the-money (OTM) options. In contrast, the price impact of a trade increases with DBT for in-the-money (ITM) options. We find similar patterns after controlling for the effects of trade size and intraday time periods. We interpret these resu...
This study shows that firms in the common law countries tend to have better corporate governance structures and greater stock market liquidity than firms in civil law countries. Stock market liquidity is greater for firms with a superior governance structure regardless of the legal origins of the relevant country (i.e., in both common and civil law...
We analyze the effects of monetary policy announcements on stock market liquidity using intraday data. We show that the impairment in liquidity associated with policy announcements occurs primarily after, rather than before, the announcements, and is relatively short-lived, lasting about 1.5 hours. Liquidity impairment varies proportionately with t...
In this study we analyze the effect of the security analysis activities on stock market liquidity and execution quality. We show that stocks followed by financial analysts have better market liquidity and execution quality than stocks with no analyst following, and stocks followed by affiliated analysts have better market liquidity and execution qu...
We examine the effect of the institutional investors’ investment horizon on corporate governance. We find that institutional blockholders who hold a firm’s shares for a longer duration exert a greater influence over the firm’s governance practices. The result suggests that the incentives and ability of institutional investors to influence a firm’s...
In this study we analyze the effect of information asymmetry on corporate cash holdings and whether the effect of cash holdings on firm value varies across firms with different levels of information asymmetry. Using various measures of information asymmetry, we show that companies that operate in higher information asymmetry environments hold less...
In this paper we analyze how stock market liquidity affects the abnormal return to target firms in mergers and tender offers. We predict that target firms with poorer stock market liquidity (relative to that of acquiring firms) receive larger announcement day abnormal returns based on the following considerations. First, target firms with poorer st...
We explore the relation between corporate governance and the informational efficiency of prices (IEP). We find that IEP increases with the quality of corporate governance in a large cross-section of firms. We show that firms with better governance structures file Form 8-K reports more promptly and have more accurate analysts’ earnings forecasts, su...
We analyze credit watch and rating actions to better understand the role of credit watches in the credit rating process. We find that watch actions are more frequently prompted by specific, publicly known events than are rating actions. The likelihood that a watch action precedes a rating action varies systematically with proxies for investor deman...
We show that both the quoted and effective spreads increased, the quoted depth decreased, and the market quality index decreased after the implementation of Regulation NMS (Reg NMS). We also find an increase in the price impact of trades and the dispersion of the pricing error after Reg NMS. The order execution speed is slower, the order fill rate...
Large tick sizes imposed on high-priced stocks on the Korea Stock Exchange (KSE) are significant binding constraints on bid-ask
spreads. Nearly 60% of quoted spreads are equal to the tick size for stocks with the largest tick size and more than 87% of
quoted spreads are equal to the tick size for stocks in the largest size portfolio. We also show t...
We analyze the equilibrium spread when the transaction size of informed traders is elastic in the value of private information (α). We show that the pooling equilibrium is likely to be inefficient when trade size is sensitive to α and the inefficient equilibrium can occur before the market breaks down. The pooling equilibrium spread does not monoto...
We investigate the relation between insider trading law enforcement and stock market quality using a sample of American Depositary Receipts (ADR) over the period from 1998 to 2006. We show that ADR from countries that have enforced insider trading laws have better market liquidity and lower information asymmetry than ADR from countries that have no...
In this paper we suggest that market makers deduce the extent of the adverse selection problem associated with a stock (and set up the bid-ask spread accordingly) by observing how many financial analysts are following that stock. Market makers do this based on the belief that more financial analysts would follow a stock with a greater extent of inf...
A recent article in this Journal employs the capital-asset pricing model for the analysis of the newsboy problem and shows how the covariance risk affects the optimal inventory policy. The purpose of this paper is to sharpen the optimality conditions given by the article and hence to provide a simple method for finding the solution. Under reasonabl...
This paper tests the relation between intellectual collaboration and the quality of the intellectual output using academic papers published in prestigious finance journals during 1988–2005. We use the number of authors of a paper to measure the extent of intellectual collaboration and the number of citations that a paper receives (adjusted by the n...
In this study we test the information hypothesis of price improvement. Our results show that price improvement is negatively related to both the probability of information-based trading and the price impact of trades. We interpret these results as evidence that liquidity providers selectively offer price improvements according to the information co...
In this study we examine the relation between corporate governance and institutional ownership. Our empirical results show that the fraction of a company’s shares that are held by institutional investors increases with the quality of its governance structure. In a similar vein, we show that the proportion of institutions that hold a firm’s shares i...
We test the conjecture that the specialist system on the New York Stock Exchange (NYSE) provides better liquidity services than the NASDAQ dealer market in times of high return volatility when adverse selection and inventory risks are high. We motivate our conjecture from the observation that there is a designated specialist for each stock on the N...
In this study, we examine the effect of pre-trade transparency on market quality using data before and after the introduction of SuperMontage. Our results show that both bid–ask spreads and return volatility declined significantly after the implementation of SuperMontage. In addition, SuperMontage led to significant improvements in the SEC Rule 605...
Liquidity providers on the NYSE make faster quote adjustments towards equilibrium spreads and depths than they do on NASDAQ. Liquidity providers in both markets make faster spread and depth adjustments for stocks with more frequent trading, greater return volatility, higher prices, smaller market capitalizations, and smaller trade sizes. We find th...
We investigate the empirical relation between corporate governance and stock market liquidity. We find that firms with better corporate governance have narrower spreads, higher market quality index, smaller price impact of trades, and lower probability of information-based trading. In addition, we show that changes in our liquidity measures are sig...
This paper tests the relation between intellectual collaboration and the quality of the intellectual output using academic papers published in prestigious finance journals during 1988-2005. We use the number of authors of a paper to measure the extent of intellectual collaboration and the number of citations that a paper receives (adjusted by the n...
We test the conjecture that the specialist system on the New York Stock Exchange (NYSE) provides better liquidity services than the NASDAQ dealer market in times of high return volatility when adverse selection and inventory risks are high. We motivate our conjecture from the observation that there is a designated specialist for each stock on the N...
We establish general conditions under which younger investors should invest a larger proportion of their wealth in risky assets than older ones. In the finite horizon dynamic setting, we show that such phenomenon, known as ‘‘time diversification,” can occur in the presence of human wealth, guaranteed consumption, or mean-reverting stock returns. We...
We show that competitive quotes help increase dealer market share on NASDAQ, despite the fact that a large proportion of order flow is preferenced. We find that decimal pricing and the introduction of new trading platforms such as SuperSOES and SuperMontage have significantly changed the effect of quote aggressiveness on dealer market share. In par...
The Securities and Exchange Commission (SEC) adopted Rule 605 (formerly Rule 11Ac1 5) on November 15, 2000. The Rule requires market centers to make monthly public disclosure of execution quality. The Rule is intended to achieve a more competitive and efficient national market system by increasing the visibility of execution quality. The effective...
This paper examines the relation between the speed of price adjustment and stock ownership by foreign and local institutional investors using data from the Korean stock market. We show that returns of stocks with high foreign institutional ownership lead returns of stocks with low foreign institutional ownership, especially after foreign ownership...
This paper presents a contingent-claims approach to project valuation when capital expenditures are made sequentially over time. It focuses on an important facet of sequential investment projects that the firm can undertake—or pass up projects—as more information becomes available. The contingent-claims approach takes account of this important feat...
This study examines the behavior of the firm which faces uncertainty in demand but can adjust its output once the uncertainty is resolved, using contingentclaims analysis. The paper finds that (i) the optimal output of the firm with ex post adjustment capability is less than that of the firm without production flexibility; (ii) the optimal ex ante...
In this study we analyze the effect of tick size on information-based trading. Although prior studies provide extensive evidence on the effect of tick size on market quality measures such as spreads, depths, and return volatility, there is little evidence as to the effect of tick size on the informational efficiency of asset price. Our results indi...
Although prior studies offer various conjectures on the causes and consequences of order preferencing, there is only limited
empirical evidence. In this study, we show that the extent of order preferencing is significantly and negatively related to
both the adverse-selection component of the spread and the probability of information-based trading....
We consider a simple model positing that initial public offering price is equal to the present value of an entity’s assets in place and growth opportunities. The model predicts that initial return is positively related to both the size and risk of growth opportunities. Consistent with this prediction, we find initial return to be positively related...
In this study we show that both the price impact of trades and serial correlation in trade direction are positively and significantly related to the probability of information-based trading (PIN). The positive relation remains significant even after controlling for the effects of stock attributes. Higher trading activity (i.e., shorter intervals be...
We analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity provid...
