Tse-Chun Lin

Tse-Chun Lin
The University of Hong Kong | HKU · Faculty of Business and Economics

PhD in Finance, University of Amsterdam

About

111
Publications
7,819
Reads
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724
Citations
Introduction
Additional affiliations
August 2009 - December 2015
The University of Hong Kong
Position
  • Professor (Assistant)

Publications

Publications (111)
Article
We contribute to institutional and social capital theory by developing a theoretical framework that suggests that informal and formal institutions are important in mitigating moral hazard in reward-based crowdfunding. We analyze a large sample of Kickstarter campaigns to test these predictions. We find a strong positive relationship between entrepr...
Article
Based on 21,653 innovative firms from 61 non-U.S. economies, we find a positive relationship between a firm's innovativeness and cash holdings. This relationship is stronger after the implementation of patent boxes that provide preferential tax treatment for patent income. Moreover, innovative multinationals facing higher repatriation taxes accumul...
Article
Using a difference‐in‐differences approach, we show that relaxation of short‐sale constraints helps to filter out low‐quality borrowers from the bank loan market. Treated firms that can still borrow from banks enjoy a lower loan spread, compared with control firms without this sorting mechanism. The results show that such treated borrowers have imp...
Article
We find that analysts are more likely to downgrade stocks when prices approach the 52-week high. The results are stronger for stocks with higher information asymmetry but moderated by analysts' reputation, work experience, and educational background. We also find a strategy that shorts stocks with recommendation downgrades is less profitable for th...
Article
We provide a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high stock price. The interaction between news about economically linked firms and the nearness to the 52-week high can partially ex...
Research
Using firm-level R&D and patent data for 88 countries, we find that country climate vulnerability negatively affects firms’ R&D investment and innovation performance. This effect operates through the decreased responsiveness of R&D investment to investment opportunities (i.e., investment efficiency), reduced incentives to innovate, and lower privat...
Article
We find that banks with CEOs who postpone exercising deep in-the-money options are more likely to lend to firms that are smaller, riskier, and more engaged in corporate innovation. These borrowers also spend more on R&D than a matched sample after getting the loans. Subsequently, these borrowers have higher innovation outputs and achieve greater ma...
Article
We document a novel pattern that campaign goal amounts set by entrepreneurs on Kickstarter exhibit clear clustering at round numbers. We propose that the round number heuristic, a tendency to adopt round numbers as cognitive shortcuts when facing complicated and uncertain situations, may explain the clustering pattern and predict campaign outcomes....
Article
We identify an important channel, acquisitions of public targets, via which the governance through trading (GTT) improves firm values. The disciplinary effect of GTT is more pronounced for firms with higher managerial wealth-performance sensitivity and moderate institutional ownership concentration. Firms with higher GTT also have higher subsequent...
Article
In this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announc...
Article
Our paper examines whether investor opinions expressed in social media predicted stock returns of financial firms during the 2007-2009 global financial crisis. We conduct a textual analysis of the articles published on the stock market insight website Seeking Alpha before the crisis and find that banks that were described in articles with a higher...
Article
We find that changes in short interest predict banks’ stock returns during two recent banking crises. Furthermore, before the 2007–2008 crisis, short interest increased more for banks with worse performance during the Long-Term Capital Management crisis of 1998. We also find that changes in short interest predicted banks’ loan quality and default r...
Article
We study the effect of financial market frictions on managerial compensation. We embed a market microstructure model into an otherwise standard contracting framework, and analyze optimal pay-for-performance when managers use information they learn from the market in their investment decisions. In a less frictional market, the improved information c...
Article
This paper explores whether firms manage their earnings after stock splits to meet the raised expectations from the market due to the positive signal sent by the splits. We first document that post-split drift mainly exists in the first three months and is positively associated with post-split standardized unexpected earnings (SUE). However, the hi...
Article
We explore the governance effect of short-selling threat on mergers and acquisitions (M&A). We use equity lending supply (LS) to proxy for the threat, as short sellers incentives to scrutinize a firm depend on the availability of borrowing shares. Our results show that acquirers with higher LS have higher announcement returns. The effect is stronge...
Article
We hypothesize that when investors pay less attention to financial markets, they rationally allocate relatively more attention to market-level information than to firm-specific information, leading to increases in stock return co-movements. Using large jackpot lotteries as exogenous shocks that attract investors’ attention away from the stock marke...
Article
We offer a new anchoring explanation for the ex-day abnormal returns of stock distributions, including stock dividend distributions, splits, and reverse splits. We propose that investors tend to anchor on cum-day prices in valuating ex-distribution stocks, resulting in a positive association between ex-day returns and adjustment factors. We find th...
Article
We hypothesize that high stock price levels impede informed trading on the stocks and reduce price informativeness. This is because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constraints on uninformed investors. Indeed, we find, for high-price firms, (i) options to stock trading volume (O/S)...
Article
Full-text available
Do superstitious traders lose money? We answer this question in the context of trading in the Taiwan Futures Exchange, where we exploit the Chinese superstition that the number 8 is lucky and the number 4 is unlucky. We find that individual investors, but not institutional investors, submit disproportionately more limit orders at 8 than at 4. This...
Article
We find that changes in short interest predict banks’ stock returns during two recent banking crises. More interestingly, before the 2007-2009 financial crisis, short interests increase more for banks that suffered more in the Long-Term Capital Management crisis of 1998. We also find that changes in short interest predict banks’ loan quality and de...
Article
We use data on signed option volume to study which components of option volume predict stock returns and resolve the seemingly inconsistent results in the literature. We find no evidence that trades related to synthetic short positions in the underlying stocks contain more information than trades related to synthetic long positions. Purchases of ca...
Article
Via quantitative analysis and interviews, this article examines the credibility and sustainability of Beijing’s patronage policy towards Taiwanese business. The new finding is that the rise of economic nationalism and local protectionism in China is undermining and constraining Beijing’s patronage policy. Consequently, China’s rising economy does n...
Article
We study the role of analysts and options traders in the information transmission between options and stock markets. We first show that the predictive power of option implied volatilities (IVs) on stock returns more than doubles around analyst-related events, indicating that a significant proportion of the options predictability on stock returns co...
Article
We propose a novel perspective on testing the negative relation between skewness/lottery-like features and stock returns in the cross-section. This perspective is deeply rooted in individual investor trading behavior. We construct a composite index to capture individual investor preference on stocks and find a monotonically increasing return predic...
Article
We investigate whether 52-week high stock prices serves as reference points for analyst recommendation revisions. We find that analysts are more likely to downgrade stocks when the prices approach the 52-week high levels. This anchoring effect is stronger for stock with higher information asymmetry but moderated by analysts’ reputation, work experi...
Article
Using 8,379 innovative firms from 23 non-U.S. countries over 1990-2012, we find that firms with higher innovation efficiency hoard more cash. To establish causality, we use a differences-in-differences approach based on country patent reforms and legalization of same-sex marriage. We also find that innovatively efficient firms use cash to alleviate...
Article
We study the effect of financial market conditions on managerial compensation structure. First, we analyze the optimal pay-for-performance in a model in which corporate decisions and firm value are both endogenous to trading due to feedback from information contained in stock prices. In a less frictional financial market, the improved information c...
Article
We show that three proxies for stock price informativeness, adjusted probability of information based trading (AdjPIN), price non-synchronicity and probability of information-based trading (PIN), decrease significantly due to an enlarged investor base after stock splits. The results are supportive to the risk sharing hypothesis proposed by Peress (...
Article
We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trad...
Article
We hypothesize that cognitive limitation may be manifested in a disproportionately large volume of limit orders submitted at round-number prices if investors use these numbers as cognitive shortcuts. Using detailed limit order data in the Taiwan Futures Exchange, we find that investors with lower cognitive abilities, defined as higher limit order s...
Article
We find that put options trading volume and bid-ask spreads both increase with equity lending fees. However, we also find that put options trading volume decreases with lending fees for banned stocks during the 2008 Short-Sale Ban period, when only options market makers could short. By separating the speculative demand of short sellers from the hed...
Article
Roll, Schwartz and Subrahmanyam (2010) suggest that cross-sectional and time-series variation in the ratio of option trading volume to stock trading volume (O/S) might be driven by informed trades. Johnson and So (2012) find that O/S negatively predicts the returns of options’ underlying stocks over a one-week horizon, and claim that this is due to...
Article
We find that individual investors tend to trade in the same direction with other individual investors in the same branch of their broker. Individual investors’ tendency to herd is negatively associated with their cognitive abilities and trading experience. More importantly, the higher the herding tendency of an individual investor, the worse she pe...
Article
This paper empirically identifies an important external corporate governance mechanism through which the institutional trading improves firm values and disciplines managers from conducting value-destroying behaviors. We propose a reward-punishment intensity (RPI) measure based on institutional investors' absolute position changes, and find it is po...
Article
A specific day-trading policy in Taiwan futures market allows an investigation of the performance of day traders. Since October 2007, investors who characterize themselves as “day traders” by closing their day-trade positions on the same day enjoy a 50% reduction in the initial margin. Because we can identify day traders ex ante , we have a laborat...
Article
What do stock price levels tell us about the firms? Based on market microstructure theories, this paper hypothesizes that, ceteris paribus, high stock price levels impede informed trading on the stocks and reduce price informativeness because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constr...
Article
We explore the disciplining effect of short selling threat on merger and acquisition decisions. Firms with more stock lending supply have higher acquirer returns. We also find lending supply is positively related to Tobin's Q and ROA. Alleviating the endogeneity concern, we find that our results are robust when we use passive institutional ownershi...
Article
Prior evidence on the presence of pre-bankruptcy-filing informed trade is mixed and tends to suggest a dearth of pre-filing informed stock-trade. One explanation for this is that the existing studies examine stock trading by insiders, whereas not all informed traders are insiders and informed trades have been shown to take place in the options mark...
Article
Prior evidence on pre-bankruptcy-filing informed trade has been mixed. However, the focus has been on stock trading, not options trading. Thus, we reassess the presence of pre-filing informed/insider trade by examining the presence, and informativeness, of insider and informed-trade in the options and stock markets. We confirm that bankruptcy filin...
Article
This paper examines the connection between two anomalies that are related to future earnings: post-split drift and post-earnings announcement drift. We test whether the post-split drift is driven by post-earnings announcement drift and whether investors profit more from using trading strategies based on announcements of stock splits and earnings su...
Article
We use a new approach to assess the information transmission between options and stock markets. We study whether the predictive power of option-implied volatilities (IVs) on stock returns lies in analyst-related and/or earnings-related news. We find that two proxies for options trading (IV skew and IV spread) predict analyst recommendation changes,...
Article
This study examines the informational content of options trading on acquirer announcement returns. We show that implied volatility spread predicts positively on the cumulative abnormal return (CAR), and implied volatility skew predicts negatively on the CAR. The predictability is much stronger around actual merger and acquisition (M&A) announcement...
Article
This paper investigates the effect of cognitive limitation on investment behavior and investor performance. We hypothesize that the cognitive limitation could be manifested by disproportional large amount of limit orders submitted at round numbers if investors use these numbers as cognitive shortcut to save energy from extensive algorithmic process...
Article
We show that three proxies for stock price informativeness, adjusted probability of information-based trading (AdjPIN), price non-synchronicity and probability of information-based trading (PIN), decrease signicantly due to enlarged investor base after stock splits. The results suggest that investors are less incentivized to gather rm specic inform...
Article
This paper examines the informational content of option trading in merger and acquisition (M&A) events. We find that pre-M&A announcement option trading contains information on acquirer announcement returns. Using 7,047 M&A events from 1996 to 2010, we show that implied volatility (IV) spread predicts positively on the announcement return, while im...
Article
Purpose – The purpose of this paper is to take advantage of a natural experiment in Taiwan to test the effect of short-sales constraints on price dynamics. Design/methodology/approach – Since September 1998, short-selling is banned at a price below the close price of the previous trading day. The new rule creates unique daily dynamics of short-sale...
Article
We show that three proxies for stock price informativeness, adjusted probability of information-based trading (AdjPIN), price non-synchronicity and probability of information-based trading (PIN), decrease significantly due to enlarged investor base after stock splits. The results suggest that investors are less incentivized to gather firm specific...
Article
This paper provides a new perspective on the informational leading role of the option market relative to the stock market. We study the extent to which the predictive power of option implied volatilities (IVs) on stock returns lies in earnings-related or and analyst-related corporate news. We find that our two proxies for option trading (IV skew an...
Article
This paper provides a new perspective on the informational leading role of the option market relative to the stock market. We study the extent to which the predictive power of option trading on excess returns lies in the earnings-related or analyst-related corporate news. Our findings provide direct evidence that option trading is a significant pre...

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