nep-cfn New Economics Papers
on Corporate Finance
Issue of 2007‒07‒20
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Caught On Tape: Institutional Trading, Stock Returns, and Earnings Announcements By Campbell, John Y; Ramadorai, Tarun; Schwartz, Allie
  2. Agency Conflicts, Investment, and Asset Pricing By Rui Albuquerque; Neng Wang

  1. By: Campbell, John Y; Ramadorai, Tarun; Schwartz, Allie
    Abstract: Many questions about institutional trading can only be answered if one can track high-frequency changes in institutional ownership. In the U.S., however, institutions are only required to report their ownership quarterly in 13-F filings. We infer daily institutional trading behaviour from the “tape”, the Transactions and Quotes database of the New York Stock Exchange, using a sophisticated method that best matches quarterly 13-F data. We find that daily institutional trades are highly persistent and respond positively to recent daily returns but negatively to longer-term past daily returns. Institutional trades, particularly sells, appear to generate short-term losses - possibly reflecting institutional demand for liquidity - but longer-term profits. One source of these profits is that institutions anticipate both earnings surprises and post-earnings-announcement drift. These results are different from those obtained using a standard size cutoff rule for institutional trades.
    Keywords: earnings announcements; institutions; liquidity; post-earnings-announcement-drift; trading
    JEL: G12 G14
    Date: 2007–07
  2. By: Rui Albuquerque; Neng Wang
    Abstract: The separation of ownership and control allows controlling shareholders to pursue private benefits. We develop an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's q, higher return volatility, larger risk premium, and higher interest rate. Calibrating the model to the Korean economy reveals that perfecting investor protection increases the stock market's value by 22 percent, a gain for which outside shareholders are willing to pay 11 percent of their capital stock.
    JEL: E44 G1 G3 O4
    Date: 2007–07

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