Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we find significant incremental information revelation in the credit default swap market under circumstances consistent with the use of non-public informatio...

Existing studies find that size, book-to-market, momentum and liquidity explain the crosssection of average returns, but debate continues over whether these variables are risk factors. We propose a new test of whether a candidate variable is a priced risk factor. Specifically, we test whether there is a relationship between the conditional mean and conditional variance of the return on the cand...

This study examines the proposition that political business cycle theory is relevant to private foreign lenders to developing countries. We find that: credit rating agencies downgrade developing country ratings more often in election years, and do so by approximately one rating level; bond spreads are higher in the 60 days before an election compared to spreads in the 60 days after an election;...

We use the adaptive LASSO from the statistical learning literature to identify economically connected industries in a general predictive regression framework. The framework permits complex industry interdependencies, including both direct and indirect sectoral links. Consistent with gradual information diffusion across economically connected industries, we find extensive evidence that lagged re...

In this study, we examine the relation between pre-offering demand and aftermarket performance of IPO firms in the Hong Kong stock market. We find that IPOs with high investor demand realize large positive initial returns but negative long-run excess returns, while IPOs with low investor demand realize negative initial returns but positive long-run excess returns. This result suggests that (1) ...

This paper studies international portfolio ßows of US investors to examine the information structure of international equity markets. Based on a model of portfolio choice with both public and private information, we propose new empirical measures of trades due to private information. We show that these trades help explain the cross section of international equity returns, after controlling for ...

We present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are ‘internally rational’, i.e., maximize discounted expected utility under uncertainty given consistent subjective beliefs about the future, but agents may not be ‘externally rational’, i.e., may not know the true stochastic pro...

Previous studies find that small stocks have higher average returns than large stocks, and the difference between the returns can not be accounted for by the systematic risk, b. In my analysis of Compustat and CRSP data from 1976 to 1995, and simulation experiments based on the data, I find the size effect can be largely explained by data truncation that is caused by survival. Small stocks’ ret...

The study empirically investigates the relationship between the value anomaly and firms’ investment and financing environment. The evidence supports the relevance of investment irreversibility and the value anomaly as suggested in Zhang (2005). The higher the investment irreversibility gap between value and growth firms, the higher the value premium. While the Fama and French three factor model...

Using the introduction of Arrowhead low latency trading platform by Tokyo Stock Exchange as a natural experiment, I analyze the impact of high frequency trading on market quality of JREITs, in terms of liquidity, volatility, and systemic risks. I also analyze the impact of the 2008 financial crisis. The results document that while the crisis has significantly deteriorated the market quality, th...