The Tradeoff between Risk Sharing and Information Production in Financial Markets: Evidence from Stock Splits

Chang, Eric C.; Lin, Tse-Chun; Ma, Xiaorong

doi:10.2139/ssrn.2661293

Cited by 3 publications

(5 citation statements)

References 99 publications

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“…Correspondingly, the decreases significantly after the events of reverse splits, deletion from Hang Seng Index, and banning short selling. The results are highly consistent with Cai and Xia (2014), Chang, et al (2015), and Kan and Gong (2017).…”

Section: The Change Ofsupporting

confidence: 89%

“…Empirically, Guo, Zhou and Cai (2008) use Tokyo Stock Exchange data and find out that the stock splits tend to increase the trading activity, to enhance the market liquidity, to reduce the information asymmetry, and to lower the probability of informed trading. Using 5,104 NYSE/AMEX/Nasdaq stock splits from 1994 to 2007, Chang et al (2015) find that the adjusted Probability of INformed Trading (adjPIN, see Duarte and Young, 2009) decreases significantly after stock splits, also supporting the prediction that stock splits will result in lower price efficiency.…”

Section: Stock Splitmentioning

confidence: 59%

“…Due to the influx of uninformed investors, who also tend to be small retail investors 2 , after the splits, the liquidity improves, trading becomes more active, and the probability of informed trading decreases, implying a lowered price efficiency. If one believes in the MYY explanation that is a price inefficiency measure, it is not surprising to see that Chang, et al (2015) find out that increases after the splits.…”

Section: Introductionmentioning

confidence: 99%

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The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency

Cai¹,

Li²,

Petsas³

2018

Preprint

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This paper identifies a dilemma in the relationship between R^2 and price efficiency: After comprehensively studying the R^2 change around 7 well-known corporate events, neither the traditional understanding of R^2 as price inefficiency, nor the behavioral way of R^2 as price efficiency can explain the observed R^2 change around the events. We adopt an alternative methodology to replace the standard difference-in-difference regression and directly decompose the R^2 change. We find that, due to the endogeneity of events, the changes of R^2 are over-estimated. We further propose that in the event study setting, the R^2 change may be simply the consequence of the inflow/outflow of some trend-chasing investors, and it may be detached from price (in) efficiency. Empirical evidences are consistent with this hypothesis.

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Section: The Change Ofsupporting

confidence: 89%

Section: Stock Splitmentioning

confidence: 59%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency

Cai¹,

Li²,

Petsas³

2018

Preprint

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“…Risk management method in which the cost of the consequences of a risk is distributed among several participants in an enterprise, such as in syndication (Chang, Lin & Ma, 2015). Relational costs in an alliance are not merely expenditures necessary to maintain informal relations with business partners, but additionally include the commitments and investments the partners commit to their risky and uncertain venture.…”

Section: Risk Sharingmentioning

confidence: 99%

“…It can therefore be deduced that risk sharing influence the performance of SACCOs in Nairobi to a great extent. Concurrently, Chang, Lin & Ma (2015) revealed that other than expenditures necessary to maintain informal relations with business partners, risk sharing is another common reason for undertaking a strategic alliance. Adjusted R squared is coefficient of determination which tells us the variation in the dependent variable due to changes in the independent variables: From the findings the value of adjusted R squared was 0.423 an indication that there was variation of 42.3 percent on financial performance due to changes in cost sharing and risk sharing at 95 percent confidence interval.…”

Section: Influence Of Risk Sharing On the Performancementioning

confidence: 99%

Factors Influencing Strategic Alliances on the Performance of Saccos in Nairobi, Kenya

WAWERU

2018

strategicjournals.com

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The changing operating environment has called on businesses to develop appropriate response strategies in order to remain competitive and deliver on organizational objectives. Strategic alliances have been one of the ways in which firms have adopted to build their competitive advantage and overcome some of the difficulties posed by the changing business environment. SACCOs rely on members' contribution and interest charged on advanced loans as source of income. Some SACCOs have been collapsing while others have not served their clients well owing to their inability to undertake certain investments and to satisfy their customers' financial needs. These needs keep changing owing to the dynamic market environments that the SACCOs operate in. In order to survive this situation, it has become paramount that SACCOs enter into strategic alliances with other strategic stakeholders for their efficient operations. This study therefore sought to determine the factors influencing strategic alliance on the performance of SACCOs particularly focusing on 38 licensed SACCOs in Nairobi for the financial year ending 31 st Dec, 2017. The specific objectives of the study were: To establish the influence of cost sharing on the performance of SACCOs in Nairobi, Kenya and to assess the influence of risk sharing on the performance of SACCOs in Nairobi, Kenya. The study was guided by Resource Dependence Theory, Transaction Cost Theory and Risk Theory. The study adopted descriptive research design and the target population shall consist of human resource managers, operations and finance managers. The researcher collected primary data using structured questionnaires. The collected data was analyzed using both descriptive and inferential statistics that were enhanced through the Statistical Package for Social Sciences SPSS Version 21.0. Descriptive statistics involved the use of means and standard deviations while the inferential statistics involved multiple regression analysis. The study found that cost sharing influence the performance of SACCOs in Nairobi. Strategic alliances allow participating firms to earn economies of scale as well as allow firms to formulate policies suited for the benefit of the participants. Risk sharing influence the performance of SACCOs in Nairobi. Strategic alliance spread the investment risks and the participant share the instability risks in the market. Skill sharing influence the performance of SACCOs in Nairobi. The study recommended that firms should form strategic alliances to improve their performance through cost reduction associated with the strategic alliance. Firms should continue strategically aligning themselves to enhance their performance through spread of investment risks and sharing the instability risks.

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Corporate events, return synchronicity and price efficiency

Petsas

Cai

2020

The Journal of Economic Asymmetries

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The Tradeoff between Risk Sharing and Information Production in Financial Markets: Evidence from Stock Splits

Cited by 3 publications

References 99 publications

The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency

The R^2 and the Seven Events in Hong Kong: A New Look at Return Synchronicity and Price Efficiency

Factors Influencing Strategic Alliances on the Performance of Saccos in Nairobi, Kenya

Corporate events, return synchronicity and price efficiency

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