Aaron Gilbert

On the Role of Cultural Distance in the Decision to Cross-List

This paper examines the role of culture in the choice of the destination market for cross-listing. We argue that firms cross-list in markets that have greater cultural similarities as investors are unwilling to invest in firms from culturally dissimilar markets and managers may seek to avoid potential conflicts with culturally disparate investors and managers. Employing Hofstede’s (2001) Cultural Dimensions, we find strong support for the hypothesis that firms from developed markets show a greater propensity to cross-list in a country with similar values to their home market. These results are robust to a range of alternative cultural measures including modified Hofstede’s scores, societal practices scores from the GLOBE project and World Values Survey scores.

Learning by doing: the role of financial experience in financial literacy

In this paper, we examine the impact of financial experience on financial literacy. Exploiting a unique feature of New Zealand, whereby domestic students can obtain interest-free student loans and can fully participate in the national retirement scheme while international students cannot, we employ an instrumental variables approach to identify the causal effect of financial experience on financial literacy. We conduct surveys on a sample of 338 business students and find that there is a positive and causal effect of financial experience on financial literacy. Our results have important implications for financial education programmes and may explain why many of these programmes to date have had limited success.

Market Timing Ability and Mutual Funds: A Heterogeneous Agent Approach

This paper proposes a novel approach to determine whether mutual funds time the market. The proposed approach builds on a heterogeneous agent model, where investors switch between cash and stocks depending on a certain switching rule. This approach is more flexible, intuitive, and parsimonious than the traditional convexity approach. Applying this model to a sample of 400 US equity mutual funds, we find that 41.5% of the funds in our sample have negative market timing skills and only 3.25% positive skills. Twenty percent of funds apply a forward-looking approach in deciding on market timing, and 13.75% a backward-looking approach. We find that growth funds tend to be more backward-looking and income funds tend to be more forward-looking.

On the Style-Based Feedback Trading of Mutual Fund Managers

This paper examines the style-based feedback trading behavior of mutual fund managers. We provide an empirical version of the model for style-switching behavior of Barberis and Shleifer (2003). We find style-based feedback trading for 77% of the funds, half of which is positive- (negative-) feedback trading. There is evidence for “twin-style” switching, in which capital is channeled between value and growth, and between large-cap and small-cap. Growth (value) funds apply more positive (negative)-feedback trading. Funds that switch more aggressively are younger and have higher expense ratios. Finally, we find that positive (negative) feedback trading yields positive (negative) alpha.

The Impact of Regulations on the Informational Basis of Insider Trading

In this paper, we examine the impact of major regulatory changes in New Zealand on the profitability and informational basis of insider transactions. Legislation around the world appears to have tried to encourage insiders to trade only in specified instances. We examine the efficacy of this approach. We conclude that the law changes have had a negative impact on the profitability of insider trading and appear to have forced insiders to stop trading on the knowledge of upcoming price-sensitive events. The results show that well constructed insider-trading laws could be effective in minimising the most harmful aspects of insider trading.

The Impact of Cross‐Listing on the Home Market's Information Environment and Stock Price Efficiency

We empirically examine changes in information asymmetry and informational efficiency of cross‐listed stocks in their home market around a cross‐listing in the United States. We estimate intraday market microstructure measures of information asymmetry and price efficiency, and find that a U.S. cross‐listing significantly improves the quality of a firms information environment and stock price efficiency in the home market. This improvement is stronger for cross‐listings that take place after the adoption of Sarbanes‐Oxley Act. Our results demonstrate that stricter disclosure from a U.S. cross‐listing is beneficial, in line with the legal and reputational bonding hypotheses.

THE IMPACT OF REGULATORY CHANGE ON INSIDER TRADING PROFITABILITY: SOME EARLY EVIDENCE FROM NEW ZEALAND

This paper adds to the scant literature on the tightening of regulations and its impact on the profitability of insider trades by examining the effects of the recent enactment of the Securities Market Amendment Act 2002 in New Zealand. We investigate the abnormal returns around the date of insider transactions both before and after the introduction of this Act. We find that the number of insider transactions decreased just prior to the introduction of the Act; further we observe a marked reduction in the profitability of directors. However, the difference between the pre and post-change returns lacks statistical significance.

A Proclivity to Cheat: How Culture Influences Illegal Insider Trading

We examine the role of culture on the prevalence of illegal insider trading. Recent literature suggests that decisions and actions of economic decision-makers, including CEOs and managers, are influenced by behavioural biases (Shefrin, 2007). We hypothesize that nations where individuals are more risk-averse and less individualistic engage in less illegal insider trading. We employ the uncertainty avoidance and individualism cultural dimensions of Hofstede (2001) as a proxy for culture. Using price run ups and abnormal volume data, as a proxy for illegal insider trading, from 7,853 target firms in 28 countries for the period January 1990 to August 2008, we show that uncertainty avoidance, a country-level proxy for risk aversion, is negatively related to insider trading, while individualism appears to have less connection with insider trading. Our findings suggest that law makers may need to consider cultural aspects within a country when developing insider trading laws.

Does integration lead to lower costs of equity

Recent evidence has suggested that the benefits of equity market integration may not be shared equally by all firms. Making use of a firm-level measure of integration we investigate whether one of the documented benefits of equity market integration, lower cost of equity capital (COEC), holds for all Australian firms. Empirical evidence suggests that the degree of integration is reflected in firm COEC, albeit not in the expected way. Our results indicate that increased integration at the firm level leaves firms exposed to higher COEC when world market conditions are volatile.

Help or Hindrance? Boardroom Network Connectivity and Firm Performance

While boardroom networks should act as a conduit for resource sharing between firms, and in doing so improve firm performance, recent evidence on the value of connected boards is limited and inconclusive. This study aims to provide additional evidence on the impact of board connectivity on firm performance by exploring Australian listed firms between 2001 and 2011. We employ four dimensions of connectivity; measuring the quantity, speed and quality of information flow and resource sharing, and a firms access to the best-connected boards. We also employ a factor of the four connectivity dimensions. Our findings show more connected boards have lower firm performance, measured with Tobin’s Q. The results remain consistent after controlling for alternative measures of firm performance, and model specifications. The results suggest that boardroom networks are not a value-enhancing tool for boards.