Alan Kraus

Parallel Trading by Institutional Investors

A belief frequently expressed by observers of the stock market is that groups of institutions tend to trade in the same way at the same time. Two expressions of this belief follow:Frequently reference is made to the ‘impact’ of institutional investors on the stock market. Apparently it is worrisome to the observers of the markets to find that we tend to buy and sell somewhat in unison.

Measuring Event Impacts in Thinly Traded Stocks

The purpose of this paper is to suggest simple procedures designed to cope with the effects of thin trading on event study tests. The procedures are directed at two central problems: (i) missing individual stock returns (i.e., days on which no trading is observed in a security), and (ii) the effect of a bid-ask spread on the time series behavior of daily stock return data. We attack these problems by explicitly incorporating them in the construction of a generating process for observed security returns. First, we develop a procedure for “filling in” missing returns. Then, we model a return-generating process of observed security returns that allows estimation of the variance of unobserved true security returns for use in hypothesis testing.

Defining Bad News: Changes in Return Distributions That Decrease Risky Asset Demand

We provide a random variable characterization of the necessary and sufficient conditions for a shift of the distribution of rate of return on the risky asset in the two-asset portfolio problem to reduce demand for all strictly risk-averse expected-utility-maximizing investors. We also provide random variable characterizations of the shifts that reduce both demand and expected utility for all strictly risk-averse investors.

Communication of Aggregate Preferences through Market Prices

In a dynamic economy with a sequence of markets over time, there are generally goods or securities that will be traded in the future at currently unknown prices. Individuals require some notion of what these future prices will be since knowledge of future investment opportunity sets is relevant when making current portfolio allocation decisions.