Allan A. Zebedee

Examining Bank SEOs: Are Offers Made by Undercapitalized Banks Different?

Despite extensive monitoring, banking operations are often considered opaque, and despite explicit capital adequacy regulation, banks may have substantial discretion in their financing. Both monitoring and capital regulation have changed substantially over time, with the adoption of FDICIA being one important breakpoint. This article empirically studies seasoned equity offerings (SEOs) by banks to understand how opacity and capital regulation interact to determine the timing of bank SEOs and their market valuation. SEOs both by banks that are undercapitalized relative to regulatory standards and also well-capitalized banks are fully discretionary when it comes to SEOs, even before FDICIA. Both undercapitalized and well-capitalized banks experience similar and significantly negative stock price reactions to SEO announcements, and also have similar prior patterns of insider trading and similar economic drivers of the issuance decision. Moreover, post-SEO abnormal stock returns are similar to benchmark returns for both types of issuers in the long run, suggesting that, contrary to the well-documented evidence for industrial SEOs, investors understand the value implications of bank SEOs upon announcement. The evidence implies that undercapitalized banks SEOs are more discretionary and that all bank SEOs are less opaque than implied by earlier studies.

The Greenspan Effect on Equity Markets: An Intraday Examination of U.S. Monetary Policy Announcements

In this paper, we provide an intraday analysis of the impact of monetary policy on the equity markets. Specifically, we study changes in prices and changes in volatility for the S&P 500 associated with Federal Open Market Committee announcements as well as real-time changes in market expectations about future policy. The analysis shows an economically and statistically significant inverse relationship between equity market returns and changes in the Fed funds rate target. The magnitude of the response is dependent on whether the change was expected or unexpected. An expected change in the Fed funds rate target of 25 basis points results in approximately a 30 basis point decline in the broad equity market, while an unexpected change of 25 basis points in the Fed funds rate target results in approximately 125 basis point decline in the broad equity market. The speed of these market reactions is rapid with the equity market reaching a new equilibrium within fifteen minutes. In contrast to these results, the analysis also shows a positive relationship exists between equity market returns and changes in expectations about future monetary policy. Taken together, these results regarding price changes (returns) suggest that the price discovery process in the equity markets is dominated by the realization of expectations and not market expectations per se. Meanwhile, the volatility analysis suggests a volatility spike follows both FOMC announcements and real-time changes in expectations, but the duration of these spikes is relatively short-lived and dampens out within one hour.

The effects of gender composition of senior management on the economic fallout

In this article, we test the proposition that the presence of women in management impacts decision-making outcomes. In particular, we hypothesize that the greater the proportion of women on the senior management team, the lower the degree of risks taken at the firm level. Using data from the US Equal Employment Opportunity Commission (EEOC), the Center for Research in Security Prices (CRSP) and the US Treasury in this study, we create firm-level gender ratios and control for firm size to assess the impact on two separate risk outcome measures. We find some evidence that financial institutions with more women in the senior management team avoided having to accept Troubled Asset Relief Program (TARP) funds, but that the proportion of women executives has no impact on stock return volatility.

The impact of a trade on national best bid and offer quotes: a new approach to modeling irregularly spaced data

In 1975, amendments to the Security Exchange Act of 1934 mandated the development of a national market system. In response to this mandate, securities listed on the New York Stock Exchange may trade simultaneously on multiple markets. This paper investigates the differential impact of trades executed in the NYSE and regional markets on the national best bid and offer quotes by using a trade and quote revision vector autoregression system. The analysis also introduces a new approach for modeling data collected on irregularly spaced intervals that explicitly estimates a rate at which lagged information is being discounted by incorporating time into the model specification. The results indicate that trades on the regional markets have a smaller, but still significant impact on the price process and that the spacing between observations contains valuable information in modeling the price process.