Asjeet S. Lamba

An empirical examination of linkages between Pacific-Basin stock markets

Abstract This paper examines the linkages between the stock markets in the Pacific-Basin region during 1988–96 using a vector autoregression model. Our results show that during 1988–96 the US market influences all other Australasian markets, except Indonesia, and none of these markets exert a significant influence on the US market. An analysis excluding the US market reveals persistent linkages between these markets which are traced to the indirect influences of the US market. Finally, markets that are geographically and economically close and/or with large numbers of cross-border listings exert significant influence over each other, with markets closing earlier in the day exerting greater influence over markets closing later in the day.

Short selling restrictions and market completeness: the Malaysian experience

We examine the markets reaction around a series of events on the Kuala Lumpur Stock Exchange (KLSE) where the Malaysian government removed short selling restrictions on selected stocks and then subsequently reimposed these restrictions. These events provide a unique opportunity to analyse the effects of short selling restrictions on the price formation process in an emerging market. It has been argued that the impact on prices from incorporating negative information via short sales should lead to a correction of the upward bias in prices prevalent under short selling restrictions. This should result in lower prices and observed returns around the announcement of the removal of short selling restrictions. Conversely, it can be argued that the removal of these restrictions helps complete markets, permitting full price discovery. This is particularly important in a market like Malaysia where stock options are not traded. Here the immediate impact of a removal of short selling restrictions would be an upward revision in security prices resulting in positive observed returns. The opposite revaluation effects should hold in the situation when short selling restrictions are reimposed. We find evidence consistent with the explanation that the removal of short selling restrictions results in more complete markets and is valued by market participants, particularly for actively traded stocks.

The information content of firms switching from section 2 to section 1 of the Tokyo stock exchange

This paper analyzes the abnormal return behavior of 168 firms switching from section 2 to section 1 of the Tokyo Stock Exchange during 1984–92. Our study distinguishes itself from previous studies on listings because we examine the pricing behavior of firms on different segments of the same exchange in a market outside the US. Our results show that firms switching to section 1 earn statistically significant positive abnormal returns before the switch day. After the switch day, these firms earn statistically significant negative abnormal returns. We also find that firms with lower liquidity on section 2 respond more favorably to a switch than firms with higher liquidity on section 2. An examination of trading volume reveals a significant and persistent increase (decrease) in excess trading volume for firms with low (high) liquidity on section 2. Our results are consistent with the explanation that, at least for the less liquid stocks, there is persistent buying on the part of large mutual funds prior to a section switch.

What Motivates Block Share Ownership

Diffuse share ownership is not as pronounced in the U.S. as many would assume. This has led to a body of research examining large shareholders, or blockholders. Issues addressed include whether firms with a blockholder perform better or worse than widely-held firms; whether firms with a blockholder pay their executives differently to widely-held firms; and whether the presence of a blockholder increases or decreases the incidence takeovers. Another issue, which this paper explores, is what motivates block share ownership. Bebchuk (1999a, 1999b) develops a model which predicts that a firm is more likely to have a controlling blockholder if the anticipated private benefits of control at that firm are comparatively large. This paper examines the factors associated with ownership structure among publicly traded Australian firms. Our results indicate that private benefits of control are a significant factor in explaining the differences in ownership structure among Australian firms. As importantly, we also find that the relationship between the existence of a blockholder and private benefits of control is endogenous. That is, the presence of a controlling blockholder strongly influences the prevalence of these private benefits of control.

The Costs of Corporate Litigation in Australia

This paper presents the results of a study that measures the costs associated with litigation for plaintiff and defendant companies for a sample of companies listed on the Australian Securities Exchange. The study uses event study methodology to examine the effects of litigation initiation announcements, settlement announcements and judgment announcements. The study also examines whether the impact of an announcement is related to the type of plaintiff (such as corporate plaintiff or a government plaintiff) and whether the impact differs according to the type of legal claim (such a breach of contract, a trade practices matter, an intellectual property infringement or securities fraud).

The Role of Institutional Traders around Section Switches on the Tokyo Stock Exchange

In this paper we analyze the trading behavior of major market participants around switches from section 2 to section 1 of the Tokyo Stock Exchange (TSE). Previous research has shown that firms switching to section 1 earn significant positive abnormal returns around the switch date. It has been argued that the abnormal returns earned by these firms are driven by the trading strategies of a few large mutual funds that dominate trading on the TSE. If these large mutual funds have prior information about impending switches, and are exploiting this information, their trading strategies would be more obvious in periods when a large number of firms switch to section 1. Based on the observation that a much larger proportion of firms switch to section 1 in September than in other months, we examine the pricing and trading volume behavior of firms switching to section 1 in September and other months during the years 1984–1992. We find significantly higher abnormal returns for firms switching in September than in other months. Also, firms switching in September experience a significant and persistent increase in excess trading volume compared with firms switching in other months. Taken in conjunction with the abnormal return results, this evidence is consistent with a persistent buying behavior on the part of large mutual funds prior to an impending switch to section 1.