Dionigi Gerace

Effect of Diversification on Capital Structure

Previous empirical financial studies have paid little attention to the role of diversification strategy on financial choices. This study analyses the financing strategies of multibusiness firms, suggesting the relevance of sorting the diversification phenomena into its related and unrelated components. The implications of our findings are important because they explain earlier contradictory results on capital-structure determinants and offer an explanation of how the degree of product specialization/diversification and the direction of diversification (related or unrelated) translate into different corporate financial behaviours.

Patterns of disclosure and volatility effects in speculative industries: the case of small and mid-cap metals and mining entities on the Australian securities exchange

Purpose - There is conjecture that small and mid-cap companies in highly speculative industries use frequent and repetitive disclosure to promote price volatility and heighten market interest. Excessive disclosure could indicate instances of self-promotion or poor disclosure practices, and these habits could mislead investors. The purpose of this paper is to quantitatively investigate the impact of firm disclosure on price volatility in the Australian stock market. Design/methodology/approach - This paper considers the effect of information disclosure on the daily stock price volatility of 340 Metals & Mining industry entities listed on the Australian Securities Exchange over the period 2005-2007 using regression analysis. Findings - The results indicate the number of disclosures, the number of price and non-price sensitive disclosures and the number of disclosures by category has a significant influence on daily price volatility. Moreover, the volatility impact of disclosure is greater for small and mid-sized firms than large firms. Research limitations/implications - Price volatility is calculated using daily data; intra-day stock prices could provide measures that are more accurate. There is also no attempt to allow for asymmetry in disclosure; categorizing news as “good” or “bad” would allow better insights. Practical implications - There is support for the conjecture that disclosure could serve as a self-promotion tool through fabricated and repetitive announcements. Inadvertent poor disclosure practice could also result in excessive price volatility. Disclosure practice requires ongoing consideration by regulatory bodies. Originality/value - This analysis complements basic work by the Australian regulator to establish a quantitative link between disclosure practice and price volatility.

Call Auction Transparency and Market Liquidity: Evidence from China

This paper uses the natural experiment offered by the Shanghai Stock Exchange to investigate the impact of opening call auction transparency on market liquidity. We find that the dissemination of indicative trade information during the pre-open call auction session leads to an overall improvement in stock liquidity in the continuous trading session. Bid-ask spreads narrow in the first trading hour because adverse selection risk fell significantly and there is less price volatility in the continuous market. This effect is greater for actively traded securities than illiquid securities. Our findings are robust for different lengths of sample period, different lengths of trading hours after market open, and stocks that had (and had not) reformed the share split structure during our research period.

Decomposing the Probability of Informed Trading Measure

This paper aims to analyze the dynamics of information asymmetry in market microstructure through the Easley et al. (2002)s PIN framework in two segments. Firstly, we test to see if factors such as size, value and illiquidity can be used to explain PIN. Secondly, we extend beyond the traditional literature by examining individual components of PIN, especially the informed and uninformed trade intensities. We contribute to the literature by documenting non-linear relationships between trade intensities, and their autocorrelation functions. Our study show that uninformed intensity is more persistent than informed trading and that there exists statistically significant spillover effects from informed trading into liquidity trades, suggesting that liquidity trades lag behind that of informed trades.

The Impact of Trading-Restricted, Business Days and Trading, Non-Business Days on Australian Small-Cap, Large-Cap and Market Returns

This paper comprises an empirical analysis of trading-restricted, business days and trading, non-business days on the Australian Stock Exchange (ASX). Trading-restricted, business days refer to days where trading hours are shorter but business activity (including settlement) is normal; trading, non-business days refer to days where trading takes place almost normally but the settlement of securities is delayed. Seven days are included in the analysis: the Bank Holiday in NSW (non-business), Labour Day in NSW (non-business), Easter Thursday (early close), Labour Day in Victoria (non-business), Melbourne Cup Day in Melbourne (non-business), the last business day before Christmas (early close) and the last business day of the calendar year (early close). Three indexes provide different daily return measures: the All Ordinaries (market), 1958-2007, the Small Ordinaries (small-cap), 1994-2007; and the ASX100 (large-cap), 1992-2007. The trading-restricted, business day and trading, non-business day effect is examined using non-parametric and regression methods. The findings indicate return abnormalities on three days when trading and/or business activity is restricted: Melbourne Cup Day, the last business day before Christmas and the last business day of the year.