Emanuele Bajo

The Information Content of Abnormal Trading Volume

This paper investigates the way in which abnormal trading volume reveals new information to market participants. It is generally thought that trading volume is an efficient proxy for information flow and enhances the information set of investors. However, no research has related the presence of abnormal trading volume to firm characteristics, such as ownership and governance structure, which also have a theoretical link to information quality. I find strong excess returns around extreme trading levels, which are only moderately attributable to information disclosure. Moreover, these returns are not caused by liquidity fluctuations since prices do not reverse over the following period. In contrast, there is evidence of price momentum, suggesting that traders can implement successful portfolio strategies based on observation of current volumes. Copyright (c) 2010 Blackwell Publishing Ltd.

Do what insiders do

Purpose – This paper aims to investigate the main motivations for Italian insiders to trade relevant stakes of their companies, specifically assuming that most transactions are driven by speculative intents. According to an information asymmetry hypothesis, insiders, having a superior information set, may better detect the temporary under or overvaluation of stocks. Moreover, when insider trading law is not well enforced, insiders may take advantage of relevant and undisclosed information. In both cases, such transactions would convey an important signal to uninformed traders.Design/methodology/approach – In order to determine whether insiders are able to earn abnormal returns, a standard event study methodology is used and, then, a profitable mimicking portfolio strategy is proposed.Findings – The paper finds statistical evidence of a positive relationship between the change of holdings and the sign of market movement: excess returns are earned after a positive increase of relevant stakes and negative ab...

Institutional Investors Networks and Firm Value

This paper investigates the role of institutional investor networks on firm value. Using US data over the period 2001-2013, we document that block-holdings from more central institutional investors (i.e. with larger co-ownership ties) enhance firm value more than those held by other investors. Our findings are consistent with the view that central institutional investors provide a certification benefit to the firm. On the opposite, we do not find evidence that the increase in value is due to monitoring, advisory, or information cost effects. The documented effects are robust to alternative specifications of network centrality and to endogeneity concerns.

Out of Sight, Out of Mind: Financial Illiteracy, Inattention, and Sluggish Mortgage Refinancing

We analyze the effect of an exogenous shock to the Italian mortgage market. A new reform passed in 2007 has abolished prepayment fees and simplified mortgage refinancing, making it akin to a cost-free decision to households. This law — along with the almost simultaneous drop in market interest rates — has generated important gains for fixed rate borrowers, which we quantify at up to 8 percent of the principal balance. Nevertheless, only 4.2 percent of borrowers have locked in this opportunity. We establish a causal relationship between this sluggish behavior, investors’ inattention, and their level of financial illiteracy.

Time Value vs. Cost of Forcing Call: New Evidence on Convertible Bond Call Policy

Since the seminal work of Ingersoll (1977b) the puzzle concerning the delay of convertible bond calls has seemingly been solved. Several studies have put forward a number of possible reasons to explain the apparent delay: dividend dilution, the risk of financial distress following a failed conversion, agency costs and tax shield, to cite the most unanimously agreed ones. However, we argue that an important advantage of convertible bond calls has been almost neglected: the time value-extraction from conversion option. By proposing a new measure for the effective convenience of calling — which we define as net time value advantage — we give a more comprehensive explanation of firms’ convertible bonds call policy.