Henry R. Oppenheimer

Anomalies in Stock Market Pricing: Problems in Return Measurements

We study four asset pricing anomalies: market size, contrarian, momentum, and book-to-market premia. We first control for two biases. We control for delisting effects, which create a survivorship bias. We then control for microstructure distortions from the bid-ask spread bounce, which upwardly biases returns when the bid-ask spreads are large. We find that these two biases account for a substantial portion of the market size, contrarian, and book-to-market anomalies. While these bias effects are substantial, they do not invalidate the anomalies. Controlling for bias, the momentum premium strengthens.

Initial Margin Requirements, Volatility, and the Individual Investor: Insights from Japan

Initial margin requirements represent: (1) a cost impediment to the wealth constrained investor and (2) a potential way of mitigating excessive volatility. However, prior empirical research finds that margins are not an effective tool in reducing volatility. We consider the possibility that margins primarily affect certain stocks and investors. Specifically, we test whether margins affect individuals who, as a group, we believe to be the investors most affected when margin requirements change. Our initial empirical tests, however, do not support this contention.

The competitive effects of US decimalization: Evidence from the US-listed Canadian stocks

Abstract This paper analyzes the impact of US decimalization on the Canadian stocks listed on the Toronto Stock Exchange (TSE) and either the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotation System (Nasdaq) in the US. Using a sample of 126 firms, we find that the US trading of these stocks increases after decimalization, but this increase is not at the expense of TSE volume. Indeed, the TSE volume increases substantially for those securities that are traded on Nasdaq and increases marginally for those securities that are traded on the NYSE. Most of the increase in volume is in retail-sized trades. The bid–ask spreads and the quote depths decline on all exchanges, but by a greater amount in the US than in Canada. The depths on the NYSE decline from being above the TSE depths to well below the TSE depths. We also find that the decline in the TSE spread is directly related to the size of the firm and to the decline in the US spread, and is inversely related to the pre-decimalization ratio of spreads on the US exchange and the TSE. Overall, our results indicate that the US decimalization had the desired positive impact on trading in both the US and Canada, with a decrease in spreads and an increase in retail-sized trading.

The Behavior of Risk Arbitrageurs in Mergers and Acquisitions

When takeover announcements are made, trading in the securities, involved in the transactions is dominated by the decisions and actions of risk arbitrageurs. Generally institutions and individuals liquidate their positions in the target companys securities in the marketplace while arbitrageurs buy the shares of the target company. The inner workings of the risk arbitrage decision process however, has not been sufficiently explored in the literature. This article, through a survey of arbitrageurs, explores insights into the thought process and decision making of risk arbitrageurs. The survey characterizes the rapid reactions of arbitrageurs to takeover announcements as well as their approach to trading and controlling risk within their portfolios. The results from the survey also provide insights into how arbitrageurs conduct their trading. While it is commonly believed that they use market orders, the survey finds that is rarely the case. The survey shows that arbitrageurs use limit orders instead to control the prices at which they buy and sell securities.

The day-of-the-week anomaly: the role of institutional investors in Japan

A large ‘day-of-the-week’ literature shows abnormal losses on Mondays. Recent articles for US stocks focus on the role of the type of investor. The central idea in these articles is that the marginal-price setting changes on Monday. To identify the type of investor, these articles look at the proportion of stock ownership held by individuals and institutions. For an out-of-sample test to the US market studies, we study the Japanese stock market. Consistent with the US results, Japanese day-of-the-week patterns show Monday losses and strong Monday losses predicted by Friday losses. However, we find no evidence that the type of investor influences the Monday loss or Friday-to-Monday autocorrelation.