Jerry T. Parwada

The Governance Effect of the Media’s News Dissemination Role: Evidence from Insider Trading

We investigate whether the media plays a role in corporate governance by disseminating news. Using a comprehensive data set of corporate and insider news coverage for the 2001–2012 period, we show that the media reduces insiders’ future trading profits by disseminating news on prior insiders’ trades available from regulatory filings. We find support for three economic mechanisms underlying the disciplining effect of news dissemination: the reduction of information asymmetry, concerns regarding litigation risk, and the impact on insiders’ personal wealth and reputation. Our findings provide new insights into the real effect of news dissemination.

The Information Content of Australian Managed Fund Ratings

We examine the information content of managed fund ratings for Australian retail investors. Because fund ratings, premised on a quantitative-qualitative model, are highly transitory, we question whether investors formulate their investment decisions with respect to changes in ratings and whether ratings, in turn, react to fund flows. We find that information regarding fund flows can be obtained from ratings, and that rating changes can have far-reaching effects. Investors flock to newly upgraded funds while they penalize those that have been downgraded by withdrawing funds. Investors are constantly anticipating ratings revisions, particularly downgrades, and we attribute this phenomenon to the role of qualitative factors in the ratings.

Predicting stock price movements: an ordered probit analysis on the Australian Securities Exchange

Using stocks from a wide range of industry sectors on the Australian Securities Exchange, this paper examines the conditional distribution of intra-day stock prices and predicts the direction of the next price change in an ordered-probit-GARCH framework that accounts for the discreteness of prices. The analysis also incorporates the endogeneity of the time between trades in an ACD framework. Other elements considered include depth, trade imbalance, and volume. The results show that trade imbalance has a positive effect on the probability of price change. Durations have a negative effect. In-sample and out-of-sample forecasting analyses reveal that, in 71% of cases, the system successfully predicts the direction of the subsequent price change.

Where do Hedge Fund Managers Come from? Past Employment Experience and Managerial Performance

Hedge funds are secretive products whose quality is difficult to ascertain in advance of investment. We examine two views of past work experience as predictors of hedge fund manager pedigree. In one, sector specific (hedge fund) work experience is positively related to performance. In the other, related industry (mutual funds, prime brokerages, custodian firms and securities brokerages) experience correlates with superior performance. Overall, aspects of specific and generally related industry experience appear important in signaling hedge fund quality. Funds whose management team possesses past hedge fund experience report superior performance. However, diversifying across experience types in a fund has no impact on returns. Hedge fund manager teams with prime brokerage and custodian experience along both proportional and diversity dimensions experience higher survival probabilities.

Effects of Bank Funds Management Activities on the Disintermediation of Bank Deposits

A spin casting fishing reel is provided with a key slideably mounted within the frame for providing release of the spindle shaft assembly from the reel frame. The key is slideable from a first key position, which operatively retains the shaft assembly within the frame, to a second key position, which releases the shaft assembly, so that the entire spindle shaft assembly can be removed from the frame. Once released from the frame, the entire spindle shaft assembly can be easily disassembled into its component parts for repair or readjustment. With the spin casting fishing reel reassembled to its normal operating position, it operates as any conventional spin casting fishing reel.

Are Entrepreneurs Special? Evidence from Board Appointments

We study the appointment of entrepreneurs as outside directors to examine their effect on corporate outcomes in firms not created by them. Entrepreneur directors are more likely to join smaller firms and firms whose founders currently serve as directors. Appointments of entrepreneur directors attract higher stock price reactions than appointments of other outside directors and firm value increases with the number of entrepreneur directors. The value effect is greater when the firm is smaller or operates in more competitive industries. Entrepreneur directors are also associated with higher corporate risk-taking, increased R&D investments, and improved revenue growth.

The Impact of Scandals on Mutual Fund Performance, Money Flows and Fees

We examine the effects of fraud committed by mutual fund managers taking into account the dual responsibilities managers have for their employer firm and investors. Performance increases in the immediate aftermath of a scandal being reported, followed by a significant drop suggesting fund managers actively preempt the fallout from fraud disclosures. Investors who remain with a scandal fund under-perform by an average of 48 basis points in the subsequent year. Fraud is punished by reduced fund inflows to affected funds. Underperformance and money outflows are more severe with higher monetary fines, regulatory actions initiated by SEC, and the involvement of more than one regulatory body. Scandal funds reduce their expense ratios, possibly to retain and attract investors. This effort allows scandal funds to delay asset fire sales by up to a quarter. However, fund families reduce expenditure on marketing and distribution costs, likely to ameliorate the fallout from scandals by withdrawing affected funds from the limelight.

Empirical Test of the Liquidity-Based Theory of Closed-End Funds

Theory argues that the rationale for the existence of closed-end funds (CEFs) is that they provide investors indirect exposure to their underlying illiquid assets without the high cost associated with trading them directly. Consistent with this reasoning, we show that risk-averse investors invest in CEFs to diversify their portfolios into the illiquid markets in which CEFs specialize. Moreover, investor demand for CEFs is a positive function of the CEF portfolio’s illiquidity level. A direct comparison of CEF holdings with those of CEF investors reveals that the latter underweight stocks invested by CEFs, which are typically small and illiquid. Such impacts of liquidity on investment behavior also vary across investor identities, depending on the level of fiduciary responsibility, investment horizon, and investment style. Beyond the CEF industry, our findings shed new insights on the benefits of the closed-end structure observed in other market segments.

Do Bank-Related Hedge Funds Benefit from Bailouts?

We examine whether connected hedge funds (i.e. those that are prime-brokerage clients of bailout banks) benefited from bailout programs initiated in seven countries during the 2007–2009 financial crisis. We find that being connected to a bailout bank is generally beneficial for hedge funds in that it lowers the rate of fund failure. However, this benefit becomes smaller during the post bailout period, for example, due to the greater risk-taking and higher leverage of such funds subsequent to bailouts. As such, our findings provide support for the moral hazard hypothesis.

Predicting Stock Price Movements: An Ordered Probit Analysis on the ASX

Using stocks from a wide range of industry sectors on the Australian Securities Exchange, this paper examines the conditional distribution of intra-day stock prices and predicts the direction of the next price change in an ordered-probit-GARCH framework that accounts for the discreteness of prices. The analysis also incorporates the endogeneity of the time between trades in an ACD framework. Other elements considered include depth, trade imbalance, and volume. The results show that trade imbalance has a positive effect on the probability of price change. Durations have a negative effect. In-sample and out-of-sample forecasting analyses reveal that in 71% of the cases the system successfully predicts the direction of the subsequent price change.