Keng-Yu Ho

Long-Run Post Merger Stock Performance of UK Acquiring Firms: A Stochastic Dominance Perspective

Using the idea of stochastic dominance, the long-run post-merger stock performance of UK acquiring firms is studied. Performance is compared by using the entire distribution of returns rather than only the mean as in traditional event studies. The main results are as follows: First, it is found that, in general, acquiring firms do not significantly underperform in three years after merger since no evidence of first- or second-order stochastic dominance relation between acquirer and benchmark portfolios is observed. Second, it is found that acquirers paying excessively large premiums are stochastically dominated by their benchmark portfolio implying that overpayment is a possible reason for post-merger underperformance. Consistent with previous studies, it is found that cash financed mergers outperform stock financed ones. Finally, no evidence is observed that glamour acquirers underperform value ones as no stochastic dominance relations between the two. In general, the results underline the importance of examining long-run post-merger stock performance from alternative perspectives.

Long-run Stock Price Performance after IPOs: What Do Tests for Stochastic Dominance Tell Us

Traditional studies of long-run stock price abnormal performance after corporate events compare the mean returns of an event firm portfolio and a benchmark firm portfolio or index. However, it is well known that long-run abnormal returns are non-normal leading to problems with statistical inference on abnormal performance. Instead in this paper, the entire return distributions of event firms and the benchmark index using non-parametric tests of stochastic dominance are compared. Tests are applied for first and second order stochastic dominance to Ritters (1991) IPO data. It is found, contrary to results that compare only mean returns, that IPO firms do not underperform a benchmark index. The results are robust to extreme values of buy-and-hold return of IPO firms and underline the fact that long-run abnormal performance measurement is sensitive to the methodology used.

Fear Sentiment, Liquidity, and Trading Behavior: Evidence from the Index ETF Market

This paper explores how the fearful market-based sentiment indicators affect investor trading behavior and market liquidity. Our results show that a high degree of fearful market-based sentiment induces more sell orders along with a reduction in market liquidity, and vice versa. In addition, most of our findings suggest that the fear sentiment, in the case of extremely high implied volatility, decreases net buying volume more significantly. As for the interaction between fearful market-based sentiment and institutional investor expectation, we show that net buying volume and market liquidity decrease (increase) more significantly than they normally do when the fearful market-based sentiment increases (decreases) in the state of bearish institutional investor expectation. The results provide support to the myopic loss aversion of investors.

Market Efficiency and Foreign Institutional Trading: Evidence from the Taiwan Futures Market

The literature frequently views foreign institution investors in emerging markets as informed traders with an information advantage that likely increases market efficiency. Using a unique data set from the Taiwan Futures Exchange (TAIFEX), we directly investigate the informational role played by foreign institution investors. Interestingly, we find that, despite a significant increase in foreign institution trading over the past few years, liquidity costs increased significantly and the informational efficiency of market price actually deteriorated. We find direct evidence showing that the increase in foreign institutional trading is associated with the deterioration of market efficiency. We reconcile this unexpected finding by showing that foreign institution investors are more likely to act as market makers on the TAIFEX by submitting passive limit orders.

The Impact of CDS Trading on the Cost of Bank Loan

This paper investigate the impact of Credit Default Swaps (CDSs) trading on the cost of bank loan during 2001 to 2012. Theoretically, the CDS trading have lowered the cost of bank loan to firms by creating risk sharing opportunities and reducing bank monitoring and information cost. However, as a whole, we only find limited evidence that the CDS trading have lowered the cost of bank loan but the impact is stronger for smaller firms, those firms with higher liquidity in the CDS market, and bank loan market in Asia. Nevertheless, there is strong evidence, during the recent financial crisis period, those firms with CDS trading faced higher bank loan spread than those not with CDS trading.

The Diversification Effects of Real Estate Investment Trusts: A Global Perspective

We examine whether investors can improve their investment opportunity sets by incorporating real estate investment trusts (REITs) into their equity portfolios for the United States and six other countries. The result indicates that the addition of a REIT portfolio leads to a statistically significant increase in the investment opportunity sets available to domestic investors in all countries. We further show that U.S. investors who include international REITs in their equity portfolios experience significant diversification benefits, which come from both an improved Sharpe ratio and an overall reduction in risk. Our study not only fills a gap in the academic literature but also provides implications to the practitioners.

Funding Liquidity and Equity Liquidity in the Subprime Crisis Period: Evidence from the Financial ETFs Market

Using financial ETFs from various financial industries, we set out in this study to explore the relationship between funding liquidity and equity liquidity. We measure funding liquidity from the interbank as well as the collateral markets and examine how funding liquidity affects bid-ask spread, market depth, and net buying volume during the subprime crisis period. Our results show that a higher degree of funding illiquidity leads to an increase in bid-ask spread and a decrease in market depth and net buying volume, indicating that equity liquidity tends to decrease. However, we find evidence of an adverse relationship between net buying volume and funding liquidity for the global ETFs. Based on the event study, we find that there is a significant net buying volume during the Bear Stearns event, but funding illiquidity decreases equity liquidity more significantly following the bankruptcy of Lehman Brothers. Overall, our study provides a better understanding of the role of the liquidity-supplier funding constraint during the subprime crisis period.