Paul J. Irvine

The Incremental Impact of Analyst Initiation of Coverage

A valve-adjusting mechanism for an internal combustion engine in which a drive shaft is constructed as reciprocating crankshaft actuating a connecting rod pivotally connected to the crankshaft so as to move to and fro between a fixed support wall and a pivotally supported wedge-shaped adjusting member extending at an acute angle with respect to the support wall; as a result of the wedging action, the adjusting member thereby carries out an up and down movement which is transmitted onto the valve by way of its valve stem.

Do analysts generate trade for their firms? Evidence from the Toronto stock exchange☆

It has generally been assumed that potential commission revenue is an important determinant of a sell-side analysts decision of what firms to cover and what information to publicly release. However, because stock volume has not been disaggregated on a brokerage-firm level, uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage-firm volume. Using a unique data set that identifies the broker(s) involved in each trade, I find that brokerage volume is significantly higher in covered stocks than in uncovered stocks. On average, brokers increase their market share in covered stocks by 3.8% relative to uncovered stocks.

Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Costs

Using a proprietary dataset of institutional investors’ equity transactions, we document that institutional trading desks can sustain relative performance over adjacent periods. We find that trading-desk skill is positively correlated with the performance of the institution’s traded portfolio, suggesting that institutions that invest resources in developing execution abilities also invest in generating superior investment ideas. Although some brokers can deliver better executions consistently over time, our analysis suggests that trading-desk skill is not limited to a selection of better brokers. We conclude that the trade implementation process is economically important and can contribute to relative portfolio performance. ( JEL G12, G23, G24)

Raising Capital Using Monthly Income Preferred Stock: Market Reaction and Implications for Capital Structure Theory

We examine the impact of selling Monthly Income Preferred Stock (MIPS) on the common share prices of the issuing firms. We find that issuing MIPS to retire preferred stock raises the value of the firm, and that government policy can significantly affect the present value of the tax savings. Using proceeds to retire bank loans negatively impacts common share value. This negative response is larger for MIPS users with lower credit ratings on their senior debt. These findings support the view that banks perform a valuable monitoring service, which, if removed, can invoke an adverse market reaction.

The Convergence and Divergence of Investors’ Opinions around Earnings News: Evidence from a Social Network

We collect a unique dataset of Twitter posts to examine the change in investor disagreement around earnings announcements. We find that investors’ opinions can either converge (reduced disagreement) or diverge (increased disagreement) around earnings announcements. The convergence and divergence of opinion has significant effects on trading volume and return. Consistent with theoretical predictions, both the convergence of opinion and the divergence of opinion are associated with greater volume reaction to earnings news. While the convergence of opinion is associated with lower earnings announcement returns, the divergence of opinion is associated with higher earnings announcement returns.

Nonlocal Disadvantage: An Examination of Social Media Sentiment

We examine 176,375 Twitter posts from nearly two thousand individuals covering 1,015 U.S. companies from 2009 to 2011. While nonlocal Twitter posters consistently exhibit a large negative predictability of stock returns, local posters have close-to-zero and insignificant return predictability. The differential return predictability, or nonlocal disadvantage, is 18 basis points per week and statistically significant. Nonlocal disadvantage is much larger in firms without public news coverage and firms with greater information asymmetry. Compared to local investors, nonlocal investors exhibit significantly greater overreaction to analyst opinions. These results indicate that the performance spread between local and nonlocal individual investors is attributable to local individual investors’ private information, which reduces individual investors’ behavioral biases.

Nonlocal Disadvantage: A Direct Examination of Individual Investors’ Information Set

We examine 176,375 Twitter posts from nearly two thousand individuals covering 1,015 U.S. companies from 2009 to 2011. While nonlocal Twitter posters consistently exhibit a large negative predictability of stock returns, local posters have close-to-zero and insignificant return predictability. The differential return predictability, or nonlocal disadvantage, is 18 basis points per week and statistically significant. Nonlocal disadvantage is much larger in firms without public news coverage and firms with greater information asymmetry. Compared to local investors, nonlocal investors exhibit significantly greater overreaction to analyst opinions. These results indicate that the performance spread between local and nonlocal individual investors is attributable to local individual investors’ private information, which reduces individual investors’ behavioral biases.

Local Advantage or Nonlocal Disadvantage? A Direct Examination of Individual Investors’ Information Set

We examine 176,375 Twitter posts from nearly two thousand individuals covering 1,015 U.S. companies from 2009 to 2011. While nonlocal Twitter posters consistently exhibit a large negative predictability of stock returns, local posters have close-to-zero and insignificant return predictability. The differential return predictability, or nonlocal disadvantage, is 18 basis points per week and statistically significant. Nonlocal disadvantage is much larger in firms without public news coverage and firms with greater information asymmetry. Compared to local investors, nonlocal investors exhibit significantly greater overreaction to analyst opinions. These results indicate that the performance spread between local and nonlocal individual investors is attributable to local individual investors’ private information, which reduces individual investors’ behavioral biases.