Shuxing Yin

Systematic Liquidity Risk and Stock Price Reaction to Shocks

This study examines the relationship between systematic liquidity risk and stock price reaction to large 1-day price changes (or shocks). We base our analysis on a yearly updated constituents list of the FTSE All share index. Our overall results are consistent with the price continuation hypothesis, which suggests that positive (negative) shocks will be followed by positive (negative) abnormal returns. However, further analysis indicates that stocks with low systematic liquidity risk react efficiently to both positive and negative shocks, whereas stocks with high systematic liquidity risk underreact to both positive and negative shocks. Our results are valid irrespective of various robustness tests such as size of the shock, size of the firm, month-of-the-year and day-of-the-week effects. We conclude that trading on price patterns following shocks may not be profitable, as it involves taking substantial liquidity exposure.

Derivative activities and Chinese banks'exposures to exchange rate and interest rate movements

This study investigates the impact of Chinese banks’ derivative activities on their exposure to exchange rate and interest rate changes. The standard Jorion [1990. “The Exchange-Rate Exposure of U.S. Multinationals.” Journal of Business 63 (3): 331–345] model provides weak evidence of Chinese banks’ exposure to these risks. However, the exposure increases substantially when time-varying exposure regressions with orthogonalised market returns are used. We also show that Chinese banks exhibit linear and nonlinear exposures to the exchange rate and interest rate fluctuations. Further analysis indicates that the use of derivatives reduces banks’ foreign exchange risk, but does not affect their interest rate exposure. Derivative products are more likely to be used as an integrated part of the Chinese banks’ risk management systems, which could thus help to stabilise the banking system.

Underwriters’ allocation power and adverse selection costs in the IPO process

This study uses a unique and extensive data set of over 28.2 million investors’ applications to examine the theory of adverse selection under two distinct regulatory regimes (discretionary against mandatory clawback provision) in relation to IPO share allocation. Consistent with Rock’s (1996) theory of adverse selection, we show that, prior to the implementation of the regulation; the probability of receiving an allocation in overpriced IPOs is significantly higher than that of receiving an allocation in underpriced hot issues. However, we find that the probability of an uninformed investor receiving an allocation in an underpriced issue increases significantly following the adoption of the mandatory clawback provision. We also report a significant increase in allocation-adjusted returns earned by uninformed investors in the period following introduction of the mandatory clawback provision. These findings imply that the mandatory clawback provision brings an element of fairness between different investor groups and reduces the winner’s curse in the IPO market.