Tai Ma

Are Initial Return and IPO Discount the Same Thing? A Comparison of Direct Public Offerings and Underwritten IPOs

The major difference between this study and the literature is in the estimation of the true IPO discount. We point out that initial return consists of two parts: the true discount of the offer price as well as the market reaction on the listing. By comparing the true discounts in traditional underwritten IPOs and the emerging direct public offerings(DPOs), we find that DPOs have both lower initial returns and lower discounts than IPOs, furthermore, DPOs have positive market reaction(overreaction) while IPOs have negative market reaction(underreaction) in the first month. The reason for the smaller discount of DPOs is not due to underwriting mechanism or firm characteristics, but that DPOs investors have less information asymmetry problem than their counterpart in IPOs. However, the DPO investors may be overconfident on their private information, which leads to market overreaction in the first month. Key words: DPO, IPO discount, initial return, overconfidence, information asymmetry

Rational or Irrational? A Comprehensive Studies on Stock Market Crashes

This study attempts to illustrate the contributing factors for different patterns of crashes. In addition to the fundamental macro-economic factors, this paper argues that the existence of herding behavior as well as the level of investor attention are also important factors affecting the pattern of stock price fluctuations. By differentiating the rational component and irrational component of these behavioral factors, more insight concerning financial crisis can be drawn. Patterns of crashes are defined by three dimensions, which are the cumulative decline, the speed of decline, as well as the duration of the crash. Innovative measures and comprehensive analyses are conducted based on three sets of explanatory factors: macroeconomic factors, market micro-structure factors and behavioral factors. Results of partial R2 show that behavioral factors are the most influential factors explaining the magnitude as well as the duration of crash; while the speed of decline is mainly related to market micro-structure factor. Our results show that investors irrational behavior is more important than fundamental factors in explaining or predicting market crashes.The contribution of this study are threefold: First, crashes in 40 markets are defined, measured and categorized into eight types of crash patterns, providing interesting statistics for international market crashes. Secondly, we differentiate between rational and irrational components of behavioral factors in explaining the causes of market crashes, which are largely neglected in past literatures. Thirdly, threshold of each explanatory variable of market crash are estimated. The results of this paper can provide policy makers, fund managers and investors valuable information in risk management and pre-warning system.

Rational Expectations and Monetary Policy: A New Perspective on the Chinese Housing Market

This paper revisits the effectiveness of Chinese monetary policy from augments concerning rational expectations. To estimate the dynamics of expectations, we incorporate market regime switching into the estimation of the rational expectations element using a recursive solution method. When Chinese market-oriented reforms improves the access of agents to market information, we show that (i) agents using available information behave rationally in forming price expectations and (ii) monetary policies in the presence of rational expectations are neutral with respect to real asset price dynamics, even if the market is heavily regulated by the monetary authority.

Who Wins and Who Loses in Transparent Markets? Daily and Intraday Analysis of Taiwan Stock Market

This paper provides evidence regarding the welfare effect of pre-trade transparency according to investor and order type. In order to appreciate the manner in which welfare varies with market transparency, it is necessary to examine investors’ behavioral adjustments (aggressiveness and order size adjustments) with respect to market transparency. We find that both individual and institutional investors are more willing to supply liquidity following the enhancement of market transparency. Although individual investors behave more aggressively and submit larger orders when they supply and demand liquidity, institutional investors are relatively more conservative and submit smaller orders in an open environment. The welfare of investors is measured in terms of implementation shortfall, which is the weighted average of price impacts and opportunity costs. Our main conclusion is that both institutional and individual investors, but especially institutional investors, who demand immediacy benefit from pre-trade transparency; however, individual investors who supply liquidity lose on account of pre-trade transparency. Further, intraday analysis indicates that although transparency enhancement is most detrimental for individual investors providing liquidity during the period approaching market close, it is most beneficial for institutional and individual investors demanding liquidity during the period approaching the close of markets.

Does Information Content Necessarily Increase with Greater Pre-Trade Transparency?

This study examines the impact of increasing pre-trade transparency using intraday data from the Taiwanese stock market, which has recently experienced gradually increasing transparency. The analytical results indicate the disclosed quotes are more informative than the accompanied depths, and the orders of institutional traders are more informative than those of individual traders. Additionally, the best quotes of unexecuted orders for individual traders always contain more information than the average quotes from Steps 2 to 5, whereas this does not apply for institutional investors. The feature is more obvious for the sub-samples with high and medium turnover rate, but not for the sub-samples with low turnover rate.

Stock market surveillance and market performance: The case of Taiwan

In this paper we investigate the effect of warning announcements on the price behaviour of stocks. We also study the effects of various corrective treatments (trading halts, call trading and 100% payment/delivery with order) on the performance of stocks in the Taiwan stock market. It is found that warning announcements serve to improve the performance of stocks, except in the case of consecutive warnings. Generally speaking, the corrective measures taken after the consecutive warnings are able to reduce the volatility, the abnormal returns and the excess liquidity of the stocks.