Utpal Bhattacharya

The World Price of Insider Trading

The existence and the enforcement of insider trading laws in stock markets is a phenomenon of the 1990s. A study of the 103 countries that have stock markets reveals that insider trading laws exist in 87 of them, but enforcement-as evidenced by prosecutions-has taken place in only 38 of them. Before 1990, the respective numbers were 34 and 9. We find that the cost of equity in a country, after controlling for a number of other variables, does not change after the introduction of insider trading laws, but decreases significantly after the first prosecution. Copyright The American Finance Association 2002.

When an event is not an event: the curious case of an emerging market ☆

A phosphinyl derivative of formula wherein X is selected from the group consisting of a carbon atom with a hydrogen atom attached thereto and a nitrogen atom, R1 is A. A PHENYL RADICAL, B. A QUINOLYL RADICAL, C. ONE OF THE RADICALS (A) AND (B) BEING SUBSTITUTED BY AT LEAST ONE SUBSTITUENT SELECTED FROM THE GROUP CONSISTING OF HALOGEN, TRIFLUOROMETHYL AND 1 TO 3 ALKYL RADICALS HAVING IN TOTAL UP TO 4 CARBON ATOMS, R2 is selected from the group consisting of a dialkylphosphinylalkyl radical and a dialkyl phosphinyl-hydroxyalkyl radical each of said radicals R2 having a total of from 3 to 7 carbon atoms AND ACID ADDITION SALTS THEREOF, PHARMACEUTICAL PREPARATIONS CONTAINING SAID DERIVATIVES.

Is Unbiased Financial Advice To Retail Investors Sufficient? Answers from a Large Field Study

Working with one of the largest brokerages in Germany, we record what happens when unbiased investment advice is offered to a random set of roughly 8,000 of the brokerage’s several hundred thousand active retail customers. We find that investors who most need the financial advice are least likely to obtain it. The investors who do obtain the advice (about 5%), however, hardly follow the advice, and so do not improve their portfolio efficiency much. Overall, our results imply that the mere availability of unbiased financial advice is a necessary but not sufficient condition for benefiting retail investors.

Capital Markets and the Evolution of Family Businesses

We model a family business as a household operating a production technology in which the households human capital is a specific business skill. Each generation can either bequeath the business and the business skill to the next generation or sell the business through a financial intermediary and bequeath the revenue. Using a dynamic model, we analyze how the imperfections in primary capital markets affect the evolution of family businesses. Whether recourse to external financing exists or not, our model predicts that family businesses are bigger, last longer, and have lower investment rates in economies with less developed primary capital markets. Copyright 2001 by University of Chicago Press.

Firm Mortality and Natal Financial Care

We construct a mortality table for U.S. public companies during 1985–2006. We find that firms’ age-specific mortality rates initially increase, peaking at age three, and then decrease with age, implying that the first three years of public life are critical. Financial intermediaries involved around the public birth of a firm — venture capitalists (VCs) and high-quality underwriters — are associated with lower firm mortality rates, sometimes for up to seven years after the IPO. VCs reduce mortality rates more through natal financial care than through selection, whereas high-quality underwriters affect firm mortality more through selection.

The Global Rise of the Value-Weighted Portfolio

We do three things in this paper. We first develop a metric to measure the popularity of the value-weighted portfolio in a stock market. We use our metric to document that, though the value-weighted portfolio is less popular in emerging markets than in developed markets, its popularity is increasing everywhere. In the United States, for example, trading in the value-weighted portfolio could only explain 32% of trading volume in the 1920s, but can explain 68% in the 2000s. Finally, as we have better data for the United States, we explore why the value-weighted portfolio is becoming more popular.

Do Japanese CEOS Matter

In a country where individualism is emphasized less than in Western countries, we ask whether the CEO (shacho) of a Japanese corporation positively affects firm performance. To answer this question, we construct a shacho-firm matched panel data set in the period 1990 through 2002 of all listed 1419 Japanese manufacturing firms and their 3520 shachos. Though we find a positive abnormal stock return on the date a shacho change is announced, especially when the shacho change is non-routine, we document that this effect is short-lived. There seems to be no long-run positive change in performance or policies after a shacho change, even when the shacho change is non-routine. Finally, in trying to explain firm performance or policies, we attempt to separate a firm-fixed effect from a shacho-fixed effect, and are unable to disentangle a shacho-fixed effect. We are thus left to conclude that shachos do not positively matter in the Japanese corporation in this decade of a stagnant economy.

In search of the right middleman

Abstract This paper shows that when traders go to a middleman only if they cannot get a better price somewhere else, the two popular evaluation criteria for middleman — low bid-ask spreads and low inventory holding costs — may be inconsistent.

What Affects Innovation More: Policy or Policy Uncertainty?

Motivated by a theoretical model, we empirically examine for 43 countries whether it is policy or policy uncertainty that affects technological innovation more. We find that innovation, measured by growth in patent counts, citations, and originality, is not, on average, affected by which policy is in place. Innovation, however, drops significantly during times of policy uncertainty measured by national elections. To establish causality, we use close presidential elections, whose timings are pre-determined and results are unpredictable, and ethnic fractionalization that are likely exogenous to policy and policy uncertainty. Political compromise, our paper concludes, is a plus for innovation.

The Share Repurchase Announcement Puzzle: Theory and Evidence

A good type can separate itself from a bad type by giving a costly signal; the bad type will not mimic because the signal is costlier for the bad type. A good type can also separate itself from a bad type by attracting scrutiny; the bad type will not mimic because the bad type will not risk attracting scrutiny and being discovered. The contribution of this paper is to develop a simple model to find out which separation method will be used in the context of a firm signaling its value to a capital market. We then test the predictions of the model – costless signaling is more likely to be used by more ignored and more undervalued firms – using a data set that contains firms that employ costless signals (25% of firms that announce open market share repurchases do not do it) and firms that employ costly signals (75% of firms that announce open market share repurchases do it). The evidence in favor of the predictions of the model is surprisingly robust.