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We investigate the impact of family control on both the nominal share price level and the decision to split the firm’s stock. Low stock prices are associated with higher volatility and have been shown to attract more speculative trading, which may force managers to excessively focus on short-term earnings. Moreover, a reduction in the stock price level is often associated with a loss of prestige. We hypothesize that family owners, who are typically long-term investors and are especially concerned about corporate reputation, prefer to set higher stock prices to mitigate short-termism, focus on long-term planning, and reinforce the firm’s prestige. We find a positive correlation between nominal share prices and family control. Our investigations also indicate that family firms are less likely to conduct price reductions through stock splits. These findings suggest that a high stock price is a distinctive feature of family firms and that family owners have a specific norm in mind around nominal prices.

We aim to perform a comprehensive analysis of the effects of stock ratings and target prices published in the Japanese markets using a large number of analyst reports. Our study is the first to cover reports published by six domestic brokerage firms and ten foreign brokerage firms. In addition to the impact of rating changes on stock prices, we provide analyses on the combined effects of stock ratings and target prices. Furthermore, we find that market responses are affected by the information quality of securities companies issuing analyst reports and the number of reports issued on the same day.

This paper investigates the source of price momentum in the stock market using information from options markets. We provide direct evidence of the gradual information diffusion model in Hong and Stein (1999): momentum profits are larger for stocks whose information diffuses slowly into the stock market. We exploit the options markets to identify stocks with slow information diffusion speed. As informed traders trade options to realize the information that has not been fully incorporated in the stock price, we are able to enhance the momentum strategy by selecting winner/loser stocks with high growth/large drop in call option implied volatility. Our empirical strategy generates a risk-adjusted alpha of 1.8\% per month over the 1996--2011 period, during which the simple momentum strategy fails to perform. The results are robust to the impact of earnings announcement, transaction costs, industry concentration, and choice of options' moneyness and time-to-maturity. Finally, our finding is not driven by existing stock- or option-related characteristics that are known the improve momentum.

In this paper a panel analysis is employed to investigate the effects of governments’ expenditure and taxation on stock market indexes in 11 members of the Eurozone. A significant number of studies have focused on the effects of monetary policy on the Eurozone stock markets, while only a limited number of papers have investigated the effects of fiscal policy on the stock markets. Therefore, we know little, if anything, on the sign and the stability of the stock markets’ reaction to taxation and public expenditure. Our results show that fiscal maneuvers influence stock markets and that, following an increase (decrease) in public deficit, stock markets indexes go down (up). Nevertheless, further analysis shows that the signs of the estimated stock markets’ reactions are not constant over time and that they can change according to the surrounding macroeconomic scenario.

I empirically analyze the characteristics of firms that introduce stock options and the introduction’s effects on the performances of Japanese firms. First, I compute the value of the stock options the firms introduced using two methods, the Black–Scholes’ option price valuation model and the binomial, or tree, model. Second, I examine whether firm profitability improved after the introduction of the stock option. The result shows that the stock option values had no positive effects on either ROA or ROE in both the manufacturing and non-manufacturing industries. For the manufacturing industries, where the dependent variable is ROA, stock option values show a statistically significant negative coefficient, suggesting that the introduction of a stock option would not improve firm profitability. Third, I examine whether the introduction of a stock option induces risk-taking firm behaviors. I use financial leverage, capital investment, and research and development (R&D) activity (for the manufacturing industry only) as risk-taking measurers. The empirical analyses of the relationship between stock options and risk-taking firm behavior show negative effects on financial leverage as well as positive effects on R&D activities. Therefore, the general hypothesis that the introduction of a stock option promotes risk-taking firm activities is not supported empirically.

Facilitating domestic and foreign investment and the expected stock returns of shareholders are issues that are typically important for all stakeholders of the company. The alignment of the interests of stakeholders and managers of companies can be achieved by reducing the problems of the agency. The decrease of these problems increases the shareholder's interest in trading on the capital markets and results in the increase of stock liquidity and expected return of shareholders. This study aims to explore some of the corporate governance mechanisms on the stock returns of listed companies in Tehran Stock Exchange. The explored governance mechanisms of the study included non-executive members of the board of directors, the duality of responsibility of the managing director, ownership of institutional shareholders, and audit quality. To this end, 93 companies were chosen through the systematic elimination from 2007 to 2014 which were analyzed using panel data regression analysis. The results of the study indicated that institutional ownership and auditor specialization in industry had an effect on the stock return. In addition, independence of the board of directors, managing director responsibilities and the size of audit institution had no effect on the stock return.

We uncover a mechanical link in the ability of option prices to predict stock returns. Theoretically, stock illiquidity creates asymmetric hedging costs for puts versus calls, which in turn leads to parity deviations that reveal the expected return of the stock. Empirically, we identify this hedging mechanism by focusing on stocks with zero option volume, and banned stocks during the short-sale ban of 2008, which could only be shorted by option dealers for hedging purposes. We proxy for short-sale costs using the equity lending fees. It is unlikely that our results are driven by informed trading in the options market.

In this paper, we study the risk taking implications of managerial pay-for-performance incentives (delta). The extant empirical literature is built on the presumption that each unit of delta has an equal risk inducing effect regardless of its source. Instead, following the predictions of the principal-agent models of executive compensation, we differentiate between performance incentives from stock and option holdings. We show that while option delta is positively associated with firm riskiness, stock delta does not have a significant effect on risk taking. Consequently, the relationship between the total value of pay-for-performance incentives and firm risk strengthens as the relative contribution from option holdings increases. Our findings contribute to the debate on the executive pay reforms, stressing the need to consider the composition of stock-based pay when designing compensation packages to provide appropriate performance and risk incentives to the executives.

We argue that investors could have wrong initial beliefs about the information content of stock dividends. They gradually update their beliefs after learning from firm performance following stock dividend distributions. In support of the learning hypothesis, we document several new findings. We show that operating performance significantly declines after stock dividend distributions. Investors overreact to a firm's early stock dividend announcements and drastically lower the announcement return as the firm announces more and more follow-on stock dividends. Investor learning also reduces demands for stock dividends. The fraction of stock dividend payers sharply decreases from 14.0% in 1950s to merely 0.2% in 2010s. Institutional investor ownership is able to explain 92.5% of the temporal variation in the fraction of stock dividend payers.

Corporate sector of Pakistan is adversely facing co mpetition due to economic downturn in the world and making efforts to survive in a co mpetitive and uncertain economic environ ment. Th is study will help to ameliorate div idend decisions of corporate sector through felicitously appropriate imp lementation of their div idend policies. This paper is an attempt to explicate the affect of d ividend announcements on stock prices of chemical and pharmaceutical industry of Pakistan. A sample of twenty nine co mpanies listed at KSE-100 Index is taken fro m the period of 2001 to 2010. Results of this study is predicated on Fixed and Random Effect Model wh ich is applied on Panel data to exp licate the relationship between dividends and stock prices after controlling the variables like Earnings per Share, Profit after Tax and Return on Equity. The Results show that Stock Dividend, Earnings per Share and Profit after Tax have a significant positive relation to stock market prices and significantly explicates the variations in the stock prices of chemical and pharmaceutical sector of Pakistan while Retention Ratio and Return on Equity have the negative insignificant relat ion with stock prices. This paper further shows that Dividend Irrelevance Theory is not applicable in case of chemical and pharmaceutical industry of Pakistan.

The Taiwan stock market has millions of investors. If each investor spends $5,000 NTD each month on a professional technical analysis system and it is conservatively estimated 100,000 investors would use the system, the market potential will be $500 million NTD. If we can seek out irregular general rules of stock price data on stock market and further make predictions to some extent, the return on investment may be effectively raised, and investment loss reduced for the investors. This study will take Taiwan stock market as data source and use Moving Average Method (MA) to conduct study and analysis of stochastic data of stock price. One stocks (TSMC) typical in Taiwan’s industries and with large-cap index weights are studied to explore whether there are any specific changes and regularities in seemingly irregular stock prices.. We should depend on the front research to develop an effective stock trading analysis system, and we can help investors obtain profits. At the same time, the system users can also make more considerable profits.

We study optimal trading strategy of a market maker with stock inventory. Following Avellaneda and Stoikov (2008), we assume the stock price follows a normal distribution. However, we take a constant expected rate of the stock return and assume that the stock volatility is an inverse function of the stock price level. We show that the optimal bid-ask spread of the market maker is wider for a higher expected rate of stock returns.

It has long been understood that the intention influencing the acquisition of an asset is decisive in deciding on whether the proceeds on sale are of a capital or of a revenue nature, unless there was a change of intention on behalf of a taxpayer. That change of intention has been catered for in the capital gains tax (CGT) legislation as a change of use. There is a correlation between the concepts in that by and large they are the same. However, there are some subtle and some not so subtle changes that have arisen and the message to be gleaned from the cases are in the main that (a) the time of the change of intention, when there is one, is critical; (b) the definition, application and valuation of trading stock is always to be considered in capital/revenue cases; (c) despite the advent of CGT, the arguments surrounding capital vs revenue are unlikely to reduce – the differences in taxation are too great to make the cases less relevant. A further complication that appears to have arisen is the deemed disposal of share dealers’ trading stock when such dealers emigrate. There appears to be the potential for double tax in that the deemed disposal of such stock gives rise to proceeds for CGT purposes as contained in paragraph 12 and 35 of the Eighth Schedule to the Income Tax Act, but also for normal tax purposes in terms of s22(8). This apparent double taxation is, it is submitted, just that – apparent. Key words: Trading stock, capital gains tax, deemed disposal, change of use, change of intention, capital versus revenue.

This paper examines the relationship between option trading activity and stock market volatility. Although the option market is uniquely suited for trading on volatility information, there is little analysis on how trading activity in this market is linked to stock price volatility. The bulk of the discussion tends to focus on whether trading activity in the stock market is informative about stock volatility. To analyze the information in option trading activity for stock market volatility, a sample of 15 stocks with the highest option trading volume is selected. For each stock, it is noted that the trading activities in the put and call option markets have significant explanatory power for stock market volatility. In addition, the results indicate that the call option trading activity has a stronger impact on stock volatility compared with that of the put options. Our results demonstrate that information and sentiment in the option market is useful for the estimation of stock market volatility. Also, the significance of the effects of option trading activity on stock price volatility is observed to be comparable to that of stock market trading activity. Furthermore, the persistence and asymmetric effects in the volatility of some stocks tend to disappear once option trading activity is taken into account.

This study extends the recent study by Chae and Lee (2011) who empirically examine order-splitting and stealth-trading behaviours in the Korea Stock Price Index 200 (KOSPI200) options market, which is the single most liquid derivative market in the world. By analysing the high-quality data set, which identifies and describes all investors in the options market, we find that split orders submitted by institutional investors are substantially informative, whereas those of domestic individuals negatively contribute to the price discovery process. The inferiority of the order-splitting strategies of these individuals is more prominent when they trade deep Out-of-The-Money (OTM) options.

Executive Stock Options (ESOs) are modified American options that cannot be valued using standard methods. With a few exceptions, the literature has discussed the ESO fair value by assuming unpredictable stock returns which are not supported by the available empirical evidence. In this paper we obtain the fair value of American ESOs when stock returns are predictable and, specifically, driven by the trending Ornstein–Uhlenbeck process of Lo and Wang (1995) . We solve the executive’s portfolio allocation problem for a simple buy-and-hold strategy when his wealth can be distributed between a risk-free asset and a market portfolio. This problem is jointly solved with the executive’s optimal exercise policy. We find that executives tend to wait longer the higher the predictability, independently of the composition of executive’s asset menu. We have also analyzed the implications under the FAS123R proposals for the ESO fair value and found that, even for low autocorrelations, there is a meaningful mispricing when unpredictable returns are erroneously assumed.

A stock loan, or equity security lending service, is a loan which uses stocks as collateral. The borrower has the right to repay the principal with interest and regain the stock, or make no repayment and surrender the stock. Therefore, the valuation of stock loan is an optimal stopping problem related to a perpetual American option with a negative effective interest rate. The negative effective interest rate makes standard techniques for perpetual American option pricing failure. Using a fast mean-reverting stochastic volatility model, we applied a perturbation technique to the free-boundary value problem for the stock loan price. An analytical pricing formula and optimal exercise boundary are derived by means of asymptotic expansion.

Proper stock valuation is one of the most important issues to financial analysts, financial managers and investors. The purpose of this paper is to help the interested groups with required information for stock valuation. The sample of this study consists of 644 firm-years of companies listed on TSE since 2003 to 2009 year. Operating cash flows, earnings per share, book value per share, return on assets, assets turnover ratio, stock price at the beginning of the period, age of firm, size and industry type are the independent variables. The results of this research show that earnings per share and return of assets have adirect relationship with stock price. Results also show that firm’s stock price has a positive correlation with lagged stock price and it can be argued that the price of the stock is a continuum. Based on the results of this research the stock price is affected by the year of examination.

PurposeThe purpose of this paper is to provide some rational perspectives for the flight‐to‐liquidity event rather than simply attributing it to the change in investor sentiment.Design/methodology/approachThe paper builds a model to highlight the inherent difference in investors' investment horizon, and thus their sensitivity to changes in transaction costs in the stock and bond markets. When stock market deterioration results in higher trading costs, the existing marginal investor shifts wealth to bonds instead of remaining indifferent between stocks and bonds. At the new equilibrium, there is a higher fraction of bond ownership and a longer average investment horizon among stock holders. The paper then empirically tests the model predictions using data in the US stock and bond markets.FindingsThe authors find evidence strongly supporting this paper's theoretical predictions. Days with high stock illiquidity, high stock volatility and low stock return are associated with high yield spread in the bond market. This contemporaneous linkage between the stock market and the bond market is even stronger during periods with strong net outflows from stock mutual funds and strong net inflows to money market funds. The paper also demonstrates the existence of a maturity pattern that the predicted effects, especially the effects of stock illiquidity, are much stronger over shorter maturities.Originality/valueThe finding of this model that the investment horizon of the marginal investor (and thus the equilibrium price impact in the bond market) responds to changes in market conditions contributes to the theoretical debate on whether transaction costs matter. The flow evidence strengthens our understanding of the asset pricing implications of portfolio rebalancing decisions, and the maturity effect bolsters the case for flights to liquidity/quality due to heterogeneity in investment horizon without resorting to investor irrationality or behavioral attributes. In fact, it is arguably difficult to reconcile with a behavioral explanation.

This paper uses stock price informativeness, or information-based stock trading, to help explain the pay–performance sensitivity (PPS) of chief executive officer (CEO) compensation in China's listed firms. We argue that higher stock price informativeness, which we measure by the probability of informed trading, helps and encourages shareholders to incentivize the top management team based on stock market performance. The regression results support our argument and show that a higher level of stock price informativeness is associated with higher CEO PPSs. Moreover, the impact of stock price informativeness on CEO incentives is stronger for privately controlled listed firms than it is for state-controlled listed firms. The results also hold when information asymmetry is approximated by the accuracy and dispersion of the earnings forecasts made by financial analysts.

Human decision making by professionals trading daily in the stock market can be a daunting task. It includes decisions on whether to keep on investing or to exit a market subject to huge price swings, and how to price in news or rumors attributed to a specific stock. The question then arises how professional traders, who specialize in daily buying and selling large amounts of a given stock, know how to properly price a given stock on a given day? Here we introduce the idea that people use heuristics, or "rules of thumb", in terms of "yard sticks" from the performance of the other stocks in a stock index. The under- /over-performance with respect to such a yard stick then signifies a general negative/positive sentiment of the market participants towards a given stock. Using empirical data of the Dow Jones Industrial Average, stocks are shown to have daily performances with a clear tendency to cluster around the measures introduced by the yard sticks. We illustrate how sentiments, most likely due to insider information, can influence the performance of a given stock over period of months, and in one case years., Comment: 10 pages, 5 figures

PurposeUntil 2005, corporations could choose whether to expense incentive options or to disclose the value in the financial footnotes. During 2004, however, the Financial Accounting Standards Board adopted the revised Statement No. 123, which requires public corporations to measure the cost of stock options on grant‐date and expense that cost over the vesting period of the grant. This study investigates the impact of SFAS 123(R) on the type of executive incentive pay‐option versus restricted stock.Design/methodology/approachComprehensive compensation data was collected from Standard & Poors ExecuComp data base for the period 2002‐2006 for two industries identified by SIC codes 73 (business services) and 35 (electronics). The study tracks the percentage of pay in the form of incentive stock options or restrictive stock grants before and after SFAS No. 123(R) was adopted in 2004. A series of multivariate regression models test whether the restricted stock percentage of total compensation can be partially explained by the adoption of SFAS 123(R).FindingsThe results show that the average fair value of stock awards is higher and the average fair value of option awards is lower after 2004. In addition, after 2004, stock compensation as a percentage of total pay is positively related to stock price volatility. The data also suggest that those companies substituting restricted stock for options actually increase total incentive pay.Social implicationsThe study's findings may suggest that those companies substituting restricted stock for options increase total executive pay. This would be a side effect from the adoption of SFAS 123(R), in that most companies use the Black‐Scholes model to value executive options. Given the long life of these options and the high volatility in certain industries the option value is quite high. Therefore, the amount of substituted restricted stock is also inflated.Originality/valueThe adoption of SFAS 123(R) was highly contested by executives in industries with high stock price volatility. The authors document that, in the case of two industries, executive incentive pay structure was affected.

We examine the relation between options trading and the extent that stock prices lead future earnings information in the period 1998–2009. In a firm specific approach, we find that stock prices reflect future earnings information to a greater extent in firms’ post-options-listing period than in their pre-options-listing period. In a cross-sectional setting, we find that stock prices of firms with readily available options trading reflect future earnings information more and earlier than those of firms without available options. In a sub-sample containing only firms with listed options, we find that stock prices of firms with a high level of options trading volume reflect future earnings information more and earlier than those of firms with a low level of options trading volume. Findings in this study support the proposition that options trading results in more current information that is relevant for predicting future earnings being impounded into stock prices. Consistent with this proposition, we also document an inverse relation between options trading and the amount of new information provided by earnings announcements.

This study investigates asynchronous information transmission between stock returns and abnormal posting volume on the online stock message boards in China. Based on a robust GARCH model, the study finds that there are significant two-way volatility spillover effects: a positive volatility spillover effect from stock returns to abnormal message posting volume, and a negative volatility spillover effect from abnormal message posting volume to stock returns. The information exchange and communication on stock message boards have a certain role in stabilizing financial markets and improving investor's decision making on financial markets.

Motivated by the Guaranteed Minimum Death Benefits in various deferred annuities, we investigate the calculation of the expected discounted value of a payment at the time of death. The payment depends on the price of a stock at that time and possibly also on the history of the stock price. If the payment turns out to be the payoff of an option, we call the contract for the payment a (life) contingent option. Because each time-until-death distribution can be approximated by a combination of exponential distributions, the analysis is made for the case where the time until death is exponentially distributed, i.e., under the assumption of a constant force of mortality. The time-until-death random variable is assumed to be independent of the stock price process which is a geometric Brownian motion. Our key tool is a discounted joint density function. A substantial series of closed-form formulas is obtained, for the contingent call and put options, for lookback options, for barrier options, for dynamic fund protection, and for dynamic withdrawal benefits. In a section on several stocks, the method of Esscher transforms proves to be useful for finding among others an explicit result for valuing contingent Margrabe options or exchange options. For the case where the contracts have a finite expiry date, closed-form formulas are found for the contingent call and put options. From these, results for De Moivre’s law are obtained as limits. We also discuss equity-linked death benefit reserves and investment strategies for maintaining such reserves. The elasticity of the reserve with respect to the stock price plays an important role. Whereas in the most important applications the stopping time is the time of death, it could be different in other applications, for example, the time of the next catastrophe.

Although numerous studies have examined the effect of monetary policy on stock prices, empirical research in the international setting remains relatively scant. Therefore, this topic is reexamined in the context of Thailand. In a sample of 50 repurchase rate announcements of the Bank of Thailand during 2003–2009, our regression results suggest that the raw change in the repurchase rate has a negative effect on stock returns at the market level, which is inconsistent with the literature. Contrary to the results of numerous studies, we find that at the market level the expected change in the repurchase rate has a negative effect on stock returns and the unexpected change in the repurchase rate exhibits no effect on stock returns. However, the effect of the unexpected change in the repurchase rate on stock returns is evident at the firm level. Our findings also suggest that the stock market's response to the repurchase rate change is asymmetric. The unexpected change in the repurchase rate that is considered as good news has a negative effect on stock returns. Overall, the evidence lends support to the notion that the monetary policy announcements have a significant effect on stock prices and further adds to the debate on whether the creditability of the monetary authority may contribute to the stock market's response to the monetary policy actions.

This paper examines the use of stock options by Australian IPOs. Stock options in this setting exhibit heterogeneity of 'in the moneyness' attributes. We can therefore identify . incentive 'out of the money' options and . reward 'at or in the money' options and study their usage. The setting also features options granted to . employees (CEO, executives, non-executive directors, and managers) and . external parties (e.g., underwriters, lenders, seed capitalists, and promoters). We examine the motives for granting stock options with different 'in the moneyness' attributes to employees and external parties, as well as the performance outcomes. Our results suggest 'in the moneyness' attributes of options vary according to uncertainties about growth options, general operating risks, and/or agency risks relating to the use of IPO proceeds; however, these relations do not translate into robust links from the option grants to future performance. © 2012 Elsevier Ltd.

The SFAS 123R comment process generated over 6,500 comment letters, most of which were against the standard’s enactment. This outpouring of emotion indicates that many believe that disclosure versus recognition matters. Our paper provides evidence for the debate whether managers’ discretion, motivation, and accuracy of stock option estimates differ under the recognition and disclosure reporting regimes. We compare firms that are mandatorily forced to recognize stock options expense with those voluntarily choosing to do so. First we find that mandatory firms (versus voluntary) with more intensive stock option granting tend to understate option estimates, especially in the post SFAS123R period. Our results suggest that a higher recognition cost motivates firms for doing so. Second, we find that mandatory firms with lower future operating risk have better accuracy in the post SFAS123R period, as compared to themselves in the pre SFAS123R period and voluntary firms in the post SFAS123 period. Our results support the notion that the informativeness of option estimates explains the level of accuracy. The findings of this paper add to the debate on the benefits of recognizing stock option expenses.

This study investigates how executive stock-based compensation affects the payout policies of a company. Stock bonuses, which are dividend-protected, induce executives to pay out cash dividends. Conversely, stock options, which are not dividend-protected, discourage the payment of dividends. We posit that the structure of executive stock-based compensation plays a crucial role in determining the payout policies of a firm, particularly for those firms with higher percentages of institutional investors and shareholders with ultimate controlling power. We further examine the effects of the 2008 stock option expensing policy reform in Taiwan as well as the repercussions, if any, that this policy had on payout choices in 2009. The empirical results not only indicate that executive stock-based compensation has a conspicuous influence on the payout policies of a firm, but also that there is a positive relation between stock bonuses and cash dividends. Furthermore, in the case of Taiwan, which has a relatively low corporate income tax rate, firms with higher percentages of shareholders with ultimate controlling power have less preference to pay cash dividends and greater preference to retain profits within the company.

Purpose – The purpose of this paper is to examine the correspondence between the stock market's immediate reactions to new product introduction announcements and those products' subsequent commercial performance.Design/methodology/approach – The main study uses standard event study methodology.Findings – The paper finds that the stock market reacts “incorrectly” to announcements of new product introductions more often than one would expect from a market that is assumed to be highly efficient.Research limitations/implications – The paper's findings raise questions about the appropriateness of using daily stock returns to assess the profitability of marketing actions with highly uncertain outcomes.Originality/value – Event studies of stock prices have been a popular method to assess the profit impact of marketing actions in a timely manner; yet, there has been surprisingly little research addressing the stock market's ability to react immediately to firm actions in a manner consistent with how effective the...

This paper extends prior stock option literature by examining the impact of individual and corporate tax incentives on the decision to hold or sell shares acquired through the exercises of incentive stock options (ISOs) and non-qualified stock options (NQSOs). We focus on factors found in prior literature to be associated with the choice to hold or sell in the context of the type of stock option exercised. Specifically, we find that the positive (negative) relation found in prior literature between the decision to hold shares following exercise and future returns (depth) is associated more with NQSOs than ISOs, consistent with individual tax incentives. Examining corporate tax incentives, we find that corporate tax benefits mitigate insiders' likelihood to hold shares obtained from ISO exercise. Furthermore, we find evidence that firms compensate employees to forgo individual tax benefits associated with holding shares from ISO exercise, and as this compensation increases, insiders are more likely to sell following exercise. JEL Classifications: H24; H25; J33.

This article focuses on investor sentiment and its relationships to stock returns and volatility in the Chinese stock market. By using mutual fund flows as a substitute for investor sentiment for different stocks, this study finds that investor sentiment has a tremendous impact on stock returns in the Chinese stock market. However, some of our results are inconsistent with previous research. Since the Chinese stock market is still an emerging capital market, one explanation for the inconsistency is that investor sentiment has comparatively stronger impact on stock returns in China.

There are many investors in the stock market, and more and more people get interested in the stock investment. In order to avoid risks and make profit in the stock investment, we have to determine several aspects using various information. That is, we have to select profitable stocks and determine appropriate buying/selling prices and holding period. This paper proposes a data mining tool for the investors` decision support. The data mining tool makes stock investors apply machine learning techniques and generate stock price prediction model. Also it helps determine buying/selling prices and holding period. It supports individual investor`s own decision making using past data. Using the proposed tool, users can manage stock data, generate their own stock price prediction models, and establish trading policy via investment simulation. Users can select technical indicators which they think affect future stock price. Then they can generate stock price prediction models using the indicators and test the models. They also perform investment simulation using proper models to find appropriate trading policy consisting of buying/selling prices and holding period. Using the proposed data mining tool, stock investors can expect more profit with the help of stock price prediction model and trading policy validated on past data, instead of with an emotional decision.

Purpose – This aim of this paper is to check whether the incentive role of executive stock options (ESO) depends on their level.Design/methodology/approach – The study is based on data from a sample of 538 American firms over 11 years (1994 to 2004). Using regression analysis, the degree of association between earnings management and the percentage stock options in total compensation for different levels of the stock options granted is determined.Findings – The study finds that ESO decreases the earning management and represents an additional control mechanism. When considering the level of ESO, a long‐term alignment of interests is found at low levels. However, at high levels, ESO becomes an additional source of agency conflict in the short and long runs.Research limitations/implications – The results confirm the coexistence of both the contractual and the managerial power hypotheses.Practical implications – This study suggests that the executive compensation strategy and particularly its stock option co...

This article investigates the impact of short sale constraints on stock returns in a powerful setting in which the uptick rule on the New York Stock Exchange (NYSE) was suspended for a given set of stocks (pilot stocks) by the Securities and Exchange Commission (SEC) in 2005. Comparing future stock returns for pilot stocks and control stocks, I show that the suspension of the uptick rule on average mitigates stock overvaluation by 3.5% of the stock value during a 1-year time period. This effect is profound in stocks with no options, small stocks, and value stocks. Findings in this article are consistent with Miller's (1977) overpricing hypothesis and suggest that removing the uptick rule help improve market efficiency by bringing stock prices closer to their fundamental values.

We develop a multiperiod framework to evaluate the incentive effects of executive stock options (ESOs). For a given increase in the grant-date firm stock price (and a concurrent increase in return volatility), the increment of total value at the vesting date acts as a proxy for the incentive effects of ESOs. If the option is attached to the existing contract without adjusting cash compensation, we suggest that a firm should not always fix the strike price to the grant-date stock price; instead, the strike price should vary with the length of the vesting period. We also show that, compared with at-the-money options, restricted stock generates greater incentives to increase stock prices in some scenarios, especially when equity-based awards are vested early. If the vesting period is long, the firm could grant options instead of restricted stock to maximize incentives.

We present a model of the bid and ask quotes in the equity option market when option payoffs are asymmetrically distributed due to the limited liability of the option. We then provide empirical evidence for the actively traded Chicago Board Options Exchange stock options, which is consistent with the implications of our model. First, the bid and ask quotes are asymmetric around the option value, with the value being closer to the bid quote than to the ask. Second, the degree of the asymmetry increases as the moneyness of the option decreases. Finally, the ask quote of an option changes more than its bid quote. An important implication of the paper is that the bid–ask midpoint is not an unbiased estimator of the option value, especially for out-of-the-money options.

We investigate the link between payouts and stock incentives among financial institutions. We hypothesize that the varying degree of regulation across depositories, insurers, and securities firms is likely to influence the observed relation to the extent that regulation substitutes for other monitoring mechanisms. We find that managerial stock ownership is inversely related to dividend payouts across the institutions, consistent with the notion that managerial stock ownership is an effective method of reducing agency problems. We do not find evidence that the relationship occurs because of regulation since all institutions, regardless of the degree of regulation, exhibit the same inverse relationship between dividend payouts and management stock ownership. Our results suggest that, among financial institutions, regulation complements managerial stock ownership in minimizing agency problems.

We test alternative hypotheses on a sample of Chinese stock dividends. The inverse Mills ratio, a signal about future performance, is positively related to announcement returns but does not predict higher future performance. Analysts do not revise their earnings forecasts after the announcement date. Our results are more consistent with liquidity-based theories. We find that managers choose higher stock dividend ratios if share prices deviate more from the industry-wide average. Increases in proportional spreads, depth, and the number of trades and decreases in average trade size, and price impact suggest greater participation of liquidity and small investors following stock dividends.

PurposeAccumulators are cutting‐edge stock derivative investments that have been the subject of much controversy in Hong Kong over the past year. Accumulators are exotic options composed of a full year of daily long up‐and‐out call options and short up‐and‐out put options. Because accumulators are so new, the understanding of accumulators is currently very limited. This paper attempts to characterize and understand the properties of this fairly unknown and new stock derivative investment.Design/methodology/approachThe study analyzed and characterized accumulators based on observations from past history of 11 stocks of the Hang Seng Index. Using historical stock data covering from January 3, 2006, and onward, the profit and loss for each accumulator contract was calculated.FindingsThrough the research it is understood that the profit and loss of accumulator contracts depends primarily on the following factors: knockout percentage, discount percentage, variability of the underlying stock, and the overall market trends, among other factors.Originality/valueThis pioneer simulation is an empirical exploratory post factum study that gives researchers and practitioners further insight how to formulate a risk neutral pricing model for accumulators in the future.

On December 18, 2003 the Accounting Standards Board of Canada announced that all firms registered in Canada would be required to expense stock options-based compensation effective January 1, 2004. While a few firms had voluntarily opted to expense stock options prior to this date, the vast majority of firms had not. This study investigates the market reaction to this announcement by listed firms in the Toronto Stock Exchange that continued to disclose option expense rather than report it in the financial statement. We find no average market reaction by our sample firms affected by this mandate around the announcement date, but a significantly negative market reaction during the 5-day window around the issuance date of the exposure draft. However, in cross-sectional tests around the mandated expense announcement date, we find a significant negative relationship between the cumulative abnormal returns and the Black–Scholes value (and number) of options outstanding and of options granted the previous year. These results suggest that the magnitude of the market reaction to the mandated expense announcement is related to the firm's usage of options. Our results provide further evidence that stock prices may not fully impound information disclosed in footnotes.

We provide a simple asymmetric information model showing that, in contrast to portfolio diversification arguments, there is a natural complementarity between executive options and stock ownership. Moreover, managers can be made worse off by being granted more executive options.

The main purpose of the paper is to develop a neural network application that could predict supplier problems in terms of stock management, lead time and production. Stocks of goods that manufacturers would classify as raw materials stocks are, in a special sense, goods in early stages of the production process. In a logic-based economic competitiveness, the company which holds the largest stock is underperforming! Technically, the stock is inevitable and in some cases even desirable; economically it is associate with an asset value stock, therefore, it should be minimized. Minimizing the value, the costs will also be minimized.

The direction of any long-run relationship between stock prices and house prices provides useful information for policy makers and practitioners regarding the presence of wealth and credit effects. Using quarterly data from the UK and US this paper reports evidence of non-linear dynamics in the adjustment to equilibrium. Specifically, the equilibrium-deviation must become large before stock prices revert. However, there is no evidence that house price adjust to any disequilbrium. This supports a credit effect on stock prices.

As the Stock index futures with Cri 300 index for the subject matter launch, the research to stock options done by China’s financial market is gradually in-depth, which has great significance to the improvement of the financial markets. With the Black-Scholes option formula, this paper attempts to study the sensitivity of single stock’ call option named Industrial and Commercial Bank of China Limited to stock price changes, time changes and the situation that both of them occur. The simulation results were achieved based SAS, which not only has a very important practical significance to the launch of this kind financial derivative and the establish of a perfect pricing model of financial derivatives, but also can help financial market further promote economic growth.