Dissertation
NET SHARE ISSUANCE, INSTITUTIONAL TRADING, AND STOCK MARKET RETURNS
Doctor of Philosophy (PhD), Washington State University
01/2016
Handle:
https://hdl.handle.net/2376/12143
Abstract
This dissertation contains two essays that study net share issuance, institutional trading and stock market returns. The first essay examines whether short-term institutions and short sellers exploit the net share issuance (NSI) effect. Existing literature documents that net share issuance significantly predicts cross-sectional stock returns, and yet institutional investors in aggregate trade in the “wrong” direction of the net share issuance effect. Motivated by the findings in the existing literature that short-term institutions and short sellers are better informed and more skilled, in this study I examine whether these investors exploit the net share issuance effect. I provide evidence that short-term institutions and short sellers indeed trade in the “right” direction of the net share issuance effect. On the other hand, firms exploit long-term institutions as liquidity provision in share issuance or repurchase. In addition, the results show that short sellers trade against institutional investors, especially long-term institutions, when exploiting the net share issuance.
In the second essay, I examine whether the cross-sectional NSI effect extends to the time-series level. I find that aggregate NSI negatively predicts future stock market returns, which is consistent with the cross-sectional NSI effect. The predicting power is statistically strong and economically large both in and out-of-sample. In addition, I provide evidence that the market-level net share issuance effect is stronger during periods with high investor sentiment. Moreover, aggregate net share issuance is not only positively related to contemporaneous and lagged stock market returns but also negatively related to analyst forecast errors. I interpret these findings as evidence that mispricing is more likely the source of the NSI effect.
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Details
- Title
- NET SHARE ISSUANCE, INSTITUTIONAL TRADING, AND STOCK MARKET RETURNS
- Creators
- Yinfei Chen
- Contributors
- George J. Jiang (Advisor)Jarl G. Kallberg (Committee Member)
- Awarding Institution
- Washington State University
- Academic Unit
- Carson College of Business
- Theses and Dissertations
- Doctor of Philosophy (PhD), Washington State University
- Number of pages
- 155
- Identifiers
- 99900581833701842
- Language
- English
- Resource Type
- Dissertation