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Abstract:
This study jointly evaluates the informativeness of insider trades and analyst recommendations. We show that the two activities often generate contradictory signals. Insiders in aggregate buy more shares when their firm's stock is unfavorably recommended or downgraded by analysts than when it is favorably recommended or upgraded. This result is robust to various controls such as varying degrees of analyst coverage, firm size, book-to-market ratios, and stock price momentum. We find that analyst recommendations affect insider trading decisions, but not vice versa. Our further analysis shows that insider trading is informative when signaling positive information, and analyst recommendations are informative when conveying negative information. The overall results imply that corporate insiders and financial analysts do not substitute each other's informational role in the financial market.

Analyst recommendations, Insider trades

Abstract:
The paper finds evidence that corporate governance mechanisms matter for mutual funds, especially funds with better governance standards. Using new and unexplored mutual fund governance data, we show that corporate governance mechanisms play a role in both the investment decisions and the monitoring efforts of mutual funds. Mutual funds, in general, tend to tilt their portfolios toward firms with strong corporate governance, and this is more evident in funds with good governance practices. We further find that corporate governance also affects fund proxy voting decisions. Such voting decisions are indicative of the funds' efforts aimed at monitoring corporate activities supporting mutual fund activism. Funds with better governance tend to vote against management's, but consistent with Institutional Shareholder Services' negative recommendations on management-sponsored proposals relating to antitakeover, board quality, and director election. Overall, our evidence suggests that well-governed, while not poorly-governed, mutual funds do perform their fiduciary duties and act in the interests of their shareholders.

proxy voting, Morningstar stewardship grade, mutual funds, governance mechanisms

Abstract:
This paper investigates whether different types of institutions have discernible trading motives in response to portfolio disclosures. Results show that banks, life insurance companies, mutual funds, and investment advisors who act as external managers generally have similar trading strategies. They sell more poorly performing stocks during the fourth quarter than the first three quarters of the year, and such trading behavior is more pronounced for institutions whose stocks on average have underperformed the market. In contrast, property and liability insurance companies, internally-managed pension funds, colleges, universities, and foundations, who mainly provide their own asset management services, show less inclination to window dress their portfolios.

Institutional investors, trading patterns, window dressing

Abstract:
This paper investigates whether different types of institutions
have discernible trading motives in response to portfolio
disclosures. Results show that banks, life insurance companies,
mutual funds, and investment advisors who act as external managers generally have similar trading strategies. They sell more poorly performing stocks during the fourth quarter than the first three quarters of the year, and such trading behavior is more pronounced for institutions whose stocks on average have underperformed the market. In contrast, property and liability insurance companies, internally-managed pension funds, colleges, universities, and foundations, who mainly provide their own asset management services, show less inclination to window dress their portfolios.

Institutional investors, trading patterns, window dressing

Abstract:
We find that institutional investors contribute significantly to both long-term levels and short-term changes of stock price comovement with the market. This result is only partly explained by institutional investors incorporating more systematic information into security prices than individual investors. Next, we show that institutions increase the systematic movement of a stock by increasing its comovement with other stocks of high-institutional ownership, while decreasing its comovement with stocks of low-institutional ownership. The degree of stock price comovement is also increasing in the magnitude of institutional trading and appears related to particular institutional trading activities, such as style investing. Our findings have implications for current theories on comovement and financial contagion.

Abstract:
Institution investors face investment constraints that may limit their ability to fully utilize their information. Consistent with this idea, we find that institutions buy significantly less of the stocks that they already overweight, even when they have positive information about the stocks. They refrain from selling the stocks that they already underweight, even when they receive negative signals. Such demand distortion may lead to price underreaction to news and cross-sectional return predictability: Stocks with good news that institutions overweight are undervalued and subsequently have abnormal high returns; stocks with bad news that institutions underweight are overvalued and have abnormal low subsequent returns. Our tests strongly support this hypothesis. We find that stocks with higher institutional investment constraints have stronger price momentum and larger post earnings announcement drift.

Institutional investors, investment constraints, market efficiency, momentum, tracking-error constraints, relative performance evaluation

Abstract:
This study provides evidence that links institutional trading
behavior directly to anomalous turn-of-the-year (TOY) return
patterns of small stocks. We find that TOY trading patterns of
institutions reflect strategies that are generally consistent with window-dressing and risk-shifting behaviors. Institutions sell more loser small stocks in the last quarter of the year, but buy more small stocks, both winners and losers, in the first quarter. Institutional buying (selling) of loser stocks at year-end weakens (strengthens) the TOY effect. In addition, buying of winner stocks after year-end causes a statistically-significant, though weaker, effect.

Institutions, Window-Dressing, Risk-Shifting, Turn-of-the-Year Effect

Abstract:
This study provides evidence that links institutional trading
behavior directly to anomalous turn-of-the-year (TOY) return
patterns of small stocks. We find that TOY trading patterns of
institutions reflect strategies that are generally consistent with window-dressing and risk-shifting behaviors. Institutions sell more loser small stocks in the last quarter of the year, but buy more small stocks, both winners and losers, in the first quarter. Institutional buying (selling) of loser stocks at year-end weakens (strengthens) the TOY effect. In addition, buying of winner stocks after year-end causes a statistically-significant, though weaker, effect.

Institutions, Window-Dressing, Risk-Shifting, Turn-of-the-Year Effect

Abstract:
We document strong comovement in the stock returns of firms headquartered in the same geographic area. Moreover, stocks of companies that change their headquarters location experience a decrease in their comovement with stocks from the old location and an increase in their comovement with stocks from the new location. The local comovement of stock returns is not explained by economic fundamentals and is stronger for smaller firms with more individual investors and in regions with less financially sophisticated residents. We argue that price formation in equity markets has a significant geographic component linked to the trading patterns of local residents.

Location, Comovement, Asset Pricing

Abstract:
We document strong comovement in the stock returns of firms headquartered in the same geographic area. Moreover, stocks of companies that change their headquarters location experience a decrease in their comovement with stocks from the old location and an increase in their comovement with stocks from the new location. The local comovement of stock returns is not explained by economic fundamentals and is stronger for smaller firms with more individual investors and in regions with less financially sophisticated residents. We argue that price formation in equity markets has a significant geographic component linked to the trading patterns of local residents.

Location, Comovement, Asset Pricing

Abstract:
This article surveys the theoretical and empirical studies on share repurchases. Share repurchases have surpassed cash dividends and become the dominant form of corporate payouts since the last decade. This study provides a brief description of five major types of share repurchases and considers the motives that influence firms’ repurchase decisions. Specifically, we examine regulatory and tax considerations, agency costs of free cash flows, signaling and undervaluation, capital structure, takeover deterrence, and employee stock options. The review indicates that the existing literature provides ample support for several of these motivations while others merit further investigation. Few studies offer possible explanations for the phenomenon of increasing total payouts over time that is largely attributable to share repurchases.

Share Repurchases, Stock Repurchases

Abstract:
This paper investigates whether corporate payout policy is associated with insiders' share holdings and their tax preferences. We find that insider ownership and the implied tax liabilities are positively related to firms' propensity to employ share repurchases. Firms with higher levels of or greater increases in insider ownership prefer stock repurchases to cash dividends. This relation is more significant in years when dividends were more tax-disadvantaged relative to capital gains. Our findings are robust to the endogeneity of insider ownership and the inclusion of various control variables such as firm size, permanence of cash flows, growth opportunities, institutional ownership, and executive stock options. Overall, our results suggest that personal tax considerations from insiders affect corporate payout decisions.

Payout Policy, Insiders, Taxation

Abstract:
We find that the geographic dispersion of a corporation affects its firm valuation. Firms with subsidiaries located in different regions of the United States experience a valuation discount of 6.2% after controlling for the impact of both global and industrial diversifications, and the valuation discount increases as firms expand their operations to different regions nationwide. Results show that firms with weak corporate governance tend to expand geographically, and these firms experience greater value discounts compared with their counterparts with good corporate governance. Overall, our results suggest that the geographic location of corporate activities is an essential component of corporate policies and has important market valuation implications.

Geographic Dispersion, Firm valuation, Corporate Governance

Abstract:
This paper explores the market for voting rights and shareholder voting around 350 mergers and acquisitions between 1999 and 2005 by examining institutional-investor trading and voting outcomes. Our results show institutions in aggregate buy shares and hence voting rights before merger record dates. This trading is not related to proxies for merger arbitrage or trading around merger announcements, and thus is not simply a continuation of the latter. Trading and buying before record dates are positively related to voting turnout and negatively related to shareholder support of merger proposals. We explore several possible interpretations of these results.

Abstract:
Institutional investors display abnormally high buying relative to selling at quarter-end, and especially at year-end. This imbalance is caused by depressed selling, not excessive buying. At year end, abnormal buying declines by one standard deviation, while abnormal selling declines by almost two standard deviations. There is no evidence of increased buying pressure in positions that are heavily represented in institutional portfolios. Our findings contradict claims that institutions purposefully buy shares to inflate net asset values at quarter-end.

mutual funds, portfolio pumping, tape painting, institutional investors, price

Abstract:
We find that the geographic dispersion of a corporation affects its firm valuation. Firms with subsidiaries located in different regions of the United States experience a valuation discount of 6.2% after controlling for the impact of both global and industrial diversifications. The valuation discount increases as firms expand their operations to different regions nationwide. Results show that firms with more anti-takeover provisions are more likely to be geographically diverse, and that these firms experience greater value discounts compared with their counterparts with fewer such provisions. Our overall evidence suggests that the geographic location of corporate activities is an essential component of corporate policies and has important market valuation implications.

Geographic dispersion, Firm valuation, Corporate governance

Abstract:
We analyze the U.S. equity holdings of more than 3,000 non-U.S. based mutual funds from 22 countries and find robust evidence that fund managers strongly prefer to invest in stocks of U.S. firms that have presence in their home country. This "home bias" is independent of the degree of global involvement and visibility of these U.S. firms. While these firms have significantly greater exposure to local equity markets, their local presence offers little information advantage to local fund managers. Our findings suggest that the lack of international diversification is more serious than currently documented in the literature.

Foreign Investments, Mutual Funds, and Local Presence