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Table of ContentsThe Decline of Calendar Seasonality in the Australian Stock Exchange, 1958-2005 UK IPOs: Long Run Returns, Behavioural Timing and Pseudo Timing Motives for Parental Money Transfers in Europe Restrictions on Credit: A Public Policy Analysis of Payday Lending Why Do IPO Offer Prices Only Partially Adjust? Arbitrage Risk and the Timeliness of Stock Price Adjustments to Accounting Fundamentals | ||||||||||
BEHAVIORAL & EXPERIMENTAL FINANCE ABSTRACTS"The Decline of Calendar Seasonality in the Australian Stock Exchange, 1958-2005"
ANDREW C. WORTHINGTON, Griffith University This paper examines calendar effects in Australian daily stock returns from 6 January 1958 to 30 December 2005. Three calendar effects - day-of-the-week, turn-of-the-month and month-of-the-year - are examined using parametric tests and a regression-based approach. The results indicate that the Australian market is characterised by seasonality of all three forms, with Tuesday, September and the second trading day of the month the most significant. However, there is also evidence of parameter instability and structural breaks in these relationships, with day-of-the-week effects becoming less important in the post-1987 crash period. "UK IPOs: Long Run Returns, Behavioural Timing and Pseudo Timing"
ALAN GREGORY, Xfi Centre, University of Exeter In this paper we examine a comprehensive set of 2,567 UK IPOs launched between mid-1975 and the end of 2004. We find compelling evidence of long run under-performance that persists for between 36 and 60 months post-flotation, depending on the precise method chosen to measure abnormal returns. Following Schultz (2003), we ask whether our results are consistent with "pseudo-timing". Equally-weighted returns in calendar time provide further evidence of under-performance, a result that favours the Loughran and Ritter (2000) behavioural timing hypothesis rather than the Schultz (2003) pseudo-timing hypothesis. However, when we measure value-weighted returns in calendar time we find that abnormal returns are not significantly different from zero. To some degree, this result is consistent with the findings of other studies which show that IPO under-performance is concentrated in smaller firms. However, we also show that these value-weighted returns are heavily influenced by the high abnormal returns associated with UK privatisations. "Motives for Parental Money Transfers in Europe"
JAVIER OLIVERA, Catholic University of Leuven (KUL) - Faculty of Business and Economics (FBE) We find a high prevalence of Europeans giving equal financial transfers to their adult children, regardless of siblings' income differences. This behaviour is sharply different from previously documented for American counterparts and it is not predicted by any conventional model on family transfers. We build a model to explain the motives for European parental transfers which includes concern with fairness and leaves altruism as an additional motive. We show that, in contrast to the prediction of the pure altruism model, parents do not offset income inequality among their children but decide to give equal transfers in order to be "fair". However, the parents might start to give larger transfers to poorer children if the siblings' income inequality becomes unbearable from the parent's view. We find evidence for this behaviour using simulations for parameter's distributions and also microeconomic data of 9 European countries from the Survey of Health, Aging, and Retirement in Europe (SHARE). "Restrictions on Credit: A Public Policy Analysis of Payday Lending"
PETRU STELIAN STOIANOVICI, The Brattle Group Using state level data between 1990 and 2006, we find no empirical evidence that payday lending leads to more bankruptcy filings, which casts doubt on the debt trap argument against payday lending. We capture the intensity of the payday lending activity in a state by the number of payday lending stores. We control for restrictions on payday lenders by including into the analysis six variables that we construct that rank legislative provisions across states and across time. We use two different estimation procedures: difference-in-difference and Granger causality. "Why Do IPO Offer Prices Only Partially Adjust?"
OZGUR "OZZIE" INCE, Virginia Tech Existing studies document that initial public offering (IPO) offer price changes can be used to predict first-day returns. This study shows that when offer prices are adjusted upwards, less than 23% of publicly available information is reflected in the offer price adjustment, significantly lower than the 30% rate for private information. This result is inconsistent with the predictions of information revelation theories. In downward adjustments, the rates of adjustment are approximately 100% for all types of information, even after controlling for withdrawn deals. A cross-sectional analysis reveals that the bargaining power of the issuing firms vis-a-vis their underwriters is an important determinant of the adjustment rates, as hypothesized by Loughran and Ritter (2002) and Ljungqvist and Wilhelm (2003). I also demonstrate that the omission of withdrawn deals creates a bias that results in a predicted negative coefficient on lagged market returns in underpricing regressions even if offer prices are adjusted fully. "Arbitrage Risk and the Timeliness of Stock Price Adjustments to Accounting Fundamentals"
ASHER CURTIS, David Eccles School of Business, University of Utah I examine the effect of arbitrage risk on the alignment between stock prices and accounting fundamentals, where arbitrage risk is measured as the lack of close substitutes that can be used as a hedge. I find evidence consistent with the disparity between value and price being positively associated with arbitrage risk. Consistent with short-positions being more sensitive to arbitrage risk, my results are more pronounced for strategies that require short positions. I then show that the timeliness of the alignment between stock prices and accounting fundamentals is negatively related to arbitrage risk. My results provide empirical support for the hypothesis that price requires time to reflect accounting information and has implications for research that assumes that prices are measured without error. "What Gives? A Study of Firms' Reactions to Cash Shortfalls"
TOR-ERIK BAKKE, University of Wisconsin - Madison - Department of Finance, Investment and Banking This paper examines the relative magnitude of financial versus real frictions by looking at how firms react to cash shortfalls. We use a regression discontinuity design in which the discontinuity is the point of violation of underfunding of corporate defined benefit pension plans. We reexamine the puzzling evidence in Rauh (2006) that mandatory pension contributions cause investment declines, finding that these results are likely due to the endogeneity that this study is trying to avoid. We also compare firm-year observations in which the firm's pension assets are just barely less than its pension liabilities to observations in which assets are just greater than liabilities. In this quasi-experimental setting, we find little evidence that firms cut back on investment. Instead, they mostly use a variety of financial tools, such as receivables factoring and payout cuts, to fund their pension liabilities. "Economics and Psychology: Imperialism or Inspiration?"
BRUNO S. FREY, University of Zurich - Institute for Empirical Research in Economics (IEW), CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Swiss Federal Institute of Technology Zurich Economics and psychology are both sciences of human behaviour. This paper gives a survey of their interaction. First, the changing relationship between the two sciences is discussed: while economics was once imperialistic, it has become a science inspired by psychological insights. In order to illustrate this, recent developments and evidence for three major areas are presented: bounded rationality, non-selfish behaviour, and the economics of happiness. | ||||||||||
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Solicitation of Abstracts
Behavioral and Experimental Finance publishes working and accepted paper abstracts covering all aspects of behavioral and experimental finance. Its mission is to foster a better understanding of those elements of human psychology, both cognitive (mental) and affective (emotional) that influence the decision making process. The journal provides promising new research to the academic and the Wall Street communities that incorporates the methods used in the behavioral disciplines and decision sciences with the ones from Standard Finance, so that decision makers and their judgments can be studied from individual, group, organizational, and market perspectives.
Distribution ServicesIf your Institution is interested in learning more about increasing readership for its research by becoming a Partner in Publishing or starting a Research Paper Series, please email: Management@SSRN.com. Distributed by:DirectorsFEN SUBJECT MATTER EJOURNALS MICHAEL C. JENSEN Please contact us at the above addresses with your comments, questions or suggestions for FEN-Sub. Advisory BoardBehavioral & Experimental Finance H. KENT BAKER ROBERT J. BLOOMFIELD WERNER F.M. DEBONDT MELISSA FINUCANE BARUCH FISCHHOFF DAVID A. HIRSHLEIFER DANIEL KAHNEMAN LISA A. KRAMER ANDREW W. LO RUTH H. LYTTON ELTON G. MCGOUN JOHN R. NOFSINGER TERRANCE ODEAN EDGAR E. PETERS RICHARD L. PETERSON HENRY O. PRUDEN HERSH SHEFRIN ANDREI SHLEIFER PAUL SLOVIC MEIR STATMAN LYNN A. STOUT MICHAL ANN STRAHILEVITZ RICHARD H. THALER ANNETTE VISSING-JORGENSEN JEFFREY WURGLER JASON ZWEIG
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