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TWO ESSAYS ON INSTITUTIONAL INVESTORS
Title
TWO ESSAYS ON INSTITUTIONAL INVESTORS.
Creator
Nguyen, Hoang, Chen, Honghui, University of Central Florida
Abstract / Description
This dissertation consists of two essays investigating the trading by institutions and its impact on the stock market. In the first essay, I investigate why changes in institutional breadth predict return. I first show that changes in breadth are positively associated with abnormal returns over the following four quarters. I then demonstrate that this return predictability can be attributed to the information about the firms' future operating performance. When I examine different types of...
Show moreThis dissertation consists of two essays investigating the trading by institutions and its impact on the stock market. In the first essay, I investigate why changes in institutional breadth predict return. I first show that changes in breadth are positively associated with abnormal returns over the following four quarters. I then demonstrate that this return predictability can be attributed to the information about the firms' future operating performance. When I examine different types of institutions independently, I find that the predictive power varies across the population of institutions. More specifically, institutions that follow active management style are better able to predict future returns than the passive institutions, and their predictive power appears to be associated with information about future earnings growth. These findings are consistent with the information hypothesis that changes in breadth of institutional ownership can predict return because they contain information about the fundamental value of firms. In the second essay, I examine institutional herding behavior and its impact on stock prices. I document that herds by institutions usually last for more than one quarter and that herds occur more frequently for small and medium size stocks. I find that after herds end, there are reversals in stocks returns for up to four quarters. The magnitude of reversals is positively related to the duration of herding, and negatively related to the price impact of current herding activity. This pattern in returns prevails for all sub-periods examined and is concentrated in small and medium size stocks. My findings suggest that institutional herding may destabilize stock prices.
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Date Issued
2007
Identifier
CFE0001731, ucf:47304
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0001731
Three Essays on Investments: An Examination of the Effects of Diversification and Taxes
Title
Three Essays on Investments: An Examination of the Effects of Diversification and Taxes.
Creator
Hurst, Matthew, Anderson, Randy, Chen, Honghui, Schnitzlein, Charles, Frye, Melissa, Schmitt, Donna, University of Central Florida
Abstract / Description
Chapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce...
Show moreChapter 1 examines the effect of property-type diversification in equity real estate investment trusts (REITs) from 1995 to 2006. A strong positive relationship is documented between property-type diversification and return on assets, return on equity, and Tobin's Q. The diversification benefit comes from both the ability to select better performing property types in (")hot(") markets and the limited exposure to poorly performing property types in (")cold(") markets. Diversified REITs produce higher cash flows relative to equity as a result of a broader opportunity set; moreover, return on assets increases with the degree of diversification, which suggests significant shielding to property-type specific risk. Additionally, results indicate that diversified REITs operate and trade above their contemporaneous predicted values, which are calculated using imputed multipliers from specialized REITs. The evidence shows that the market is operating efficiently and has incorporated this information; diversified REITs Q ratios are significantly greater than specialized REITs.Chapter 2 uses a large sample of municipal bond closed-end funds to examine how tax liability affects seasonal trading. Optimal tax trading dictates that net tax liability be calculated after all trades. Investors' net tax liability is held in a holding account of his or her choosing. This study investigates what happens when there is tax liability in excess of Safe Harbor, and tax holding accounts are liquidated to cover the payments. We find that there exists a pattern of negative returns and increased volume in the month of March that is unexplained by changes in yield. Chapter 3 examines the ex-dividend day effect for municipal bond closed-end. The proposed explanations for this phenomenon are tax effects, short-term trading and/or market microstructure effects. In this study I use a unique set of dividend distributions to provide additional evidence that ex-dividend behavior is related to taxation as well as short-term trading. The sample I use is comprised of dividends in nontaxable closed-end funds, which ordinarily are not subject to Federal Income Tax. However, there is an occasional distribution that is subject to capital gains or ordinary income tax. This provides a unique environment in which to study the ex-dividend price behavior of a fund while eliminating the need for comparisons across funds.
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Date Issued
2012
Identifier
CFE0004549, ucf:49228
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0004549
Three Essays on Market Efficiency and Corporate Diversification
Title
Three Essays on Market Efficiency and Corporate Diversification.
Creator
Jaber Hyder, Fawzi, Chen, Honghui, Gatchev, Vladimir, Frye, Melissa, Choi, Yoon, Schnitzlein, Charles, University of Central Florida
Abstract / Description
In my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price...
Show moreIn my first essay, I use additions to the S(&)P 500 index as a laboratory to investigate how the interaction between arbitrageurs and arbitrage risk affects security prices. I find that the price effect is strong when there is high arbitrage risk (as measured by the lack of close substitutes) and low presence of arbitrageurs (as measured by low ownership by active institutions). Furthermore, a strong presence of arbitrageurs moderates the effect of arbitrage risk on the post-addition price reaction of added stocks. I also find a significant decrease in arbitrageurs' ownership in the added stocks post addition. More importantly, this decrease is accompanied by a significant increase in arbitrageurs' ownership in the added stocks' close substitutes. My second essay examines the sensitivity of investments to changes in investment opportunities for diversified and for single-segment firms. Because many concerns have been raised about existing proxies of investment opportunities, I introduce and examine the empirical performance of a new proxy based on financial analysts' earnings forecasts. The findings are consistent with the idea that firms respond efficiently to changes in investment opportunities. I find that firms increase (decrease) their capital expenditures when there is a favorable (unfavorable) change in opportunities. In addition, I find that diversified firms are more sensitive to changes in investment opportunities than are single-segment firms and that much of the difference in investment behavior between the two types of firms is explained by changes in investment opportunities. My findings are consistent with the idea that, when compared to single-segment firms, diversified firms use their larger internal capital markets and enjoy a less constrained response to changes in investment opportunities. The overall findings are in contrast to existing evidence that diversified firms allocate resources inefficiently.In my third essay, I investigate how the diversification discount depends on internal and external governance control mechanisms. The study uses CEO power to measure internal control and institutional ownership to measure external control. I find that CEO power has a negative effect on firm value and that this effect is greater for diversified firms. I also find that while institutional ownership is positively related to the value of single-segment firms it is not significantly related to the value of multi-segment firms. The overall findings that the diversification discount is more pronounced for firms with weaker internal and external governance control mechanisms support the hypothesis that governance control mechanisms are less effective in diversified firms than in single-segment firms.
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Date Issued
2017
Identifier
CFE0006606, ucf:51265
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006606
Three Essays on Asset Pricing in Security and Housing Markets
Title
Three Essays on Asset Pricing in Security and Housing Markets.
Creator
Zheng, Minrong, Chen, Honghui, Turnbull, Geoffrey, Frye, Melissa, Zahirovic-Herbert, Velma, University of Central Florida
Abstract / Description
In my first essay, I investigate the relationship between IPO long-run underperformance (Ritter, 1991) and the idiosyncratic risk puzzle (Ang, Hodrick, Xing and Zhang, 2006), the phenomenon of abnormally low returns for stocks with high idiosyncratic risk. I show that IPO long-run underperformance is in fact a manifestation of the surprisingly low returns for high idiosyncratic risk stocks. IPO underperformance disappears after I control for the idiosyncratic risk. Specifically, the...
Show moreIn my first essay, I investigate the relationship between IPO long-run underperformance (Ritter, 1991) and the idiosyncratic risk puzzle (Ang, Hodrick, Xing and Zhang, 2006), the phenomenon of abnormally low returns for stocks with high idiosyncratic risk. I show that IPO long-run underperformance is in fact a manifestation of the surprisingly low returns for high idiosyncratic risk stocks. IPO underperformance disappears after I control for the idiosyncratic risk. Specifically, the underperformance of IPO firms only presents following the months in which they are classified into the highest idiosyncratic risk quintile. On the other hand, I find that the idiosyncratic risk puzzle is magnified by the IPO underperformance for two reasons. First, IPOs are over-represented in the highest volatility quintile. Second, while stocks in the highest volatility quintile underperform in general, the intra-quintile underperformance is substantially more severe for the IPO firms. My results are robust to different sample requirements. My second essay examines school quality and quality risk capitalization when school quality is uncertain, taking into account uncertainty induced by low signal content in quality measures available to parents or stochastic quality outcomes. Extending the residential bid rent theory to the uncertainty environment, the theory shows that greater school quality increases housing prices steepens the price gradient, whereas the quality risk decreases the housing prices and flattens the price gradient. The empirical models incorporate two sources of quality risk, the variance in measured school quality and school attendance zone instability. Coupling an output based measure using the over-period average of school normalized math test scores based on the Orange County public elementary school average scores with an input based measure using student/teacher ratios provides quality measures that appear to correlate sufficiently with parents' perceptions of elementary school quality, but school peer effects play important role as well. Estimates reveal capitalization of quality and uncertainty that are consistent with theory as well as systematic patterns across housing market phases and neighborhood in income level. My third essay is a meta-analysis of the body of empirical results for school quality capitalization in house prices. One puzzling aspect of the housing markets literature is that, while public school quality is a major concern of many households, empirical studies of school quality capitalization into house prices yield mixed and sometimes inconsistent results not only across studies, but also within studies when using different school quality measures and models. These differences are reflected in the capitalization coefficient value, level of significance, and even direction of capitalization effects. This paper conducts meta-analysis of the school quality capitalization estimates to identify the factors contributing to this variation. It reveals that the way the school quality is measured matters. Peer effects measures yield less significant capitalization estimates than input and output based measures and value added measures exhibit lower significance than other output based measures. Moreover, both boundary fixed effects and neighborhood fixed effect approaches can effectively and significantly control for the influence of neighborhood amenities. Adding more school quality variables reduces the capitalization significance of individual school quality variables. The most unexpected finding is that school quality capitalization significance is much less in the South than in other regions. Also surprising is that econometric methods do not appear to be driving results.
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Date Issued
2016
Identifier
CFE0006518, ucf:51358
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006518
Two Applications of Financial Economics to Real Estate
Title
Two Applications of Financial Economics to Real Estate.
Creator
Dibartolomeo, Jeffrey, Gatchev, Vladimir, Chen, Honghui, Turnbull, Geoffrey, Harrison, David, Schnitzlein, Charles, University of Central Florida
Abstract / Description
My first essay examines the effects of dividend policy on the liquidity risk of REITs. I argue that the mandatory high cash payouts of REITs reduce investor reliance on the stock market to satisfy their liquidity needs. Using a sample of equity REITs from 1980 through 2015, I find strong empirical evidence consistent with this paradigm. Unlike non-REIT property companies, I find REITs exhibit negative sensitivity to marketwide liquidity shocks; a result that is evident across most property...
Show moreMy first essay examines the effects of dividend policy on the liquidity risk of REITs. I argue that the mandatory high cash payouts of REITs reduce investor reliance on the stock market to satisfy their liquidity needs. Using a sample of equity REITs from 1980 through 2015, I find strong empirical evidence consistent with this paradigm. Unlike non-REIT property companies, I find REITs exhibit negative sensitivity to marketwide liquidity shocks; a result that is evident across most property type sectors. Moreover, while my findings are robust across a wide range of portfolios based on size, dividend frequency, leverage, market-to-book, operations type, and the presence of dividend reinvestment plans, smaller REITs mitigate liquidity risk only when their dividend frequency is relatively high. Finally, I find that price sensitivities to marketwide liquidity shocks increase after firms elect to discontinue REIT status. These findings strongly support the notions that investors view dividend payouts as a substitute for liquidity, and that REITs' relatively high mandated payout requirements benefit investors with reduced liquidity risk.My second essay re-examines the ability of the Mills-Muth neoclassical land use theory to explain urban sprawl. I test the robustness of Brueckner and Fansler's (1983) seminal study using data drawn from the 1970 U.S. Census. A repeated sampling test shows that their 1970 sampling methodology led to spurious estimates; their conclusions regarding the economic factors driving sprawl cannot be supported. Nor can they be supported using more recent data from the 2000 and 2010 Census. Given this, I offer two alternate measures of urban sprawl: the traditional population density gradient and a new measure that relaxes the monotonicity constraint implied by traditional density gradients. I find the factors identified by neoclassical theory better explain sprawl when using the density gradient and the non-monotonic measure than the Brueckner-Fansler approach.
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Date Issued
2018
Identifier
CFE0006995, ucf:51619
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006995
Two Essays on Investors' Attention to Economically Linked Firms
Title
Two Essays on Investors' Attention to Economically Linked Firms.
Creator
Khoshnoud, Mahsa, Chen, Honghui, Frye, Melissa, Gatchev, Vladimir, Turnbull, Geoffrey, Harrison, David, Roberts, Robin, University of Central Florida
Abstract / Description
My first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return...
Show moreMy first essay examines the degree to which the market prices of publicly traded firms reflect and respond to new information regarding the economic viability and vitality of organizations to which they are strategically linked. More specifically, I exploit the uniquely transparent nature of the lessor-lessee relationship across commercial real estate markets to evaluate whether future returns to real estate investment trusts (REITs) are systematically affected by the financial return performance and/or operational opacity of the tenants who lease their investment properties. Using a hand collected data set identifying the principal tenants of 96 publicly traded REITs, I find those firms with the best performing tenants generate annualized abnormal returns which are approximately six percent higher than those realized by REITs with the worst performing tenants. These results are robust to a variety of model specifications, and a closer inspection of the results reveals these performance differentials are consistent with emerging evidence across the literature suggesting investors' limited attention materially influences the return predictability of assets. With respect to the current investigation, I thus conclude investors' limited attention leads to the failure of REIT prices to fully reflect the valuation implications of their tenants' return performance.My second essay investigates how sophisticated investors, such as short sellers, trade on information along the supply chain. Short sellers are known to be generally better informed than common investors. Given the economic linkages that exist between the suppliers and customers, one would expect short sellers to trade on such information. My results indicate that short interest predicts unexpected earnings news, consistent with short sellers extracting information from economic relationships. When I evaluate stock return and short interests in regression analysis, I find strong negative relation between short interest in supplier firm and the future stock returns for the customer firm for the return in the next month. The negative relation persists for twelve months. I find similar results from portfolio approach. I argue that one plausible channel that explains the information content of supplier (customer) firm's short interest for the customer (supplier) firms is short sale constraints on the customer (supplier) firms. My results are consistent with this explanation. Overall, my findings suggest that short sellers play an important role in the price discovery of related firms on supply chain, beyond their direct effects documented previously.
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Date Issued
2017
Identifier
CFE0006755, ucf:51842
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0006755
Three Essays on Short-selling, Maring Trading and Market Efficiency
Title
Three Essays on Short-selling, Maring Trading and Market Efficiency.
Creator
Wang, Song, Gatchev, Vladimir, Chen, Honghui, Schnitzlein, Charles, Hofler, Richard, University of Central Florida
Abstract / Description
My dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic...
Show moreMy dissertation contains three essays on short-selling, margin trading, and market efficiency. The first essay uses a unique exogenous event, the introduction of short selling in the Chinese stock market, to examine the direct link between idiosyncratic risk and short selling. Based on Shleifer and Vishny (1997), I hypothesize that idiosyncratic risk deters arbitrageurs with negative information from taking short positions in overvalued stocks. Consequently, the stocks with high idiosyncratic risk are more overvalued at the onset of the introduction of short sale and perform worse in the subsequent period. The second essay examines the impact of the introduction of margin trading and short selling in the Chinese stock market on market quality. The third essay examines the relationship between short selling and SEO discount under the SEC's amendment to Rule 105. If the amendment is binding, the short-selling prior to seasoned equity offering (SEO) should correctly reflect negative information and promote price efficiency. Thus the winner's curse problem during SEO process is reduced and the value discount of a SEO should be less.
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Date Issued
2012
Identifier
CFE0004614, ucf:49941
Format
Document (PDF)
PURL
http://purl.flvc.org/ucf/fd/CFE0004614