Browsing by Author "Kadlec, Gregory B."
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- Examination of long-run performance of momentum portfolios: Implications for the sources and profitability of momentumLi, Yao (Virginia Tech, 2019-09-20)This dissertation investigates the long-term performance of momentum portfolios. Its results show striking asymmetries for winners and losers and imply potentially different causes for the winner and loser components of momentum. After separately examining winners and losers relative to their respective benchmark portfolios with no momentum, we find winner momentum is smaller in magnitude, persists only for six months, and its higher return fully reverses. This is consistent with the notion that winner momentum is an overreaction to positive news and potentially destabilizing. Loser momentum is larger in magnitude, lasts for about one year, and its lower return does not reverse in the long run. This is consistent with the notion that loser momentum is an underreaction to negative news and suggests investors hold on to losers for too long. The lack of reversal for losers departs from prior studies whose findings are driven by the use of monthly rebalanced portfolio. Rebalancing cumulates an upward bias caused by noise-induced price volatility, which disproportionately affects losers more. This greater upward bias in losers creates an illusion that the winner minus loser return reverses. More appropriate approaches such as the buy-and-hold portfolio documents significantly less reversal. Existing theories that potentially conform to the overreaction of winners and underreaction of losers include overconfidence (Daniel, Hirshleifer, and Subrahmanyam, 1998), representativeness and conservatism (Barberis, Shleifer, and Vishny, 1998), interaction between agents holding asymmetric information (Hong and Stein, 1999), and investors' asymmetric response to fund performance (Vayanos and Woolley, 2013).
- The Impact of Earnings Quality on Investors' and Analysts' Reactions to Restatement AnnouncementsRomanus, Robin Nicole (Virginia Tech, 2007-06-05)Despite countless efforts to elucidate market participants" understanding of the implications of earnings quality, empirical accounting research has rendered two distinct perspectives. The first perspective considers market participants naïve users of accounting information who fail to grasp the implications of earnings quality resulting in temporary security mispricing. The second perspective suggests that market participants scrutinize earnings reports carefully and subsequently discern and price the quality of earnings. The purpose of my research is to help clarify the ambiguity surrounding market participants" pricing of earnings quality using one clearly observable indicator of low-quality earnings, accounting restatements. This study examines the effect pre-restatement earnings quality has on short-window returns and analyst forecast revisions and dispersion following restatement announcements using a cross-section of 719 publicly traded firms that announced restatements between 1997 and 2004. Accrual and book-tax difference metrics are used to proxy for earnings quality. The metrics are examined separately and collectively to ascertain their individual and incremental effects in modeling the market reaction. Further analyses investigate the effects that various levels of investor sophistication have on the market reaction. Results indicate that the market reaction to restatement announcements is significantly influenced by pre-restatement earnings quality. Specifically, both the accrual and book-tax difference measures of earnings quality are significantly and negatively related to the market reaction. Further analysis indicates the predictive power of the model is improved by including both the accrual and book-tax difference proxies. This finding suggests the information in book-tax differences may provide market participants with signals from which to assess earnings quality that are distinct from those contained in accruals. Basic results for analyst forecast dispersion and revisions are not conclusive. Results of the interactions between each earnings quality proxy and level of investor sophistication are significant only for the accrual based measure of earnings quality. This suggests that sophisticated investors are more attuned to the implication of accrual based measures of earnings quality than book-tax difference measures.
- Incorporating default risk into the Black-Scholes model using stochastic barrier option pricing theoryRich, Don R. (Virginia Tech, 1993)The valuation of many types of financial contracts and contingent claim agreements is complicated by the possibility that one party will default on their contractual obligations. This dissertation develops a general model that prices Black-Scholes options subject to intertemporal default risk using stochastic barrier option pricing theory. The explicit closed-form solution is obtained by generalizing the reflection principle to k-space to determine the appropriate transition density function. The European analytical valuation formula has a straightforward economic interpretation and preserves much of the intuitive appeal of the traditional Black-Scholes model. The hedging properties of this model are compared and contrasted with the default-free model. The model is extended to include partial recoveries. In one situation, the option holder is assumed to recover α (a constant) percent of the value of the writer’s assets at the time of default. This version of the partial recovery option leads to an analytical valuation formula for a first passage option - an option with a random payoff at a random time.
- Institutional segmentation of equity markets: causes and consequencesHosseinian, Amin (Virginia Tech, 2022-07-27)We re-examine the determinants of institutional ownership (IO) from a segmentation perspective -- i.e. accounting for a hypothesized systematic exclusion of stocks that cause high implementation or agency costs. Incorporating segmentation effects substantially improves both explained variance in IO and model parsimony (essentially requiring just one input: market capitalization). Our evidence clearly establishes a role for both implementation costs and agency considerations in explaining segmentation effects. Implementation costs bind for larger, less diversified, and higher turnover institutions. Agency costs bind for smaller institutions and clienteles sensitive to fiduciary diligence. Agency concerns dominate; characteristics relating to the agency hypothesis have far more explanatory power in identifying the cross-section of segmentation effects than characteristics relating to the implementation hypothesis. Importantly, our study finds evidence for interior optimum with respect to the institution's scale, due to the counteracting effect between implementation and agency frictions. We then explore three implications of segmentation for the equity market. First, a mass exodus of publicly listed stocks predicted to fall outside institutions' investable universe helps explain the listing puzzle. There has been no comparable exit by institutionally investable stocks. Second, institutional segmentation can lead to narrow investment opportunity sets, which limit money managers' ability to take advantage of profitable opportunities outside their investment segment. In this respect, we construct pricing factors that are feasible (ex-ante) for institutions and benchmark their performance. We find evidence consistent with the demand-based asset pricing view. Specifically, IO return factors yield higher return premia and worsened institutional performance relative to standard benchmarks in an expanding institutional setting (pre-millennium). Third, we use our logistic model and examine the effect of aggregated segmentation on the institutions' portfolio returns. Our findings suggest that investment constraints cut profitable opportunities and restrict institutions from generating alpha. In addition, we find that stocks with abnormal institutional ownership generate significant positive returns, suggesting institution actions are informed.
- Intra-industry information transfers: Evidence from earnings announcementsKovacs, Tunde (Virginia Tech, 2006-04-12)I examine the role of product market relations in information assimilation surrounding corporate earnings announcements. I provide evidence that intra-industry information transfers measured by industry rival earnings announcements account for a substantial portion of the well documented post-earnings announcement drift. While this evidence appears to be most consistent with rational structural uncertainty [Brav and Heaton (2002)] one cannot rule out the possibility of behavioral biases.
- Investor base, cost of capital, and new listings on the NYSEKadlec, Gregory B.; McConnell, John J. (Wiley, 2023-04)In this article, we report the results of our recent study of 273 companies that during the 1980s decided to switch the trading locale of their shares from the over-the-counter (OTC) or NASDAQ market to the NYSE. We found that share prices increased by about 6%, on average, at the time the stocks became listed on the NYSE, and that the investor base of these firms increased by almost 20%. We also found that the average stock experienced a reduction in bid/ask spread of about 5% after listing. In an analysis of the relation among share prices, investor base, and bid/ask spread, we found that the stock price increase was significantly correlated with both the percentage increase in investor base and the reduction in bid/ask spread.
- Optimal Bond Refunding: Evidence From the Municipal Bond MarketPriyadarshi, Samaresh (Virginia Tech, 1997-05-02)This dissertation empirically examines refunding decisions employed by issuers of tax-exempt bonds. Callable bonds contain embedded call options by virtue of provisions in bond indentures that permit the issuing firm to buy back the bond at a predetermined strike price. Such an embedded American call option has two components to its value, the intrinsic value and the time value. The issuer can realize at least as much as the intrinsic value by exercising immediately, when the option is in-the-money. Usually it is optimal for the holder of an in-the money American option to wait rather than exercise immediately, because the option has time value. It is rational for the holder to exercise the option when the total value of the option is no more than the intrinsic value. Option pricing theory can be used to identify two sub-optimal refunding strategies: those that refund too early, and those that refund too late. In such cases the holder incurs losses. I analyze the refunding decisions for two different samples of tax-exempt bonds issued between 1986 and 1993: the first consists of 2,620 bonds that are called, and the second contains 23,976 bonds that are never called. The generalized Vasicek (1977) model in the Heath, Jarrow, and Morton (1992) framework is used to construct binomial trees for interest rates, bond prices, and call option prices. The option pricing lattice is then used to compute the loss in value from sub-optimal refunding strategies, refunding efficiency, and months from optimal time for bonds in these two samples. Results suggest that sub-optimal refunding decisions cause losses to the issuers, which are present across bond and issuer characteristics. For the pooled sample of 26,596 bonds, the loss in value from sub-optimal refunding decisions totaled $7.2 billion, amounting to a loss of about 1.75% of total principal amount. Results indicate that issuers either wait too long to refund or never refund and cannot realize the present value saving of switching a high coupon bond with a low coupon bond, over a longer period of time. These results critically depend on the assumptions of underlying term structure model and are sensitive to model calibrated parameter values.
- Return Predictability Conditional on the Characteristics of Information SignalsPritamani, Mahesh (Virginia Tech, 1999-04-12)This dissertation examines whether simultaneously conditioning on the multidimensional characteristics of information signals can help predict returns that are of economic significance. We use large price changes, public announcements, and large volume increases to proxy for the magnitude, dissemination, and precision of information signals. Abnormal returns following large price change events are found to be unimportant. As we condition on other characteristics of information signals, the abnormal returns become large. Large price change events accompanied by both a public announcement and an increase in volume have a 20-day abnormal return of almost 2% for positive events and -1.68% for negative events. The type of news provides further refinement. If the news relates to earnings announcements, management earnings forecasts, or analyst recommendations then the 20-day abnormal returns becomes much larger: ranging from 3% to 4% for positive events and about -2.25% for negative events. For these news events, we also find that the underreaction is greater for positive (negative) event firms that underperformed (overperformed) the market in the prior period, earning 20-day post-event abnormal returns of 4.85% (-3.50%). This evidence is consistent with the Barberis, Shleifer, and Vishny (1998) model of investor sentiment that suggests that investors are slow to change their beliefs. The evidence from our sample does not provide much support for strategic trading models under information asymmetry. Finally, an out-of-sample trading strategy generates 20-day post-event statistically significant abnormal return of 2.18% for positive events and -2.40% for negative events. Net of transaction costs, the abnormal returns are a statistically significant 1.04% for positive events and a statistically significant -1.51% for negative events.
- Selling Winners, Holding Losers: Effect on Mutual Fund Performance and FlowsXu, Zhaojin (Virginia Tech, 2007-05-10)In this dissertation, we examine whether the disposition effect, the tendency to sell winners and hold losers, exists among U.S. equity mutual funds and how the disposition effect influences fund performance and particularly flows. We find that a significant fraction (32%) of all funds exhibit some degree of disposition behavior. These funds underperform funds that are not disposition prone by 4-6% per year. Moreover, we find that the disposition effect has a significant impact on future fund flows. Without controlling for performance, disposition-prone funds experience 2-3% less flows each quarter than other funds. The difference in flows is probably due to poor performance of such funds. However, even after controlling for performance and other factors that potentially influence flows, funds with a high disposition effect experience 0.7-2% less flows than funds without such behavior. Past research has found that funds with low tax overhang garner larger inflows. Though disposition-prone funds are likely to have a lower tax overhang because they sell their winners quickly, we find that fund flows to disposition-prone funds are smaller than flows to non-disposition oriented funds after controlling for tax overhang. These results suggest that performance and tax efficiency as well as tax overhang are all important to mutual fund investors.
- Three Essays on Market Efficiency and Limits to ArbitrageTayal, Jitendra (Virginia Tech, 2016-03-28)This dissertation consists of three essays. The first essay focuses on idiosyncratic volatility as a primary arbitrage cost for short sellers. Previous studies document (i) negative abnormal returns for high relative short interest (RSI) stocks, and (ii) positive abnormal returns for low RSI stocks. We examine whether these market inefficiencies can be explained by arbitrage limitations, especially firms' idiosyncratic risk. Consistent with limits to arbitrage hypothesis, we document an abnormal return of -1.74% per month for high RSI stocks (>=95th percentile) with high idiosyncratic volatility. However, for similar level of high RSI, abnormal returns are economically and statistically insignificant for stocks with low idiosyncratic volatility. For stocks with low RSI, the returns are positively related to idiosyncratic volatility. These results imply that idiosyncratic risk is a potential reason for the inability of arbitrageurs to extract returns from high and low RSI portfolios. The second essay investigates market efficiency in the absence of limits to arbitrage on short selling. Theoretical predictions and empirical results are ambiguous about the effect of short sale constraints on security prices. Since these constraints cannot be eliminated in equity markets, we use trades from futures markets where there is no distinction between short and long positions. With no external constraints on short positions, we document a weekend effect in futures markets which is a result of asymmetric risk between long and short positions around weekends. The premium is higher in periods of high volatility when short sellers are unwilling to accept higher levels of risk. On the other hand, riskiness of long positions does not seem to have a similar impact on prices. The third essay studies investor behaviors that generate mispricing by examining relationship between stock price and future returns. Based on traditional finance theory, valuation should not depend on nominal stock prices. However, recent literature documents that preference of retail investors for low price stocks results in their overvaluation. Motivated by this preference, we re-examine the relationship between stock price and expected return for the entire U.S. stock market. We find that stock price and expected returns are positively related if price is not confounded with size. Results in this paper show that, controlled for size, high price stocks significantly outperform low price stocks by an abnormal 0.40% per month. This return premium is attributed to individual investors' preference for low price stocks. Consistent with costly arbitrage, the return differential between high and low price stocks is highest for the stocks which are difficulty to arbitrage. The results are robust to price cut-off of $5, and in different sub-periods.
- Three essays on mispricing and market efficiencyQin, Nan (Virginia Tech, 2014-07-23)This dissertation consists of three essays. The first essay studies the impact of indexing on stock price efficiency. Indexing has experienced substantial growth over the last two decades because it is an effective way of holding a diversified portfolio while minimizing trading costs and taxes. In this paper, we focus on one negative externality of indexing: the effect on efficiency of stock prices. Based on a sample of large and liquid U.S. stocks, we find that greater indexing leads to less efficient stock prices, as indicated by stronger post-earnings-announcement drift, greater deviations of stock prices from the random walk and greater return predictability from lagged order imbalances. We conjecture that reduced incentives for information acquisition and arbitrage induced by indexing are probably the main cause of the degradation in price efficiency, but we find no evidence supporting a direct impact from passive trading or any effect through liquidity. The second essay investigates the effect of price inefficiency on idiosyncratic risk and stock returns. I finds that price inefficiency in individual stocks contributes to expected idiosyncratic volatility. If idiosyncratic risk is priced, greater price inefficiency could be associated with higher expected returns. Consistent with this hypothesis, this paper then finds a positive relation between price inefficiency and future stock returns. This return premium of price inefficiency is not explained by traditional risk factors, illiquidity, or transactions costs. It is also evidently different from the return bias related to Jensen's inequality. This paper thus provides new insights about the determinants of expected stock returns, and new supporting evidence that idiosyncratic risk is priced. The third essay examines whether the upward return bias generated by Jensen's inequality could lead to better performance of equally-weighted (EW) indexes than value-weighted (VW) index when stock prices are not fully efficient. We find that, for a wide range of U.S. stock indexes, EW indexes deliver better four-factor adjusted returns than VW ones do even after deducting transaction costs. Consistent with our hypothesis that the outperformance of EW indexes comes from mispricing, we find that this outperformance concentrates in stocks with greater mispricing, as measured by deviation of stock prices from random walk. Findings in this essay not only imply a potentially winning investment strategy, but also provide new insight into a long-term debate on causes of the outperformance of the EW indexes.
- A Treatise on Downside RiskArtavanis, Nikolaos (Virginia Tech, 2013-04-24)This dissertation is comprised of two papers. The first paper (Chapter 1) provides the theoretical foundation for the estimation of systematic downside risk. Using a new approach, I derive a measure of downside systematic risk, downside beta, that is free of the endogeneity problem and thus straightforward to calculate. Since there is no consensus in the literature regarding the appropriate method for the estimation of downside beta, I review the alternative specifications proposed in the past. I explicitly show that the derived formula here is more efficient in capturing downside risk on both theoretical grounds and in terms of empirical results. Using this efficient specification of systematic downside risk, I show that downside beta has increased explanatory power towards the cross-section of equity returns as compared to unconditional beta. In particular, downside beta predicts larger and more significant future premia, insignificant intercepts in portfolio cross-section tests and cannot be subsumed by additional risk factors proposed in the past literature. I attribute this superior performance to the ability of downside risk to capture distress risk and to the fact that it does not penalize (reward) good (bad) events in good states. In the second paper (Chapter 2) that is co-authored with my advisor, Gregory Kadlec, we exploit the notion of downside risk to explain a long-withstanding market anomaly; the long-term stock return reversals. We show that downside betas of past losers are significantly greater than downside betas of past winners, and the inclusion of downside beta in Fama-Macbeth regressions subsumes the reversal effect.
- Two Essays on Equity Mutual FundsJaiprakash, Puneet (Virginia Tech, 2011-08-05)Previous research has shown that expected market returns vary over time and that this variation can be predicted by variables such as dividend yields and book-to-market ratios (Fama and French (1989); Campbell and Thompson (2008)). Further, macroeconomic variables affect asset returns (Flannery and Protopapadikas (2002)). We investigate whether the investment decisions of mutual fund investors incorporate information about future stock returns contained in predictive and macroeconomic variables. If investors incorporate this information, then variation in flows should be related to that in predictive variables and macroeconomic variables. Using quarterly flow data from 1951Q4 to 2007Q4, we find that both predictive and macroeconomic variables have a relatively small impact on flows. Our results suggest that fund investors, as a group, fail to adequately incorporate the information contained in these variables. Existing literature documents that (i) an asymmetric low-performance relationship creates an incentive for managers to extract rents from shareholders, and (ii) managers respond to such incentives by strategically altering portfolio risk. Using the semiparametric regression model proposed by Chevalier and Ellison (1997), we show that the flow-performance relationship has become linear in recent years (2000-2009) and fund managers no longer respond to such incentives. Fund managers, however, change portfolio risk in response to past performance; such changes have a positive impact on fund performance and are indicative of a better alignment of interests between managers and shareholders.
- Two Essays on Momentum and Reversals in Stock ReturnsBhootra, Ajay (Virginia Tech, 2008-05-01)This dissertation consists of two essays. In the first essay, I examine the source of momentum in stock returns. The reversal of momentum returns has been interpreted as evidence that momentum results from delayed overreaction to information. I examine momentum and reversals conditional on firms’ share issuance (net of repurchases) during the momentum holding period and show that (1) among losers, the momentum returns are statistically significant, but the reversals are non-existent, for both issuers and non-issuers; (2) among winners, momentum and reversals are restricted to issuers, but are non-existent among non-issuers. After further conditioning on firm size, I find that winner reversals are restricted to small, equity issuing firms. After excluding these small issuers from the sample, the remaining firms have strong momentum profits with no accompanying reversals. The evidence suggests that the return reversals are a manifestation of the poor performance of equity issuing firms. Further, while investor overreaction potentially contributes to the momentum among winners, a large fraction of firms do not earn any significant abnormal returns following initial price continuation, suggesting that underreaction, and not delayed overreaction to information, is the dominant source of momentum in stock returns. In the second essay, I examine alternative explanations of reversals in stock returns. George and Hwang (2007) find that long-term reversals in stock returns are driven by investors’ incentive to defer payment of taxes on locked-in capital gains rather than by overreaction to information. I show that return reversals are instead attributable to the negative relationship between firms’ composite share issuance and future stock returns documented in Daniel and Titman (2006). The ability of locked-in capital gains measures to forecast stock returns is largely subsumed by the composite share issuance measure. My results do not support the hypothesis that capital gains taxes drive long-term return reversals.
- Two Essays on Ownership and Market CharacteristicsChen, Honghui (Virginia Tech, 1999-07-23)Theoretical models suggest that ownership structure may be an important determinant of securities' market characteristics. For example, the presence of informed traders leads to greater bid-ask spreads (Copeland and Galai (1983), and Glosten and Milgrom (1985)), and strategic trading of informed and discretionary liquidity traders leads to intertemporal variation in both trading volume and trading costs (Admati and Pfleiderer (1988), and Foster and Viswanathan (1990)). However, the empirical studies on the effect of ownership structure on market characteristics are limited. Prior studies focus on either one type of market characteristics or one type of owners, and usually do not address the potential endogeneity problem between market characteristics and ownership structure. This dissertation extends existing literature with two essays on ownership and market characteristics. The first essay broadly examines the effect of ownership structure (inside ownership, institutional ownership, and individual ownership) on market characteristics such as order flow, price impact of trade, quoted spread and quoted depth. For each market characteristic examined, I establish an empirical model based on existing theories and empirical evidence. My results indicate that stocks with greater inside ownership have lower order flow, greater price impact of trade, greater quoted spread and lower quoted depth, while stocks with greater active institutional ownership and greater individual shareholders have greater order flow, smaller price impact of trade, lower spread and greater depth. These results may have implications for corporate governance. For example, while agency theory suggests managerial ownership may align interests of managers and shareholders, this essay finds that this comes with a liquidity cost. Further, my results suggest there are liquidity benefits of individual and institutional ownership. If as suggested by Amihud and Mendelson (1989), investors require a higher rate of return for illiquid stocks, firms can target their shares to specific types of investors (for example, active institutions and individuals) to improve liquidity, and reduce their cost of capital. The second essay is a specific application of the first essay and examines the effect of institutional ownership on price discovery around earnings announcements. I select earnings announcements as the event for my analysis because there are three well-documented regularities about earnings announcements. First, market participants anticipate the forthcoming earnings announcements. Second, the announcements of earnings news are usually accompanied by abnormal price changes and abnormal volume. Third, there is evidence that stock price continues to move in the direction of earnings surprise after the announcements of earnings news. Since results from the first essay suggest that institutional investors affect market characteristics such as price impact of trade and quoted spread, I expect that institutional participation would also affect the price discovery process around earnings announcements. My results indicate that institutional ownership is associated with greater anticipation of earnings news. Further, stocks with greater institutional ownership have a greater price response to announcements of earnings news. Finally, institutional investors have no significant effect on post-announcement drift. The results of the second essay suggest that institutional investors contribute to the price discovery process.
- Two Essays on Shelf-registered Corporate Equity OfferingsAutore, Don M. (Virginia Tech, 2006-03-31)This dissertation consists of two essays. The first provides evidence that the recent revival of shelf equity offers is related to changes in how firms use shelf registration. During 1990-2003 firms that make shelf filings have no immediate intent and low probability of issuance, lower pre-filing returns relative to non-shelf issuers, and often have been certified in prior SEOs. The evidence indicates that the way firms now use shelf offerings resolves the under-certification problem responsible for the shelf demise in the 1980s (Denis, 1991) and results in smaller market penalties and lower underwriter fees relative to non-shelf offerings. This allows firms with greater uncertainty to take advantage of the shelf option to defer or abandon offers. Additionally, firms often use universal shelf filings and choose between debt and equity offerings based on the prevailing relative market conditions. The second essay examines offer price discounting of traditional and shelf-registered seasoned equity offerings (SEOs). The results indicate that relative to traditional SEOs, shelf discounting during 1982 - June 2004 is similar in magnitude, is influenced by the same factors, and has increased similarly over time. Prior studies attribute the time-series increase of seasoned offer discounting to pre-offer short sale constraints (Rule 10b-21; adopted in 1988). This study provides insights about the effect of Rule 10b-21 by exploiting the fact that shelf-registered offerings were exempt from this regulation until September 2004. The analysis uses the shelf exemption as a control in testing the Rule's effect, and the elimination of the exemption as an "out-of-sample" test. The results suggest that Rule 10b-21 is not associated with the increase in seasoned offer discounts. The gradual increase in discounting over the past two decades is largely due to a shift in the composition of issuers toward firms that have greater stock volatility and pre-offer price uncertainty.
- Two Essays on the Probability of Informed TradingPopescu, Marius (Virginia Tech, 2007-04-11)This dissertation consists of two essays. The first essay develops a new methodology for estimating the probability of informed trading from the observed quotes and depths, by extending the Copeland and Galai (1983) model. This measure (PROBINF) can be computed for each quote and it represents the specialist's ex-ante estimate of the probability of informed trading. I show that PROBINF exhibits a strong and robust relationship with the observed level of insider trading and with measures of the price impact of trades (ë) estimated based on the models of Glosten and Harris (1988), Madhavan and Smidt (1991) and Foster and Viswanathan (1993). In contrast, the alternative measure of the probability of informed trading (PIN) developed by Easley, Kiefer, O'Hara and Paperman (1996) exhibits a weaker and less robust relationship with insider trading and price impact of trades. The time series pattern of PROBINF in an intra-day analysis around earnings announcement is consistent with previous findings regarding informed trading. An important advantage of PROBINF over PIN and other measures of information asymmetry such as price impact of trades and adverse selection component of the spread is that, unlike these measures, it can be estimated for each quote, and thus can also be used to measure intra-day changes in informed trading and information asymmetry. In the second essay, I examine whether the underwriting syndicate composition influences the secondary market liquidity for initial public offerings (IPOs). Specifically, I argue that co-managers improve the liquidity of IPOs through the other services they provide, besides market making. Using a comprehensive sample of initial public offerings completed between January 1993 and December 2005, I find that IPOs with a high number of co-managers in their syndicates have lower spreads and a lower level of information asymmetry in the aftermarket. I argue that the information produced during the premarket and the analyst coverage in the aftermarket are the main channels through which co-managers mitigate the information asymmetry risk in the secondary market.