Information asymmetry and the dealer's bid-ask spread: a case study of earnings and dividend announcements

Article Abstract:

On securities markets when some traders possess information before other traders, an information asymmetry is said to exist. During periods of increased information asymmetry, the trading behavior of both informed and uninformed market participants changes. Dealers who suspect that other participants have advance information will protect themselves by widening the bid-ask spread. Therefore, dealer spreads can be used to test for increases in information asymmetry prior to anticipated announcements. This hypothesis is tested by studying market data for periods prior to earnings and dividends announcements. The results show an increase in information asymmetry when earnings and dividend announcements are made at different times, and when the second announcement follows the first by more than ten but fewer than thirty days. However there was no strong increase in asymmetry prior to the announcement when earnings and dividends were announced on the same day, or when an earnings or dividends announcement was not preceded by another announcement in the previous thirty-day period.

Models, Profits, Dividends, Earnings per share, Corporate profits

---

Consistency between predicted and actual bid-ask quote-revisions

Article Abstract:

This paper employs a "transaction" data-base to study whether observed quote-revisions are consistent with those predicted by the adverse selection and inventory cost theories of the bid-ask spread. We find that actual quote-revisions are consistent with the theoretical prediction in only 25% of the cases. Furthermore, quote-revision patterns are found to be strongly dependent on the level of the outstanding spread and, to a lessor extent, on the transaction size. These systematic patterns, unrelated to the inventory cost and adverse selection theories, are consistent with the effect on quote-revisions of the limit order book and the minimum 1/8 price-change rule. (Reprinted by permission of the publisher.)

Management, Stockbrokers, Floor traders (Finance)

---

On viable diffusion price processes of the market portfolio

Article Abstract:

The assumption that the market portfolio follows a specified diffusion process implies, in a simple equilibrium framework, that the representative individual must have a certain utility function which is identified in the paper. Not every diffusion process is viable, i.e., can be 'endogenized' to be the market portfolio's price process in such an equilibrium model. The paper provides necessary and sufficient conditions for viability which imply that viable diffusion processes constitute a rather restricted family. (Reprinted by permission of the publisher.)

Capital market, Capital markets

Similar abstracts:

• Abstracts: Information value and investor wealth: the case of earnings announcements. A five-state financial distress prediction model
• Abstracts: The design school: reconsidering the basic premises of strategic management. Visionary leadership and strategic management
• Abstracts: Transforming the frameworks of accountability: the case of water privatization. The appearance and disappearance of accounting: wage determination in the U.K. coal industry
• Abstracts: New stock issues and the institutional production of trust. Trust, contracting and the prospectus process. Bank failures, stigma management and the accounting establishment
• Abstracts: Organizational boundaries and economic performance: an empirical study of entrepreneurial computer firms. The dynamics of the liability of foreignness: a global study of survival in financial services

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.