Short-Sale Constraints, Differences of Opinion, and Overvaluation

Boehme, Rodney D; Danielsen, Bartley R.; Sorescu, Sorin M.

doi:10.1017/s0022109000002143

Cited by 494 publications

(327 citation statements)

References 40 publications

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“…Therefore, IV is negatively related to future returns possibly because it is a proxy for dispersion of opinion. Note that this conjecture is also supported by the cross-sectional evidence: Diether, Molloy, and Scherbina [2002], Ang, Hodrick, Xing, and Zhang [2005], and Boehme, Danielsen, and Sorescu [2006] find that stocks with higher dispersion of opinion or higher price volatility tend to have lower expected returns, especially when interacted with short sale constraints. Guo and Savickas [2005] show that IV and MV forecast stock returns only when combined.…”

mentioning

confidence: 67%

Market Timing with Aggregate and Idiosyncratic Stock Volatilities

Guo

Higbee

2006

SSRN Journal

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mentioning

confidence: 67%

Market Timing with Aggregate and Idiosyncratic Stock Volatilities

Guo

Higbee

2006

SSRN Journal

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“…Forecast dispersion also served as a proxy for the information environment of a firm (Diether et al, 2002;Park, 2005;Boheme et al, 2006). Accordingly, as the information environment of a firm improves, analysts forecast of the firm would converge.…”

Section: Multivariate Regression Analysis -Forecast Dispersion -Full mentioning

confidence: 99%

“…Forecast dispersion is a proxy for differences in opinions about the value of the firm (Diether et al, 2002;Boheme et al, 2006) reports the impact of changes in listing level on the number of analyst following. Forecast dispersion measured as the standard deviation of analyst forecast standardized by the absolute value of the mean analyst forecast.…”

Section: Change Samplementioning

confidence: 99%

The Effect of Changing the Listing Level on the Information Environment of ADRs

Deal¹

2016

International Journal of Financial Research

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This study investigates the impact of changing the listing level of American Depositary Receipts (ADRs) on the information environment of ADRs. Specifically I examine four main listing levels of ADRs and analyze whether ADRs that change (upgrade/downgrade) their listing level have greater/less analyst coverage, increased/decreased forecast accuracy, and increased/decreased forecast dispersion. In addition, since analyst forecast accuracy differs depending on ADRs' home country legal institutions, this study also investigates whether analyst forecast accuracy differs depending on ADRs' home country legal institutions. Specifically, I examine whether the impact on information environment is different for ADRs from countries with different legal systems and disclosure regulations. The SEC has segmented ADRs into four listing levels which have different reporting and regulatory requirements. The SEC and disclosure requirements vary across the four ADR programs. Level II and Level III are exchange listed ADRs, Level I is traded OTC, and Level IV private placement. ADRs that trade in the U.S. market (exchange listed) have more stringent requirements and must adhere to stronger enforcement of accounting standards. Thus, their regulatory and hence quality of information environment is higher. If ADRs that trade on Level II and Level III must follow a more rigorous regulatory requirement, then do analysts and investors in the U.S. markets adjust the pricing of securities to reflect this difference in ADR listing levels? The sample consists of 448 ADR firms from emerging and developed markets around the world that cross-listed on U.S. markets and eventually changed their listing level between 1999 and 2010. I classify the firms based on their listing level which symbolizes the degree of regulatory adherence. To proxy for the information environment, I examine analyst forecast. I analyze the level of significant difference in forecast accuracy, number of analyst forecast, and forecast dispersion when ADRs change their listing level. I present empirical evidence consistent with the hypotheses that an upgrade (downgrade) of ADR listing level is associated with a decrease (increase) in analysts' forecast error, and number of analyst following. These results indicate that a change in the information environment around U.S. cross-listing is a combination of both the bonding hypothesis effect and the ADR listing level effect.

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“…Gruber (1996), and Wermers (2000) found that institutional investors are informed traders just by observing their trading behavior. Desai, Ramesh, Thiagarajan and Balachandran (2002), Jones and Lamont (2002), Asquith, Pathak and Ritter (2005), Boehme, Danielsen and Sorescu (2006), Diether, Lee andWerner (2009) andBoehmer, Jones andZhang (2008) analyzed the behavior of short seller's trading activities and recognized that the transactions from short sellers were based on informed trading.…”

Section: Introductionmentioning

confidence: 99%

The Strategic Responses from Sophisticated Investors to Inaccurate Forecast of Financial Analysts

Lee¹,

Powell²,

Nguyen³

et al. 2018

AFR

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We examine whether there are more information based trading activities that are generated around the time of earnings announcements. We distinguish between the influence of information based traders, especially short sellers, and market information quality through the reaction of participants to new information derived from corporate earnings announcements. We find that informed traders do take advantage of overpriced stocks, and do short stocks before the confirmation of past expectations of future cash flows from corporates. We apply Standardized Unexpected Earnings (SUE) in the method and our result indicates that informed traders are more likely to take advantage of overpriced stocks, using a tool (shorting) that is not traditionally used by unsophisticated investors. We also demonstrate an unique finding that informed traders follow stock analysts not for investing advice, but to take advantage of those unsophisticated investors that buy in to the rhetoric expressed by financial analysts.

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Short-Sale Constraints, Differences of Opinion, and Overvaluation

Cited by 494 publications

References 40 publications

Market Timing with Aggregate and Idiosyncratic Stock Volatilities

Market Timing with Aggregate and Idiosyncratic Stock Volatilities

The Effect of Changing the Listing Level on the Information Environment of ADRs

The Strategic Responses from Sophisticated Investors to Inaccurate Forecast of Financial Analysts

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