David J. Denis, Atulya Sarin, Is the Market Surprised by Poor Earnings Realizations Following Seasoned Equity Offerings?, The Journal of Financial and Quantitative Analysis, Vol. 36, No. 2, Special Issue on International Corporate Governance (Jun., 2001), pp. 169-193

We find that option listings are associated with a decrease in the variance of the pricing error, a decrease in the adverse selection component of the spread, and an increase in the relative weight placed by the specialist on public information in revising prices for the underlying stocks. We also find that there is a decrease in the spread and increases in quoted depth, trading volume, trading frequency, and transaction size after option listings. Overall, our results suggest that option listings improve the market quality of the underlying stocks.

We examine the impact of changes in equity-option margin requirements on the liquidity of options and underlying stock markets. We find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, options spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks, but option spreads increased. Overall, our results indicate that uninformed traders are more sensitive to the margin dimension of trading costs.

The authors examine the impact of changes in equity-option margin requirements on the liquidity of options and underlying stock markets. They find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, option spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks but option spreads increased. Overall, the authors' results indicate that uninformed traders are more sensitive to the margin dimension of trading costs.

ABSTRACT We examine the impact of changes in equity‐option margin requirements on the liquidity of options and underlying stock markets. We find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, option spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks, but option spreads increased. Overall, our results indicate that uninformed traders are more sensitive to the margin dimension of trading costs.

This paper investigates the behavior of stock and option prices around block trades in stocks. The results indicate that for both uptick and downtick block trades the stock prices adjust within a fifteen minute period after the block trade. Moreover, for uptick blocks there is no evidence of any stock price reaction before the block trade. However, the adjustment of stock price for downtick blocks begins about fifteen minutes before the block trade. They also find that option price behavior differs considerably from stock price behavior. Specifically, the authors' results suggest that options exhibit abnormal price behavior starting thirty minutes before the block and ending one hour after the block. The pattern is more pronounced for downtick blocks and for put options. The authors interpret this abnormal price behavior of options before the block trade as consistent with intermarket frontrunning.

David J. Denis, Diane K. Denis, Atulya Sarin, The Information Content of Dividend Changes: Cash Flow Signaling, Overinvestment, and Dividend Clienteles, The Journal of Financial and Quantitative Analysis, Vol. 29, No. 4 (Dec., 1994), pp. 567-587

We report that ownership structure significantly affects the likelihood of a change in top executive. Controlling for stock price performance, the probability of top executive turnover is negatively related to the ownership stake of officers and directors and positively related to the presence of an outside blockholder. In addition, the likehood of a change in top executive is significantly less sensitive to stock price performance in firms with higher managerial ownership. Finally, we document an unusually high rate of corporate control activity in the twelve months preceding top executive turnover. We conclude that ownership structure has an important influence on internal monitoring efforts and that this influence stems in part from the effect of ownership structure on external control threats.

This paper examines the impact on the liquidity of NYSE/AMEX listed stocks when they were subsequently listed on the London or the Tokyo Stock Exchanges. It can be argued that the increased competition from foreign market makers will reduce the monopoly rents that specialists can earn, thereby improving their quotes. We find, however, that spreads do not decrease following a dual listing, though the depth of the quotes increases as predicted. The apparent increase in depth disappears once we account for changes in price, volume and return variance. We also find that the level of informed trading increases, which increases the cost to the specialist of providing liquidity, and explains why spreads do not decline in spite of increased competition. Consistent with an increase in informed trading, we also document an increase in trading activity.

We provide evidence on the agency cost explanation for corporate diversification. We find that the level of diversification is negatively related to managerial equity ownership and to the equity ownership of outside blockholders. In addition, we report that decreases in diversification are associated with external corporate control threats, financial distress, and management turnover. These findings suggest that agency problems are responsible for firms maintaining value-reducing diversification strategies and that the recent trend toward increased corporate focus is attributable to market disciplinary forces.