We study 84 dual-class stock unifications, where superior vote shareholders gave up their superior voting status (all firm stocks became "one share one vote") and received (in most cases) compensation in the form of additional shares. Unifications are essentially intrafirm transactions of voting rights, and afford observation of the intrafirm-assessed price of vote. The price of vote in unifications (1) increases with the percentage vote lost by the majority shareholders, (2) is higher in family-controlled firms, (3) decreases with institutional investor holdings, and (4) is similar to the "outside" price of vote implicit in the market prices of stocks.

We examine theories of IPO underpricing using unique data from Israel where the allocation to subscribers is by equal proration. This enables us to simulate the return earned by uninformed investors. Consistent with Rock's (1986) theory of adverse selection, allocations were negatively related to underpricing. But uninformed investors earned a negative allocation-weighted initial return, although the average initial return was 12%. They could break even, however, by using publicly available information. The data also supports Welch's (1992) theory of information cascades: demand is either extremely high or there is undersubscription, with very few cases in between.

We study how minimum trading unit changes on the Tel-Aviv Stock Exchange impact a stock's trading activity, price volatility, and value. The value effects are consistent with Merton's (1987) model, i.e., an increase in the investor base (trading volume) and a decrease in price noisiness affect stock value positively. Our results extend Amihud, Mendelson, and Uno's (1999) tests of Merton by demonstrating a clear relation between price noisiness changes and stock value changes, and by showing that the response to a minimum trading unit decrease becomes less favorable (and arguably even negative) in the thinnest trading stocks.

We study transactions of voting rights. In our sample of 67 dual class unifications superior vote shareholders give up their superior voting status (all firm stocks become "one share one vote"), and receive (in most cases) compensation in the form of additional stocks. Based on the compensation granted, the median price of 1% of the vote is about 0.1% of firm's equity. More interestingly, the price of vote decreases with institutional holdings, and increases with the percentage vote lost by the majority shareholders. The position and interests of the majority holders appear as the main determinants of the price of vote. * School of Management, Ben-Gurion University of the Negev, Beer-Sheva, Israel, and Chief Economist, Israel Securities Authority, Jerusalem 95464, Israel. ** Corresponding Author: The Anderson School at UCLA, 110 Westwood Plaza, Los Angeles CA 90095, USA; and School of Business Administration, Bar-Ilan University, Ramat Gan 52900, Israel. Fax: 310-2065455; e-mail: ...

This paper examines the contribution of market makers to the liquidity and the efficiency of the options market in a unique setup of an order-driven computerized trading system, in which market makers and other participants operate under equitable conditions. The main findings are: (1) liquidity increased – a 60% increase in trading volume and a 35% decrease of bid–ask spreads; (2) the efficiency of shekel–euro options trading improved – deviations from put–call parity decreased significantly by 12%, and skewness decreased by about 30%. We also find that the net cost to the exchange is out weighted by the benefit to the trading public and that the presence of market makers encouraged trading between other participants far beyond their own trading.

This paper extends one aspect of the US stock market study of Fama (1990) and Schwert (1990). We examine the relationship between industrial production (IP) growth rates and lagged real stock returns for the G-7 countries using both in-sample cointegration and error-correction models and the out-of-sample forecast-evaluation procedure of Ashley et al. (1980). The cointegration tests show a long-run equilibrium relationship between the log levels of IP and real stock prices, while the error-correction models indicate a correlation between IP growth and lagged real stock returns for all countries except Italy. The out-of-sample tests show that in several sub-periods the US, UK, Japanese, and Canadian stock markets enhance predictions of future IP.

Small public firms in the US and elsewhere are often managed by majority owners. This paper offers the hypothesis that majority insiders have an incentive to engage in insider trading around seasoned equity offerings (SEOs), primarily for the sake of preserving control. This hypothesis is tested side-by-side with traditional hypotheses regarding insider trading, such as signaling or growth opportunities that are often considered in the context of firms with dispersed ownership. The empirical analysis in this paper utilizes data of 76 SEOs announced by firms listed on the Tel Aviv Stock Exchange (TASE) between June 1989 and December 1997, whose inside ownership exceeds 50%. The results demonstrate the strong effect of expected post-announcement share price changes on insider trading, and a weaker effect of pre-announcement insider trading on price changes. Unlike minority insiders, who may have an incentive to trade on inside information in order to extract short-term capital gains, majority insiders appear to take the long-term view by buying shares before the offering in order to preserve or increase their control over the firm. This activity does not seem to be dependent upon the firm's growth opportunities. Rather, it seems to be market-dependent; that is, the ownership ratio of majority insiders is increased in a bear market and remains the same in a bull market.

ABSTRACT The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the nontradable options are priced about 21 percent less than the exchange‐traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.