Recent findings indicate that stock analysts suffer from anchoring bias as they anchor their earnings per share forecasts on the industry median without making sufficient adjustments. Using a sample of firms rated by Standard and Poor's, we determine that this finding is concentrated in the worst rated firms, especially around credit rating downgrades. The driving force of the finding is that stock analysts suppress negative information for high credit risk stocks by dropping coverage instead of issuing low earnings per share forecasts, especially around credit rating downgrades. Our finding explains not only why stock analysts seem to suffer from anchoring bias, but also why analysts are overly optimistic for high credit risk stocks.

We are the first to examine daily short selling activity around the expiration of IPO share lockups. We find that short selling increases before the lockup expiration date and declines afterward, and the level of short selling is higher in stocks of venture capital (VC)- and private equity (PE)-backed IPOs than other IPOs. Unlike VC-backed IPO stocks, PE-backed IPO stocks do not experience a negative return or a trading volume jump on the lockup expiration date. PE investors do not reduce percentage ownership in the IPO firm as much as VC investors do after lockup expirations. Short selling in PE- and VC-backed IPO stocks prior to the lockup expiration date can predict PE and VC ownership reduction but not the stock returns after the lockup expires. In contrast, short selling in stocks of the IPO firms without a PE or VC investor can predict stock returns after the lockup expires.

Using American Depositary Receipt (ADR) IPOs from 34 countries during 1980–2004, we find that, on average, the enforcement of insider trading laws reduces the underwriter gross spread by 49–61 basis points, which is about 10–12% of the average gross spread for ADR IPOs. This relation is present regardless of whether issuers have a prior listing or whether issuers are from developed or emerging markets. The association becomes stronger for ADRs underwritten by less prestigious underwriters and for issuers that are involved in privatization. The political institutions in the issuers’ home markets also affect gross spreads.