This study investigates the anomalous findings of the previous insider trading studies that any investor can earn abnormal profits by reading the Official Summary. Availability of abnormal profits to insiders, availability of abnormal profits to outsiders who imitate insiders, determinants of insiders' predictive ability, and effect of insider trading on costs of trading for other investors are examined by using approximately 60,000 insider sale and purchase transactions from 1975 to 1981. Implications for market efficiency and evaluation of abnormal profits to active trading strategies are discussed.

SOES bandits are individual investors who use Nasdaq's Small Order Execution System (SOES) for day trading. Their average profit per trade is small, but they trade dozens or hundreds of times per week. Bandits usually establish a position before most market-makers have updated their quotes, and lay off the position at favorable prices through Instinet or SelectNet. It is noteworthy that they trade profitably with market-makers despite having less information. Bandits keep the profits and bear the losses from their trades. Thus they have greater incentives to trade well than the employees of market-making firms.

Nasdaq's Small Order Execution System (SOES) allows orders to be submitted by computer, thereby assuring rapid execution at quoted prices. We examine trading in the 20 largest Nasdaq stocks around the time of a rule change that reduced the largest SOES trades from 1000 to 500 shares. We show that SOES trades contain information about short-term price movements and that SOES trading declined dramatically with the rule change. However, quoted and effective spreads were unaffected by the rule change.

This paper measures the effects on stock proces of corporate investments in 5% or more of another company's equity securities. Such investments initiate a process that may end with a takeover, targeted repurchase, takeover by a third party, or sale of the shares. The total valuation effect of the investment for acquiring and target firms includes returns at disclosure of the investment position, the outcome announcement, and related intervening events. For example, the positive return for target firms at initial disclosure of the investment more than offsets the negative return at a targeted repurchase.

The change in the cost of capital that results from a divestiture strategy can be closely approximated by a simple function of three parameters: (1) the fraction of socially conscious capital, (2) the fraction of targeted firms in the economy and (3) the return correlation between the targeted firms and the rest of the stock market. When calibrated to current data, we demonstrate that the impact on the cost of capital is too small to meaningfully affect real investment decisions. We then derive the conditions that would be required for the strategy to have a meaningful impact. We empirically corroborate our theoretical results by studying firm changes in ESG status and are unable to detect an impact of ESG divestiture strategies on the cost of capital of treated firms. Our results suggest that to have impact, instead of divesting, socially conscious investors should invest and exercise their rights of control to change corporate policy.

The essence of corporate control includes the hiring and firing of key managers. We examine changes in equity values when the Board of Directors appoints and dismisses top-level managers. The evidence suggests that management changes signal shifts in company policy and raise shareholder wealth, internal promotions confirm the soundness of investment by large companies in firm-specific human capital while external appointments do not, promotions occur more often than external appointments but decline in importance as firm size decreases, and dismissal is not a favored means to handle managerial underperformance but is associated with stock price increases when used.

We consider an imperfectly competitive loan market in which a local relationship lender has an information advantage vis-à-vis distant transaction lenders. Competitive pressure from the transaction lenders prevents the local lender from extracting the full surplus from projects. As a result, the local lender inefficiently rejects marginally profitable projects. Collateral mitigates the inefficiency by increasing the local lender's payoff from precisely those marginally profitable projects that she inefficiently rejects. The model predicts that, controlling for observable borrower risk, collateralized loans are more likely to default ex post, which is consistent with the empirical evidence. The model also predicts that borrowers for whom local lenders have a relatively smaller information advantage face higher collateral requirements, and that technological innovations that narrow the information advantage of local lenders, such as small business credit scoring, lead to a greater use of collateral in lending relationships.

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.

In this study we show that market uncertainty [measured by the Chicago Board Options Exchange Market Volatility Index (VIX)] exerts a large market-wide impact on liquidity, which gives rise to co-movements in individual asset liquidity. The effect of VIX on stock liquidity is greater than the combined effects of all other common determinants of stock liquidity. We show that the uncertainty elasticity of liquidity (UEL: percent change in liquidity given a 1% change in VIX) has increased around regulatory changes in the US markets that increased the role of public traders in liquidity provision, reduced the minimum allowable price variation, weakened the affirmative obligation of NASDAQ dealers, and abolished the specialist system on the NYSE.

Researchers investigating the possibility of mean reversion in stock prices with statistics based on multiyear returns have noted difficulties in drawing inferences from these statistics because the approximating asymptotic distributions perform poorly. We develop an alternative asymptotic distribution theory for statistics involving multiyear returns. These distributions differ markedly from those implied by the conventional theory. The alternative theory provides substantially better approximations to the relevant finite-sample distributions. It also leads to empirical inferences much less at odds with the hypothesis of no mean reversion.