Abstract We find that put options trading volume and bid-ask spreads both increase with equity lending fees. However, we also find that put options trading volume decreases with lending fees for banned stocks during the 2008 Short-Sale Ban period, when only options market makers could short. By separating the speculative demand of short sellers from the hedging demand of options market makers in the lending market, our results provide a thorough analysis of the interaction between the options market and the equity lending market. We also shed light on the substitutability/complementarity between put options volume and short interest shown in the literature.

We document several gender differences in reward-based crowdfunding by analyzing a large sample of Kickstarter campaigns. We argue that these differences are most plausibly explained by male entrepreneurs’ relative over-optimism. Suggesting a tendency to overestimate the demand for their products, we find that male entrepreneurs set higher goal amounts, resulting in more frequent campaign failures. In successive campaigns, male entrepreneurs’ goal amounts and success rates converge toward those of female entrepreneurs, consistent with entrepreneurial experience mitigating the behavioral bias. Our findings suggest that entrepreneurs learn from experience, and that female first-time entrepreneurs may have more realistic expectations of the demand for their products, increasing their success rates in crowdfunding. Moreover, although serial entrepreneurs exhibit better performance already in their first campaigns, they still improve over successive campaigns, further highlighting the importance of entrepreneurial learning.

Abstract We find a robust negative relation between skewness/lottery-like features, proxied by maximum return (MAX) over the last month, and future returns for stocks preferred by individual investors. This negative relation is nonexistent for the rest of stocks. We identify stocks preferred by individual investors through bundling ten stock characteristics associated with their stock preferences. The negative relation between MAX and future return is produced by the stocks preferred by individuals that account for less than 5% of the overall market capitalization. Our results are robust to alternative definitions of MAX and lottery-like features such as total, idiosyncratic, and expected skewness.

We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.

Our paper examines whether investor opinions expressed in social media predicted stock returns of financial firms during the 2007–2009 global financial crisis. We conduct a textual analysis of the articles published on the stock market insight website Seeking Alpha before the crisis and find that banks that were described in articles with a higher fraction of negative words experienced (1) sharper drops in stock prices, (2) larger increases in expected default probability, and (3) greater surges in nonperforming loans during the crisis. Our evidence suggests that wisdom of crowds provides valuable information on how banks weather a forthcoming crisis.

We explore the governance effect of short-selling threat on mergers and acquisitions (M&A). We use equity lending supply (LS) to proxy for the threat, as short sellers incentives to scrutinize a firm depend on the availability of borrowing shares. Our results show that acquirers with higher LS have higher announcement returns. The effect is stronger when acquirers are more likely to be targets of subsequent hostile takeovers and when their managers wealth is more linked to stock prices. We conduct four sets of tests to mitigate endogeneity concerns. Finally, the governance effect exists only for deals prone to agency problems.

We find that changes in short interest predict banks’ stock returns during two recent banking crises. Furthermore, before the 2007–2008 crisis, short interest increased more for banks with worse performance during the Long-Term Capital Management crisis of 1998. We also find that changes in short interest predicted banks’ loan quality and default risk during the 2007–2008 crisis. The results are stronger for banks with higher levels of risk-taking. Overall, our findings indicate that short sellers were informed about the persistent risky business models of banks and shorted those banks before the 2007–2008 crisis.

Abstract We hypothesize that when managers do not exercise their options, they signal valuable private information. Accordingly, we construct a proxy to capture managers’ private information from their in-the-money vested options unexercised (VOU) and find that high VOU firms’ stocks are underpriced. A long-short portfolio based on VOU generates a 5% alpha annually. Additionally, we find a positive relation with subsequent operating performance. Firms with higher VOU also receive more favorable analyst recommendations and upgraded credit ratings. Firms with higher VOU are more likely to issue news releases, share repurchases, and stock splits to convey that private information to the public. (JEL G11, G14, G32, G35, G40)

We hypothesize that when investors pay less attention to financial markets, they rationally allocate relatively more attention to market-level information than to firm-specific information, leading to increases in stock return co-movements. Using large jackpot lotteries as exogenous shocks that attract investors’ attention away from the stock market, we find supportive evidence that stock returns co-move more with the market on large jackpot days. This effect is stronger for stocks preferred by retail investors and is not driven by gambling sentiment. We also find that stock returns are less sensitive to earnings surprises and co-move more with industries on large jackpot days.

We identify an important channel, acquisitions of public targets, via which the governance through trading (GTT) improves firm values. The disciplinary effect of GTT is more pronounced for firms with higher managerial wealth-performance sensitivity and moderate institutional ownership concentration. Firms with higher GTT also have higher subsequent ROA, ROE, Tobin's Q, analysts forecasted EPS growth rate, and lower expected default risk. The effect is stronger after Decimalization. We conduct several exercises to rule out alternative explanations, such as institutional superior information, investor activism, and momentum. Additional tests show that the disciplinary effect of GTT only exists for less financially-constrained firms and non-all-cash M&As where the agency problem is more likely to be prevalent.