For a sample of NYSE firms, we show that wide spreads are accompanied by low depths, and that spreads widen and depths fall in response to bigger volume. Spreads widen and depths fall in anticipation of earnings announcements; these effects are more pronounced for announcements with larger subsequent price changes. Spreads are also wider following earnings announcements, but this effect dissipates quickly after controlling for volume. Collectively, our results suggest liquidity providers are sensitive to changes in information asymmetry risk and use both spreads and depths to actively manage this risk.

ABSTRACT: We present evidence on inter-firm differences in the predictive ability of quarterly earnings data for a sample of 109 New York Stock Exchange firms. The sample consisted of large, medium, and small firms after deletion of nonseasonal and volatile growth and inconsistent strata membership firms. Although the structure of the best fitting time-series models was constant across firm-size strata, we did find significant differences in the autoregressive parameters of the Foster and Brown and Rozeff ARIMA models across firm-size strata. One-step-ahead quarterly earnings forecasts were generated by a set of best fitting time-series models. A repeated measure multivariate analysis of variance design indicated that predictive ability differed on the basis of size at the .012 level. Tests also indicated that large-and medium-size firms generated one-step-ahead forecasts that were significantly more accurate than smaller firms at the .05 level. We obtained similar predictive findings on the significance of the size-effect in a supplementary analysis of the nonseasonal and volatile growth and inconsistent strata membership firms.

This paper examines the proposition that fluctuations in discounts of closed-end funds are driven by changes in individual investor sentiment. The theory implies that discounts on various funds move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts are correlated with prices of other securities affected by the same investor sentiment. The evidence supports these predictions. In particular, the authors find that both closed-end funds and small stocks tend to be held by individual investors, and that the discounts on closed-end funds narrow when small stocks do well.

Closed-end country funds can trade at large premiums and discounts from their foreign asset values (NAVs). Investigating this anomaly, we find that individual fund premiums move together, primarily because of the comovement of their stock prices with the U.S. market. Moreover, an index of country fund premiums differentiates size-ranked U.S. portfolio returns and forecasts country fund stock returns. These findings suggest that international equity prices are affected by local risk. In particular, we show that country fund premium movements reflect a U.S.-specific risk, which may be interpreted as U.S. market sentiment.

From 2007 to 2020, unlisted Chinese firms paid an average of over US $500 million to listed firms for their shell value in reverse merger transactions. We show that this large shadow price for a public listing sheds light on other features of Chinese markets, including (i) near-zero mortality rates, (ii) frequent major-asset restructurings (MARs), (iii) insensitivity of small-firm prices to corporate earnings, and (iv) a large size effect. A firm-level measure of expected shell probability (ESP) predicts stock returns, MARs, earnings-to-price sensitivity, and short-window returns to initial public offering-related regulatory news. Furthermore, adding ESP to existing pricing models for Chinese stocks significantly improves model performance.

This study shows that past trading volume provides an important link between “momentum” and “value” strategies. Specifically, we find that firms with high (low) past turnover ratios exhibit many glamour (value) characteristics, earn lower (higher) future returns, and have consistently more negative (positive) earnings surprises over the next eight quarters. Past trading volume also predicts both the magnitude and persistence of price momentum. Specifically, price momentum effects reverse over the next five years, and high (low) volume winners (losers) experience faster reversals. Collectively, our findings show that past volume helps to reconcile intermediate‐horizon “underreaction” and long‐horizon “overreaction” effects.

Trading halts increase, rather than reduce, both volume and volatility. Volume (volatility) in the first full trading day after a trading halt is 230 percent (50 to 115 percent) higher than following 'pseudohalts': nonhalt control periods matched on time of day, duration, and absolute net-of-market returns. These results are robust over different halt types and news categories. Higher posthalt volume is observed into the third day, while higher posthalt volatility decays within hours. The extent of media coverage is a partial determinant of volume and volatility following both halts and pseudohalts but a separate halt effect remains after controlling for the media effect.

We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate overvaluation. Although rising loan fees help ease supply constraints, we find shares are still least available when they are most attractive to short sellers. Using a number of firm characteristics, we derive useful instruments for real-time loan supply and demand conditions in the lending market. Further, we show that (1) when lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to “special” stocks, and (3) loan fees significantly reduce the profitability of the short side and several of these anomalies cease to be profitable. Overall our evidence highlights the central role played by the supply of lendable shares in equity price formation and returns prediction.