The objective of this paper is to estimate the cost components of the bid–ask spread on the London Stock Exchange using intraday data. The findings are unambiguous in isolating the three cost components of quoted spreads. They are, therefore, consistent with the earlier work of Stoll based on the quote driven Nasdaq market (Stoll, H., 1989. Journal of Finance 44, 753–776). Additionally, the three spread components vary with the liquidity of the stocks measured by the minimum number of shares market makers are obliged to trade.

The paper investigates how firms operating in capital market-oriented economies (the U.K. and the U.S.) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the paper finds that the leverage ratio is positively affected by the tangibility of assets and the size of the firm, but declines with an increase in firm profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. The results also confirm that firms have target leverage ratioswith French firms being the fastest in adjusting their capital structure toward their target level and Japanese firms the slowest. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.

The paper investigates whether business cycle variables and behavioural biases can explain the profitability of momentum trading in three major European markets. Unlike previous studies, the paper nests both risk-based and behavioural-based variables in a two-stage model specification in an attempt to explain momentum profits. The findings show that, although momentum profitability in European markets is unexplained by conditional asset pricing models, it is attributable to asset mispricing that systematically varies with global business conditions. In addition, behavioural variables do not appear to matter much. Thus risk factors, which are undetected thus far and are largely attributable to the business cycle, could explain the momentum payoffs in European stock markets.

We examine the effects of economic policy uncertainty (EPU) on cross-border mergers and acquisitions (CBAs). The results show that a higher degree of EPU at home retards the number and volume of inbound CBA deals. However, this effect is positively moderated by the host country’s better quality of institution, business environment and political risk. The bilateral acquirer-target country-pair investigation reveals that while higher EPU in the target’s domicile deters inbound CBAs, higher EPU in the acquirer’s nation is positively associated with a higher number and volume of outbound CBA deals. Finally, on the announcement of the deals, targets (acquirers) based in countries with a larger increase in EPU are associated with lower (more) stock returns than the targets (acquirers) based in countries with a smaller increase in EPU. These findings imply that countries aiming to attract cross-border investments should strive to mitigate economic policy-related uncertainties.

This paper investigates the investment decisions of IPO investors when equipped with information on both the quality of the firm and the market sentiment. Unique regulatory provisions allow IPO investors in India to have access to the independent assessment of firm quality and information on the participation of other investors, including institutional investors. At the same time, an active grey market reveals market sentiment before the application for subscription is closed. The results, which are robust to alternative model specifications, suggest that the institutional investors’ decision is guided almost exclusively by firm quality while the retail investors’ decision to participate in IPOs is strongly influenced by market sentiment, even in a highly transparent market where both sets of information are freely available.

We examine whether foreign equity holdings of portfolio investors depend on the level of information accessibility between the investors’ home and host countries. Using a comprehensive data set, alternative measures of information accessibility and robust analytical techniques, we show that differences in access to cross-country information significantly influence investors’ portfolio allocation decisions. Furthermore, the results suggest that for a given level of access to information, investors prefer to invest more in countries with a higher quality of legal/macro-institutions. Finally, the findings also confirm that the implications of information accessibility are more pronounced when markets are turbulent.

Using a regime change setting, this paper examines whether investors flip less in bookbuilding than in auction initial public offerings (IPOs). Based on bookbuilding theory, we posit that the ability to control allocation flexibility in the bookbuilding mechanism should enable underwriters to avoid flippers and target long-term investors. Consistent with this prediction, we find that both frequent and non-frequent investors flip significantly less in bookbuilding IPOs. We also find that the influence of underwriter reputation is stronger in the bookbuilding regime, with frequent investors flipping considerably less in IPOs that are managed by high reputation underwriters in bookbuilding IPOs compared to auction IPOs. The results highlight the benefits of allocation discretion, which allows underwriters to influence investors' behavior as well as use non-bid information in the IPO process. Finally, we examine the implications of flipping and find that although flipping increases liquidity, it contributes to stock price volatility and causes downward pressure on the stock price.