Under both the overconfidence and disposition biases, a positive relationship is predicted between prior returns and subsequent trading volume. However, theoretically the overconfidence and disposition effects have different implications on the relationships between the long- and short-position gains of traders and their subsequent buying and selling activities. We examine a unique dataset obtained from the Taiwan Futures Exchange which records all account-level trades and orders. Our data and methodology have the advantage of being able to empirically differentiate these two effects and we demonstrate that different types of traders exhibit different types and levels of behavioral biases.

We examine the relation between weather in New York City and intraday returns and trading patterns of NYSE stocks. While stock returns are found to be generally lower on cloudier days, cloud cover has a significant influence on stock returns only at the market open. There are significantly more seller-initiated trades when there is more cloud cover at the market open, which is consistent with the return results. Cloudy skies are associated with higher volatility and less market depth over the entire trading day. Finally, cloud cover is not significantly correlated with spread measures and turnover ratios. The findings overall suggest that weather has a significant influence on investors’ intraday trading behavior.

This study examines the role of investor sentiment in the pricing dynamics between the spot and futures markets. The empirical evidence suggests that investor sentiment has a positive impact on price volatility and the bid–ask spread on both the spot and futures markets, which induces higher arbitrage risk and trading costs during high sentiment periods. Consequently, during high sentiment periods, informed traders become less willing to leverage their information advantages on the futures market, which diminishes the futures markets’ leading informational role and contributions to price discovery. Our findings provide support for the theory of limits to arbitrage.

This study adopts a new perspective, misvaluation, to explain corporate propensity to hold cash. We find a strong cross-sectional relationship between misvaluation and the propensity to hold cash, which can be attributed to firms' investment, cash dividends, and equity raising activities. We further show that the equity issuance channel is driven by both firm-initiated issuance activities and the exercise of employee stock options. The results are robust after controlling for endogeneity issues. Several additional robustness tests reject alternative explanations, such as precautionary motives, agency conflicts, near-term cash needs, and tax motives.

This article examines the role of pre-saved cash in helping financially constrained firms during the 2000 dot-com crash and the 2008 financial crisis, both of which were exogenous shocks to industrial firms. The results show that constrained firms tended to increase capital investments during these severe economic downturns if they had pre-saved more cash. Constrained firms instead exhibited lower excess returns and incurred higher likelihoods of financial distress during the severe downturns if they had saved less cash prior to the events. Firms that experienced the 2000 dot-com crash and saved cash thereafter were less likely to default during the 2008 financial crisis, indicating the existence and benefit of learning effects. This study supports a precautionary motive for cash savings, showing that pre-saved cash helps financially constrained firms fund investment and reduces the likelihood of financial distress during severe market downturns. It demonstrates that saving for a rainy day really is valuable.

We examine the effects of a temporary suspension of short-sale price tests on the options market. Consistent with the notion that put option trading substitutes for short selling, we find a significant reduction in put option volume. In addition, pressure on put option prices significantly declines, violations of the put-call parity become significantly less frequent, and option volume becomes less informed. Our findings add clarity to a long-standing debate on whether investors use options to circumvent equity short-selling restrictions.

The effects of corporate governance on optimal capital structure choices have been well documented, though without offering empirical evidence about the impact of corporate governance quality on the adjustment speed toward an optimal capital structure. This study simultaneously considers two effects of debt originating from agency theory—the takeover defense and the disciplinary effects of debt—on the speed of adjustment to the optimal capital structure. Corporate governance has a distinct effect on the speed of capital structure adjustment: weak governance firms that are underlevered tend to adjust slowly to the optimal capital structure, because the costs of the disciplinary role of debt outweigh the benefits of using debt as a takeover defense tool. Although overlevered weak governance firms also adjust slowly, they do so because they are reluctant to decrease their leverage toward the target level to deter potential raiders, especially if they face a serious takeover threat. Therefore, this study finds that both overlevered and underlevered firms with weak governance adjust slowly toward their target debt levels, though with different motivations.

Using a sample of acquisition announcements released during trading versus nontrading hours, this study examines how the strategic timing of acquisition announcements determines the impact of the method of payment on target stock returns and competition among bidders. For overnight acquisition announcements, we find that cash payment offers positively and significantly affect acquisition premiums and target returns, yet these results do not hold for daytime announcements. Cash payment offers made during nontrading hours are more likely to deter potential bidders and complete proposed transactions. However, we find no such relationship for daytime announcements. These findings suggest that the timing of acquisition announcements by bidders is important for assessing the effects of payment method as a signal of target valuation and a preemption of competing bids.

In this study, we examine the impact of liquidity support from the Federal Reserve on the capital structures of firms of varying sizes. Our findings suggest that large firms tend to increase their debt financing and leverage ratios in response to significant shocks triggered by the large-scale asset purchases (LSAPs) of the US Federal Reserve. By contrast, small firms with preexisting banking relationships are more likely to receive liquidity support. Notably, small firms associated with smaller banks exhibit increased default risks. Furthermore, large firms exhibited weaker operating performance but received greater managerial compensation following the LSAP. This trend indicates potential inefficiencies in the distribution of funding facilitated by unconventional monetary policies.