Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

4-2022

Abstract

My dissertation consists of three papers related to information diversity, acquisition, and asymmetry. One part of the dissertation explores the implications of interactions among different market participants and subsequent price efficiency in the stock market. The empirical findings indicate the information diversity between individuals and institutional investors, as well as an important channel for retail investors to obtain useful information – through insider filings. The remaining part investigates the information asymmetry between issuers and naive investors in the cryptocurrency market. In Chapter 2, I aggregate trading signals from hedge funds and retail investors, in order to examine their information diversity and the combined informational role in the stock market. I show that incorporating signals from both groups is necessary to identify firm-level information. Stocks that reflect consistent trading between two groups exhibit strong return predictability without reversal. When trading in the opposite direction to retail investors, hedge funds cannot yield any significant return, even in a longer horizon. I also document that consistent trading between two groups significantly predicts firm fundamentals, informational events, market reactions, and helps alleviate stock-level mispricing. Overall, the findings suggest combining signals that solely from hedge funds is incomplete, as there remain signals from retail investors who are informed in different aspects of stock fundamentals. In Chapter 3, we examine the trading patterns of retail investors following insider trading and the corresponding price impact. Retail investors follow the opportunistic purchases by insiders, but not their routine purchases. The abnormal retail downloads of the Form 4 filings from the EDGAR database also increase for opportunistic insider purchases. Neither investor attention nor common information such as earnings announcements or analysts forecast revisions explains the results. Moreover, for stocks with opportunistic insider purchases, those that retail investors bought yield higher cumulative abnormal returns than those that retail investors sold. The effect is mostly driven by the information component of the retail trades, rather than liquidity provision or temporary price pressure. Variance ratio tests also suggest price efficiency improvements for stocks bought by retail investors following opportunistic insider purchases. The evidence is mostly consistent with retail investors learning from opportunistic insider purchases, and their trading helping expedite price discovery. In Chapter 4, we study the economics of financial scams by investigate the market for initial coin offerings (ICOs) using point-in-time data snapshots of 5,935 ICOs. Our evidence indicates that ICO issuers strategically screen for na¨ıve investors by misrepresenting the characteristics of their offerings across listing websites. Misrepresented ICOs have higher scam risk, and misrepresentations are unlikely to reflect unintentional mistakes. Using on-chain analysis of Ethereum wallets, we find that less sophisticated investors are more likely to invest in misrepresented ICOs. We estimate that 40% of ICOs (U.S. $12 billion) in our sample are scams. Overall, our findings uncover how screening strategies are used in financial scams and reinforce the importance of conducting due diligence.

Keywords

Informed investors, Price discovery, Information diversity, Cryptocurrencies, Financial scams.

Degree Awarded

PhD in Business (Finance)

Discipline

Finance | Finance and Financial Management

Supervisor(s)

ZHANG, Zhe

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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