Sources of liquidity commonality, asymmetric information and ownership structure in emerging markets : evidence from the Chinese stock market

Xinwei Zheng examines if common factors of liquidity can be determined by ownership structure measured by asymmetric information in an emerging market that has adopted an order-driven trading system. Using China as a case for the study, I select a broad sample of stocks from two separate Chinese stock exchanges to measure and
analyse the relationship. My empirical evidence seems significant and pervasive. These findings about the Chinese stock market provide useful pointers for understanding commonality in emerging economies and shed critical light
on a new dimension of the working of emerging markets.

Asymmetric information and market decline: evidence from the Chinese market

In this paper, we show that aggregate illiquidity is a priced risk factor on the Shanghai Stock Exchange (SHSE). We develop the relationship between the illiquidity factor, asymmetric information, and market decline. Our empirical results show that while the illiquidity factor is a source of asymmetric information on the SHSE, asymmetric information does not trigger market decline.

Conflicts of interest and china's A-Share underpricing

The extremely high A- share underpricing in China's primary market provides us with a very interesting area of empirical research. Previous studies on China's IPO underpricing have been suggestive, but in-conclusive. We investigate the A- share underpricing by employing the most recent data available. A significant decline in A- share underpricing is found in 2003 relative to previous years (and much less than that recorded in the literature to date). We examine the validity of previous A- share underpricing models, reported in the literature, and find a statistically significant structural break in the data during 2003 when these models are specified. We further explore conflicts of interest in the Chinese IPO market and specify an alternative class of models to further examine this change in observed market behaviour. Our results suggest that a contract with high underwriter's fee leads to less A- share underpricing. Our results also suggest that the asymmetric information hypothesis does not apply in the Chinese !PO market in 2003. Overpricing by the secondary market and the trading activity on the first trading day are the main functions of the A- share underpricing. This study has important implications such as guiding the Chinese government policy regarding the regulations of Initial Public Offering.

The curious case of the Occidental and Regal : the evolution of solvency and disclosure standards in the Australian life insurance industry

In 1990, the Australian life insurance industry was rocked by a scandal that threatened to destabilize consumer confidence in the ability of insurance providers to meet policyholder liabilities. The incident highlighted the nature of the agency problems that arise when conditions of asymmetric information exist. It revealed systemic weaknesses in accounting, solvency and disclosure standards as they applied to life insurers. This article uses an evolutionary concept of agency to analyse government and industry responses to this event. It is argued that initial adaptive responses stabilized the industry and averted a more serious crisis. Longer term innovative responses led to the introduction of a new and more rigorous approach to reporting and solvency standards, which has improved information flows and agency outcomes.

Conflicts of interest and China's A-share underpricing

The extremely high A-share underpricing in China's primary market provides us with a very interesting area of empirical research. Previous studies on China's IPO underpricing have been suggestive, but inconclusive. A significant decline in A-share underpricing is found in 2003 relative to previous years (and much less than that recorded in the literature to date). We examine the validity of previous A-share underpricing models, reported in the literature, and find a statistically significant structural break in the data during 2003 when these models are specified. We further explore conflicts of interest in the Chinese IPO market and specify an alternative model to further examine this change in observed market behavior. Our results suggest that a contract with high underwriter's fee leads to less A-share underpricing. Our results also suggest that the asymmetric information hypothesis does not apply in the Chinese IPO market in 2003. Overpricing by the secondary market and the trading activity on the first trading day are the main functions of the A-share underpricing. This study has important implications such as guiding the Chinese government policy regarding the regulations of initial public offering.

Lemons on the web: a signalling approach to the problem of trust in Internet commerce

Asymmetric information is at the heart of situations involving trust. In the case of B2CInternet commerce, the information asymmetry typically relates to the difficulty that consumershave of distinguishing between ‘‘trustworthy’’ and ‘‘untrustworthy’’ Web merchants. Theimpasse can be resolved by the use of signals by trustworthy Web merchants to differentiatethemselves from untrustworthy ones. Using an experimental design where subjects are exposedto a series of purchase choices, we investigate three possible signals, an unconditional moneybackguarantee, branding, and privacy statement, and test their efficacy. Our empirical resultsconfirm the predictions suggested by signalling theory.

Some hypotheses on commonality in liquidity: new evidence from the Chinese stock market

In this article, we examine four specific hypotheses relating to commonality in liquidity on the Chinese stock markets. These hypotheses are (1) that market-wide liquidity determines liquidity of individual stocks; (2) that liquidity varies with firm size; (3) that sectoral-based liquidity affects individual stock liquidities differently; and (4) that commonality in liquidity has an asymmetric effect. Drawing on a two-year data set on the Shanghai and Shenzhen stock exchanges comprising over 34 million and 48 million transactions, respectively, we find strong support for commonality in liquidity and a greater influence of industry-wide liquidity in explaining liquidity of individual stocks. Moreover, our results suggest that of the three main sectors - financial, industrial, and resources - the industrial sectors liquidity is most important in explaining individual stock liquidities. Finally, we do not find any evidence of size effects and document an asymmetric effect of market-wide liquidity on liquidity of individual stocks.

The ascent of asymmetric risk in information security: an initial evaluation

Dramatic changes in the information security risk landscape over several decades have not yet been matched by similar changes in organizational information security which is still mainly based on a mindset that security is achieved through extensive preventive controls. As a result, maintenance cost of information security is increasing rapidly, but this increased expenditure has not really made an attack more difficult. The opposite seems to be true, information security attacks have become easier to perpetrate and appear more like information warfare tactics. At the same time, the damage caused by a successful attack has increased significantly and may sometimes become critical to an organization. In this paper we evaluate one particular extremely asymmetric risk where a strongly motivated attacker unleashes a prolonged attack on an organization with the aim to do maximum damage, and suggest that the probability of such an attack is increasing. We discuss how preventive controls are unlikely to ever be effective against such an attack and propose more advanced strategies that aim to limit the damage when such an attack occurs. One crucial lesson to be learned for those organizations that are dependant on their information security, such as critical infrastructure organizations, is the need to deny motivated attackers access to any information about the success of their attack. Successful deception in this area is likely to significantly reduce any potential escalation of the incident.

Facets of the polytope of the asymmetric travelling salesman problem with replenishment arcs

The Asymmetric Travelling Salesman Problem with Replenishment Arcs (RATSP) is a new class of problems arising from work related to aircraft routing. Given a digraph with cost on the arcs, a solution of the RATSP, like that of the Asymmetric Travelling Salesman Problem, induces a directed tour in the graph which minimises total cost. However the tour must satisfy additional constraints: the arc set is partitioned into replenishment arcs and ordinary arcs, each node has a non-negative weight associated with it, and the tour cannot accumulate more than some weight limit before a replenishment arc must be used. To enforce this requirement, constraints are needed. We refer to these as replenishment constraints.

In this paper, we review previous polyhedral results for the RATSP and related problems, then prove that two classes of constraints developed in V. Mak and N. Boland [Polyhedral results and exact algorithms for the asymmetric travelling salesman problem with replenishment arcs, Technical Report TR M05/03, School of Information Technology, Deakin University, 2005] are, under appropriate conditions, facet-defining for the RATS polytope.

Asymmetric recognition of good and bad news at Malaysian capital market : a pre and crisis analysis

The aim of this paper is to analyze the asymmetric recognition of good and bad news on reported earnings of Malaysian-listed firms. The study uses both descriptive and regression analyses to ascertain whether there is a contemporaneous relationship between news (good and bad) and reported earnings. The analysis is based on a sample of 150 firms listed on the Bursa Malaysia Index over a period of 10 years, from 1990 to 2000. Two regression models were adopted based on Basu (1997) and Giner and Rees (2001). The first model aims to capture asymmetric recognition of good and bad news into reported earnings while the latter model is developed to capture both asymmetric recognition of information shock and permanent earnings effect on contemporaneous earnings. The evidence from this study reported the steady increase in earnings per share till 1997. However, a drastic decline was observed for the period 1997 to 1999 because of Asian financial crisis. The findings from the regression model one suggested that the asymmetric recognition of good news was more prominent during the good time compare to bad time and vice versa. The findings from model two also suggested that autoregressive effect of permanent effect was very prominent both for crisis and non crisis periods.

Asymmetric self-learning for tackling Twitter spam drift

Spam has become a critical problem on Twitter. In order to stop spammers, security companies apply blacklisting services to filter spam links. However, over 90% victims will visit a new malicious link before it is blocked by blacklists. To eliminate the limitation of blacklists, researchers have proposed a number of statistical features based mechanisms, and applied machine learning techniques to detect Twitter spam. In our labelled large dataset, we observe that the statistical properties of spam tweets vary over time, and thus the performance of existing ML based classifiers are poor. This phenomenon is referred as 'Twitter Spam Drift'. In order to tackle this problem, we carry out deep analysis of 1 million spam tweets and 1 million non-spam tweets, and propose an asymmetric self-learning (ASL) approach. The proposed ASL can discover new information of changed tweeter spam and incorporate it into classifier training process. A number of experiments are performed to evaluate the ASL approach. The results show that the ASL approach can be used to significantly improve the spam detection accuracy of using traditional ML algorithms.