Information leakage and informed trading around unscheduled earnings announcements

While there has been much judicial discussion regarding the competency of Australia's continuous disclosure regime with reference to contemporaneous international standards, there has to date been limited empirical analysis of the Australian system's effectiveness in preventing selective disclosure and information leakage. This paper presents an empirical study of information content and trading behaviour around unscheduled earnings announcements - comprising of profit upgrades, profit warnings and neutral trading statements - made by ASX-listed companies during 2004. The contention is that informed trading impacts on the stock returns and trading volumes of listed entities, and hence abnormal returns or trading volumes observed prior to an announcement provide evidence of information leakage. The paper models a range of factors that potentially influence firm disclosure practices and contribute to the level information asymmetry in the market during the pre- announcement period. Previous research has investigated the influence of firm size and information content in contributing to information leakage. This study further considers the variables of firm growth, capital structure and industry group.

An analysis of trading in target stocks before successful takeover announcements

In this paper we examine both informed and contraire trading preceding successful takeover announcements on US target firms from 2001 to 2006. We find that both informed trading and contraire trading exist within the period preceding successful takeover announcements on the stock market, as evident through abnormal returns and trading volumes and on the option market by analyzing only abnormal trading volume. In regard to contraire trading, we investigate possible explanations for its existence. This study finds, through analysis of an unbiased sample of rumored target firms, that deliberate contraire trading appears to be profitable which is likely an explanation for such trading.

Rating downgrade and the price impact of CDS spread on stock return

We investigate the time-varying informativeness of credit default swap (CDS) trading on stock returns for 302 US firms from July 2004 to August 2010. Using the Acharya and Johnson (2007) measure, we find that CDS trading becomes informative for an increasing number of firms as we approach the global financial crisis (GFC). Firm numbers gradually decline post-GFC, but remain high compared to the pre-GFC period. furthermore, CDS trading imposes the largest conditional price impact on firms that are recently downgraded, regardless of rating levels. Interestingly, this holds during and after the GFC, but not before. We offer two implications. First, despite post-GFC outcry against the CDS market, our results suggest it exhibits enhanced price discovery during the GFC. Second, our findings support criticism that, in the lead-up to the GFC, rating agencies are slow in downgrading firms. However, if downgrade decisions made during and after the GFC induce informed trading in the CDS market, this necessarily implies that during the midst of the GFC, rating agencies have got their act together.

Informed options trading prior to takeovers - Does the regulatory environment matter?

We investigate the prevalence of informed options trading prior to takeover announcements, when the legal prohibition against insider trading is strictest. Although insider trading laws apply equally to the options and stock markets, the options market is considerably more transparent than the equity market, which makes insider trading in options more easily detectable. We find that privately informed investors trade in the options market prior to takeover announcements; however, their transactions are limited to liquid call options and options with high inherent leverage. Furthermore, we find that prior to takeover announcements, informed investors trade on their private information in the options market only when a SEC investigation of insider trading is unlikely to occur. Our results suggest that even prior to takeover announcements informed investors are attracted to the options market, which increases profit making potential due the greater leverage it affords, although they trade in a way which minimizes the likelihood of detection.

Management trading in Chinese entrepreneurial firms on the ChiNext

We examine management trading in Chinese entrepreneurial firms on the ChiNext. We find that management shareholdings are considerably high, and executives tend to sell their shares after the IPOs on the ChiNext. The propensity for executives to sell shares is negatively correlated with the firms corporate governance and current operating cash flows, but the amount they sell is only positively correlated with the level of management holdings. Both the management selling decision and percentage of selling do not associate with firms earnings and sales growth. This suggests that managers are profit makers rather than informed traders in their selling activities on the ChiNext. We also find that the market reaction to management selling is substantially negative, which implies a herding effect of investors following executives to sell shares.

The law of insider trading in Australia

This book provides a detailed and practical analysis of Australian insider trading laws. The work: examines all fundamental concepts relating to insider trading such as 'who is an insider', 'what is inside information' and 'when is information generally available', together with commentaries on proposed changes to the laws and an examination of the impact of the most recent decisions, including Hannes, and Rivkin; provides a very detailed examination of the defences and exceptions, with particular attention to the operation of Chinese Walls; analyses fully and systematically the provisions on insider trading in the Corporations Act and the Criminal Code (Cth) within the context of decided cases and relevant secondary materials; covers comprehensively the penalties and remedies for contravention of the insider trading regime (including the intricate civil compensation provisions, and an up-to-date analysis of the civil penalties regime in light of ASIC v Petsas); and discusses the operation and effectiveness of continuous disclosure as a means of preventing insider trading.

CO2 credit or energy credit in emission trading?

Emission trading is a good concept and approach to tackle global warming. However, what “currency” or “credit” should be used in the trading has remained a debatable topic. This paper proposed an “Energy Credit” concept as an alternative to the “CO₂ credit” that is currently in place. From the thermodynamic point of view, the global warming problem is an “energy balance” problem. The energy credit concept is thought to be more thermodynamically correct and tackles the core of the global warming problem more directly. The Energy credit concept proposed can be defined as: the credit to offset the extra energy trapped/absorbed in the earth (and its atmosphere) due to the extra anthropogenic emission (or other activities) by a country or company. A couple of examples are given in the paper to demonstrate the concept of the Energy credit and its advantages over the CO₂ credit concept.

"Sexually transmitted debts":the scope of defences to directors' liability for insolvent trading

The recent demise of prominent Australian corporations, such as GIO Australia Holdings Ltd, One.Tel Ltd, HIH Insurance Ltd and Ansett Australia Ltd, have highlighted the relevance of, inter alia, the Australian insolvent trading provisions embodied in the Corporations Act 2001 (Cth) (formerly Corporations Law). What may not be appreciated, however, is that insolvent trading is not only concerned with large public companies. Many of the insolvent trading cases that come before the courts involve small proprietary companies. Moreover, in many cases these are small “family” companies where there may only be one active director. This gives rise to a difficult issue as to the appropriateness of imposing liability for insolvent trading on a spouse who is, factually, merely a dormant director. This article explores the issue of spousal liability for insolvent trading, particularly focusing on the scope of the current defences to insolvent
trading under s 588H.

The role of trading partner relationships in determining innovation performance: an empirical examination

This paper examines the respective roles of trading partner relationships and innovation management practices in predicting product and process related innovation performance. The empirical data were drawn from 194 Australian managers. Data analysis using structural equation modelling indicates that supplier relationships and customer relationships have less impact on product and process innovation performance than do knowledge and creativity management. However, the results also indicate that trading partner relationships have a strong and positive association with innovation management practices, meaning that organisations commonly implement both in a synchronous manner.

Secondary students` perceptions of a constructivist-informed teaching and learning environment for geometric optics

This article describes an exploration of a class of secondary school students perceptions of a constructivist informed teaching and learning environment for geometric optics. The students perceived the environment as one where they could freely express their ideas and be involved in activities. What was also apparent in this exploration was the students' preference for a classroom that involved small group discussions to whole class discussions that reflected a need for time to think about issues. They also have a preference for relevant, practical work that tests their ideas and a preference to have fewer notes that they construct themselves rather than notes dictated by the teacher.

NT: Refereed article. Includes bibliographical references.

An agent-based hybrid intelligent system for foreign exchange trading

The foreign exchange (FX) market has many features including (1) Each trader’s payoff depends not only on his own behavior, but also on other traders’ decisions; (2) The number of traders is too large to make them all know the other dealers’ methods of decision making; and (3) The FX market has many levels. The FX market is complex because of these features. A diversity of techniques are required to deal with such complex problems. That is hybrid solutions are crucial for the FX market. On the other hand, research into the FX market has revealed that it demonstrates some characteristics of multi-agent systems such as autonomy, interaction, and emergence. To this end, an agent-based hybrid intelligent system was developed for FX trading, which is based on our proposed agent-based hybrid framework. This paper is to discuss the analysis, design, and implementation such a system. Some experimental results and comparisons with related works are also provided. The interest of this paper does not reside in improving the predictive capabilities of different FX models, but rather in how to integrate different models into one system under the unifying agent framework. The success of this system indicates that agent perspectives are very appropriate to model complex problems such as the FX trading.