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I examine the informational efficiency of stock markets by testing the relation between idiosyncratic volatility and equity mispricing. I find that the level of mispricing declines with idiosyncratic volatility consistent with the notion that greater levels of firm-specific risk reflect greater participation of informed traders in the market for the stock. However, I also find that mispricing increases with idiosyncratic volatility for highly volatile stocks, and this is attributed to both noise trading and arbitrage risk. In addition, I investigate the link between agency costs and equity mispricing, and whether it exists due to information asymmetry or the degree of conflict of interests between managers and shareholders. I provide evidence that the level of agency costs is positively related with mispricing. In contrast to previous studies' claim that the information asymmetry level is a key determinant in the equity mispricing, I find that the conflict of interests is more important than information asymmetry in explaining equity mispricing. Furthermore, the evidence suggests that stock option grants, originally intended to resolve conflicts of interests, actually exaggerate this problem.

Inom den utförda studien har både finansiell data och information kring ägarstruktur gällande företag på svenska OMX Stockholm Small-Cap listan använts för att undersöka ifall andelen privata småsparare har en signifikant påverkan på volatiliteten. Volatilitet har en väsentlig roll när det kommer till aktiehandel och tidigare teorier pekar på att det finns ett flertal variabler som ligger bakom volatiliteten, småägare är en av dessa variabler. Utifrån regressionsanalysen kan andelen privata småsparare påvisas ha en signifikant påverkan på volatiliteten. Det framkom även utifrån resultaten att bolagens resultat dividerat med deras totala tillgångar var ett mått som påverkade volatiliteten. Flera variabler som enligt tidigare teori bör ha verkan på volatiliteten kunde inte påvisas att överensstämma med den här uppsatsens forskning som till exempel institutionella ägares påverkan. / In the following study both financial and ownership data have been gathered regarding companies listed on the Swedish OMX Stockholm Small-cap list to determine whether the fraction of small private investors have an significant impact on volatility. The reason is because volatility has a central role within the stock market making it an important variable. Previous theories suggest that a number of different variables that affect the volatility, where small private investors are one of them. Our regression model proves that the fraction of small private investors indeed have a significant effect on volatility. Our results also suggest that the company’s earnings divided by its total assets is a variable which alters the volatility. Multiple variables which were suggested by theories to have an impact on volatility could not be proven to be true, one of these variables were institutional owners.

Zugl.: Köln, University, Diss., 2009.

Diss. Stockholm : Handelshögskolan, 2009.

Cette thèse est composée de trois articles indépendants qui ont pour trait commun d’analyser le comportement d’investisseurs et de firmes en situation de concurrence imparfaite. Nous considérons d’abord un modèle de marché financier à la Kyle (1985) où les investisseurs peuvent produire soit un signal (fondamental) sur la valeur d’un actif risqué, soit un signal (non-fondamental) sur la demande aléatoire des noise traders. Nous montrons que réduire le coût du signal non-fondamental détériore l’efficience informationnelle du prix du titre et,sous certaines conditions, le bien-être des noise traders. Nous étendons ensuite le modèle au cas où les investisseurs non-fondamentalistes soumettent des ordres à cours limité. Leur activité s’apparente alors à du “front running”. Par ce biais, nous enrichissons nos résultats et montrons que l’effet potentiellement néfaste de l’accès à l’information non-fondamentale persiste.Nous considérons ensuite un marché à la Kyle (1985) où des agents non informés échangent pour un motif de partage de risque avec des investisseurs répartis sur un réseau.Ces derniers partagent leurs signaux avec leurs contacts, ce qui formalise une meilleure diffusion de l’information. Nous évaluons alors l’effet de cette hypothèse sur deux critères: le profit spéculatif et l’espérance d’utilité des agents non informés qui mesure l’efficacité du partage de risque sur le marché. Nous montrons que l’ajout du réseau peut simultanément améliorer ces deux critères ainsi que l’efficience informationnelle du prix. Un résultat original qui ne peut pas être obtenu sans l’ajout du réseau. Enfin, nous caractérisons la coopération graduelle entre deux firmes concurrentes de tailles différentes incapables de contracter et dont les contributions sont irréversibles. Nous montrons que l’asymétrie entre les deux firmes ralentit fortement le processus de collaboration,ce qui souligne l’importance des arrangements contractuels dans certaines situations. Nous montrons aussi qu’un renforcement de la concurrence entre les deux firmes peut nuire au bien-être social en réduisant leur capacité à collaborer. / This thesis contains three distinct papers related to the behavior of investors or firms acting under imperfect competition. First, we consider a Kyle’s (1985) model where investors can produce either a (fundamental) signal on the value of the risky asset, or a (non fundamental)signal on the forth coming demand from noise traders. We show that reducing the cost of the non-fundamental signal worsens price informativeness as well as the welfare of noise traders under some conditions. Then, we extend the model by allowing non fundamental traders to submit limit orders. Their activity is then analogous to front running. By this mean, we enrich our results and show that the potentially detrimental effect of non-fundamental information still pertains. Then, we consider a market à la Kyle (1985) where uninformed hedgers trade for risk sharing purposes with investors located on a network, who share their signal with their“contacts”. This hypothesis formalizes a better diffusion of information. We evaluate its effect on speculative gains and hedgers’ expected utility which depends on the risk sharing role of the market. We show that the introduction of the network might simultaneously improve these two welfare measures as well as price informativeness. An original result that cannot be obtained otherwise. Finally, we consider a contribution game between two competitors of different sizes. We obtain the value of their (irreversible) contributions during each period of the game. We show that the asymmetry between the two firms strongly slowers the collaboration process,high lighting the importance of contractual arrangements in some circumstances. Also, we obtain that increasing competition might be detrimental to social welfare, because it harms the ability of the two firms to set up a mutually beneficial process of collaboration.

Market Liquidity, Active Investment, and Markets for Information. This paper studies a financial market in which investors choose among investment strategies that exploit information about different fundamentals. On the one hand, the presence of other informed investors generates illiquidity. On the other hand, investors who use different strategies can serve as quasi-noise traders for each other, thereby also supplying each other with liquidity. Thus, investment strategies can be substitutes or complements. Such externalities in information acquisition have effects on investor herding, comovement in prices and liquidity across assets, trade volume, and the informational role of prices. They further affect the relationship between financial markets and information markets. Information market competition fosters investor diversity, whereas monopoly power promotes investor herding. Also, in order to benefit from quasi-noise trading, a financial institution may engage in both proprietary trading and information sales. Security-Voting Structure and Bidder Screening. This paper shows that non-voting shares can promote takeovers. When the bidder has private information, shareholders may refuse to tender because they suspect to sell at an ex-post unfavourable price. The ensuing friction in the sale of cash flow rights can prevent an efficient sale of control. Separating cash flow and voting rights mitigates this externality, thereby facilitating takeovers. In fact, the fraction of non-voting shares can be used to discriminate between efficient and inefficient bidders. The optimal fraction decreases with managerial ability, implying an inverse relationship between firm value and non-voting shares. As non-voting shares increase control contestability, share reunification programs entrench managers of widely held firms, whereas dual-class recapitalizations can increase shareholder wealth. Signaling in Tender Offer Games. This paper examines whether a bidder can use the terms of the tender offer to signal the post-takeover security benefits to the shareholders of a widely held target firm. As atomistic shareholders extract all the gains in security benefits, signaling equilibria are subject to a constraint that is absent from bilateral trade models. The buyer (bidder) must enjoy gains from trade that are excluded from bargaining (private benefits), but can nonetheless be relinquished and enable shareholders to draw inference about the security benefits. Restricted bids and cash-equity offers do not satisfy these requirements. Dilution, debt financing, probabilistic takeover outcomes and toeholds are all viable signals because they make bidder gains depend on the security benefits in a predictable manner. In all the signaling equilibria, lower-valued types must forgo a larger fraction of their private benefits and these signaling costs prevent some takeovers. When the bidder has additional private information about the private benefits as in the case of two-dimensional bidder types, fully revealing equilibria cease to exist. This does not hold once bidders can offer not only cash or equity but also (more) elaborate contingent claims. Offers which include options avoid inefficiencies and implement the symmetric information outcome. Goldrush Dynamics of Private Equity. This paper presents a simple dynamic model of entry and exit in a private equity market with heterogeneous private equity firms, a depletable stock of target companies, and rational learning about investment profitability. The predictions of the model match a number of stylized facts: Aggregate fund activity follows waves with endogenous transitions from boom to bust. Supply and demand in the private equity market are inelastic, and the supply comoves with investment valuations. High industry performance precedes high entry, which in turn precedes low industry performance. There are persistent differences in fund performance across private equity firms, first-time funds underperform the industry, and first-time funds raised in booms are unlikely to be succeeded by a follow-on fund. Fund performance and fund size are positively correlated across firms, but negatively correlated across consecutive funds of a private equity firm. Finally, booms can make ”too much capital chase too few deals.” Reputable Friends as Watchdogs: Social Ties and Governance. To examine how governance is affected when a designated supervisor befriends the person to be supervised, this paper embeds a delegated monitoring problem in a social structure: the supervisor and the agent are friends, and the supervisor desires to be socially recognized for having integrity. Strengthening the friendship weakens the supervisor’s monitoring incentives, forging an alliance against the principal (bonding). But the agent also grows more reluctant to put the supervisor’s perceived integrity at risk, thus becoming more aligned with the principal (bridging). If the supervisor’s desire for social recognition is strong, the principal’s preferences regarding the supervisor-agent friendship are bipolar. Weak friendship makes the supervisor monitor intensively to save face. Strong friendship leads the supervisor to abandon monitoring but the agent to behave well in order to protect the supervisor from losing face. The strength of friendship necessary for the latter outcome decreases in the supervisor’s desire for esteem; that is, image concerns leverage the bridging effect of friendship. This suggests that overlapping personal and professional ties can enhance delegated governance in cultures or contexts where social recognition is important, and provides a novel perspective on issues related to crony capitalism, corporate governance, and organizational culture. / Diss. Stockholm : Handelshögskolan, 2009 Sammanfattning jämte 5 uppsatser