The first essay (Chapter 2) examines how investors behave in parallel markets that trade the same asset but have different degrees of transparency level. Using data from the Taiwan Security Borrowing and Lending market, we find that short sellers with private information prefer to trade in the opaque market, with momentum and risk-bearing trading strategies prefer to trade in the semi-transparent market, and with urgent liquidity needs (such as short-squeezed short sellers) prefer to trade in the transparent market. We show that transactions in both transparent and opaque markets contain information and provide liquidity. Our results indicate that parallel markets complement each other by serving different types of investors. The second essay (Chapter 3) shows that the presence of security lending supply before an initial public offering (IPO) reduces the initial stock return following IPO and improves the subsequent long-run performance. We use a sample of British firms that went public via a two-stage IPO procedure where a firm becomes publicly traded on the London Stock Exchange in the first stage, and offers new shares to the public in the second stage. Stocks are lendable before the new equity issuance which relaxes the short sale constraints that investors typically face in a conventional IPO. We find that twostage offerings with higher security lending supply before offering are associated with lower IPO underpricing and better long-run performance. Our results are consistent with the conjecture that short selling improves the pricing efficiency of the IPO market. The third essay (Chapter 4) examines the effect of short sellers as arbitrageurs on market liquidity in cases of toxic and non-toxic arbitrage opportunities. Arbitrage opportunities can be toxic when the prices of an asset-pair adjust to information at different speeds. In this case, market makers increase spread to avoid being picked off by informed arbitrageurs. Using price-parity deviations of Canadian stocks cross-listed in the U.S. market as arbitrage opportunities identifiers, we document that short arbitrageurs provide liquidity to the market in general, but impair liquidity in cases of toxic relative to non-toxic arbitrage opportunities. We also show that the liquidity impairment effect of short arbitrageurs is stronger when limits to arbitrage are high.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:682983 |
| Date | January 2016 |
| Creators | Chen, Linquan |
| Publisher | University of Warwick |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | http://wrap.warwick.ac.uk/77694/ |
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