Date of Award
This dissertation research comprises three essays in finance. The first essay shows how dynamic institutional trading constraints related to capital, diversification, and short- selling asymmetrically affect the incorporation of new information as reflected in the Permanent price impact of their trades. The sign of the permanent price impact asymmetry between institutional buys versus sells is positive at the initial stage of a price run-up and reverses due to changing constraints with a prolonged price run-up in a stock. Idiosyncratic volatility, analyst forecast dispersion, trading intensity, price dispersion, and bullish market conditions further sharpen the initial asymmetry, as well as its reversal after a price run-up. The second essay we provide a new explanation for the post-earnings announcement drift (PEAD). We hypothesize that the PEAD results from information production and the drift observed is a movement towards the changes in expectations and not an under-reaction or delayed response to the earnings announcement. We create a new measure that captures the changes in expectations over and above the earnings surprise. Our proxy is based on annual EPS forecasts by equity research analysts and takes into consideration both the responsiveness and the magnitude of the net changes in EPS forecasts. A long-short trading strategy based on portfolios formed using our new measure generates higher returns compared to portfolios formed based on the earnings surprise measure. Most importantly, the earnings surprise based portfolio rankings lose its significance in explaining the PEAD when considered together with our new measure based portfolio ranking. In the third essay, we study trading by institutional investors around delayed disclosures. A disclosure is said to be delayed if there is a gap between the event date and the actual announcement of the event. We show that connected institutional trading can predict the information contained in these events, prior to it being disclosed.
dissertation or thesis originally submitted to the local University of Memphis Electronic Theses & dissertation (ETD) Repository.
Sharma, Vivek, "Three Essays in Finance" (2018). Electronic Theses and Dissertations. 1913.