The Mover and The Follower in 0 0 0 0 0 0 0 0 0 0 0 0 0 - - PowerPoint PPT Presentation

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The Mover and The Follower in 0 0 0 0 0 0 0 0 0 0 0 0 0 - - PowerPoint PPT Presentation

Aug 13, 2022 136 likes •251 views

1 1 1 1 1 2 2 4 6 8 0 2 4 6 8 0 The Mover and The Follower in 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 0 0 3 / 8 / 1 2 0 0 3 / 8 / 1 2 2 0 0 3 / 8 / 2 1 2 0 0 3 / 9 / 1 2 0

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SLIDE 1

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The Game: The Mover and The Follower in Stock Splits

Yasuharu Kuse and Seki Obata Keio Business School seki@kbs.keio.ac.jp kyasu@mbd.nifty.com

Very Preliminary. Please do not cite.

Livedoor： Price

2 4 6 8 1 1 2 1 4 1 6 1 8 2 2 3 / 8 / 1 2 3 / 8 / 1 2 2 3 / 8 / 2 1 2 3 / 9 / 1 2 3 / 9 / 1 2 3 / 9 / 2 2 2 3 / 1 / 2 2 3 / 1 / 1 4 2 3 / 1 / 2 3 2 3 / 1 1 / 4 1 1 / 1 3 / 2 3 1 1 / 2 5 / 2 3 1 2 / 4 / 2 3 1 2 / 1 5 / 2 3 1 2 / 2 5 / 2 3 1 / 8 / 2 4 1 / 2 / 2 4 1 / 2 9 / 2 4 2 / 9 / 2 4 2 / 1 9 / 2 4 3 / 1 / 2 4 3 / 1 / 2 4 3 / 1 9 / 2 4 3 / 3 / 2 4

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SLIDE 2

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Livedoor: Trade Volume

1 2 3 4 5 6 7 8 9 2 3 / 8 / 1 2 3 / 8 / 1 3 2 3 / 8 / 2 5 2 3 / 9 / 4 2 3 / 9 / 1 7 2 3 / 9 / 3 2 3 / 1 / 1 2 3 / 1 / 2 3 2 3 / 1 1 / 5 1 1 / 1 7 / 2 3 1 1 / 2 8 / 2 3 1 2 / 1 / 2 3 1 2 / 2 2 / 2 3 1 / 7 / 2 4 1 / 2 / 2 4 1 / 3 / 2 4 2 / 1 2 / 2 4 2 / 2 4 / 2 4 3 / 5 / 2 4 3 / 1 7 / 2 4 3 / 2 9 / 2 4 Announce Announce： ： 11/19/03 11/19/03 Ex Ex-

  • date1: 12/24/03

date1: 12/24/03 Ex Ex-

  • date2:02/20/04

date2:02/20/04

Livedoor: Margin Buy Balance

5 , 1 , 1 5 , 2 , 2 5 , 3 , 3 5 , 2 3 / 8 / 1 2 3 / 8 / 1 5 2 3 / 8 / 2 9 2 3 / 9 / 1 2 2 3 / 9 / 2 6 2 3 / 1 / 1 2 3 / 1 / 2 4 2 3 / 1 1 / 7 2 3 / 1 1 / 2 1 2 3 / 1 2 / 5 2 3 / 1 2 / 1 9 2 4 / 1 / 2 2 4 / 1 / 1 6 2 4 / 1 / 3 2 4 / 2 / 1 3 2 4 / 2 / 2 7 2 4 / 3 / 1 2 2 4 / 3 / 2 6

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SLIDE 3

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Zecoo： Price

5 1 1 5 2 2 5 3 3 5 8 / 2 / 2 4 8 / 5 / 2 4 8 / 1 / 2 4 8 / 1 3 / 2 4 8 / 1 8 / 2 4 8 / 2 3 / 2 4 8 / 2 6 / 2 4 8 / 3 1 / 2 4 9 / 3 / 2 4 9 / 8 / 2 4 9 / 1 3 / 2 4 9 / 1 6 / 2 4 9 / 2 2 / 2 4 9 / 2 8 / 2 4 1 / 1 / 2 4 1 / 6 / 2 4 1 / 1 2 / 2 4 1 / 1 5 / 2 4 1 / 2 / 2 4 1 / 2 5 / 2 4 1 1 / 2 / 2 4

Zecoo: Trade Volume

5 1 1 5 2 2 5 3 3 5 8 / 2 / 2 4 8 / 5 / 2 4 8 / 1 / 2 4 8 / 1 3 / 2 4 8 / 1 8 / 2 4 8 / 2 3 / 2 4 8 / 2 6 / 2 4 8 / 3 1 / 2 4 9 / 3 / 2 4 9 / 8 / 2 4 9 / 1 3 / 2 4 9 / 1 6 / 2 4 9 / 2 2 / 2 4 9 / 2 8 / 2 4 1 / 1 / 2 4 1 / 6 / 2 4 1 / 1 2 / 2 4 1 / 1 5 / 2 4 1 / 2 / 2 4 1 / 2 5 / 2 4 1 1 / 2 / 2 4

Announce: 10/13/04 Announce: 10/13/04 Ex Ex-

  • date1: 10/29/04

date1: 10/29/04 Ex Ex-

  • date2: 12/22/04

date2: 12/22/04

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SLIDE 4

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Zecoo: Margin Buy Balance

2 , 4 , 6 , 8 , 1 , 1 2 , 1 4 , 1 6 , 2 4 / 8 / 6 2 4 / 8 / 1 3 2 4 / 8 / 2 2 4 / 8 / 2 7 2 4 / 9 / 3 2 4 / 9 / 1 2 4 / 9 / 1 7 2 4 / 9 / 2 4 2 4 / 1 / 1 2 4 / 1 / 8 2 4 / 1 / 1 5 2 4 / 1 / 2 2 2 4 / 1 / 2 9

What’s going on?

  • First, after announcement, price goes up
  • Then, price goes down by the ex-date of

spｌ its

  • After the ex-date, the price goes up again.
  • Finally, the price goes back to the base

line, before announcement level.

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SLIDE 5

5

What does it mean?

  • Neutral event on the price level

– In a few months span, stock splits do not change the share price level on the average.

  • Risk increased

– For a while, however, splits make volatility skyrocketed.

  • Investors love it.

– Trade volume also tremendously increased.

Stock Splits: Effects on the Price of Shares

  • Traditional view

– No effect: efficient market should not react – Byun and Rozeff (2003)

  • Information view

– Stock splits announcement conveys the information to the investors – positive or negative

  • Liquidity view

– Small size orders possible, then the breadth of investors widen – positive

  • Supply side view

– Profitable for brokers: suitable share price level – Schultz (2000) – positive

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SLIDE 6

6

Stock Splits in Japan

  • Traditionally: the stock dividends

– Some companies still cater to these investors. – In this case, effective dividends rate would goes up (because keeping the dividends size per share fixed).

  • Recent cases: different

– shares without dividends – Large size of factor: typically 100 – Suddenly popular, especially among growth stocks and small cap

Revisionist view

Are Japanese investors different (crazy)?

  • Traditional stock dividends: information view is

applicable

– positive news: increase the dividends level

  • Recent wild event: no established view

applicable

– Liquidity view: the event is before the ex-dates (indeed lowering liquidity) – Supply side view: after the ex-dates, trade volume goes down to the original level

  • We need a different view
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SLIDE 7

7

The Game

  • Our interpretation: this is just a game

– Everybody knows that the price up and then down. – Rule of the game: how to make money in the up and down valley by the ex-dates. – However, most investors do not know when the game starts. – Furthermore, they do not know which game would be played: – Even after splits announcement, investors are not sure whether this split event for the particular stock become the game.

How to make money in this game?

  • “Smart” Money:

– Traditional finance theorists and Arbitrageur: – Sell short after announcement

  • Insiders:

– Buy before announcement

  • Behavioral finance economists:

– Write a paper

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SLIDE 8

8

The Most profitable Strategy: The Mover

  • Smartest Money: The Mover

– Buy first, then he blows a whistle and makes

  • ther investors start the game.
  • Arbitrageur: tough time since short sell

restricted in most games

  • Insiders: even they are not sure whether

the game starts or not.

Stupid Individual investors

  • They might be smarter than Arbitrageur.

– Join the game in the early stage and run, that is, early buy and sell before crush. – The great chance of making a large amount of profit: can be more profitable than arbitrage – However, it is very risky because they might fail to get out the game before the end.

  • They have the great reason to join the game

– They can be rational if they are smarter than other game players.

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SLIDE 9

9

Our Potential Contribution

  • Suggesting
  • Existence of inefficient market
  • The specific behavior of some investors

– which makes market inefficient although those behaviors themselves not necessary irrational

  • Bubble: we might be able to understand

– the mechanism of bubble – How to make or start a bubble – Why investors willingly join a bubble

Data

  • Event

– Stock splits in 2003 and 2004 among public companies traded in Japan. – 526 events

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SLIDE 10

10

Variables

  • Dependent variable:

– Peak Height : raw return from the announce day to the day with the highest price

  • Independent variables:

– Splits factor: from 1.1 to 1000 – Float ratio: the ratio of the number of shares that a shareholder

  • wn in small size, less than 50 units

– Short sell: the dummy for the stock without short sell restriction – Pre-return: raw return before the announcement (7 days) – Margin buy: the ratio of the accumulated amount of margin buying on the announce day to one on the average before – Trade Increase: the ratio of trade volume after announce day to

  • ne before

Result

  • Peak is higher if
  • The larger splits factor
  • The higher float ratio
  • Short sell restricted
  • Higher Pre-return
  • Larger size of margin buy before the announcement

(less significant)

  • Also
  • Trade volume increased more if the peak is higher
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SLIDE 11

11

Interpretation

  • The larger splits factor

– Attract attention of investors

  • The higher float ratio

– Individual investors favor and own

  • Short sell restricted

– Investors feel relaxed: the sudden game over is less likely

  • Higher Pre-return and
  • Larger size of margin buy before the announcement

– Insiders(?) with intention to move the game

  • Trade volume increased

– Many investors joined and some of them make money

Conclusion

  • Stay tuned.