REITs and Market Friction

We examine differences in price delay for a sample of real estate investment trust (REIT) and non-REIT matched pairs. Results suggest an economically and statistically higher level of price delay for REIT securities, which implies heightened frictions that increase the time needed for new information to be impounded into the prices of REIT shares. The primary drivers for the observed delay differential include differences in idiosyncratic volatility, market risk, and the number of days traded. Within-REIT determinants of delay confirm findings for the pooled sample of matched pairs. Importantly, we infer find that REIT investors are not compensated for restricted information flow, as excess returns are unrelated to the price delay

Return and Liquidity Response to Fraud and SEC Investigations

This study measures the long-run costs and benefits associated with fraud and securities enforcement actions by examining the changes in market quality of firms that are investigated by the Securities and Exchange Commission for fraud. The market quality measures we test include returns, price volatility, spreads, and illiquidity. We find a significant deterioration of market quality following the market’s discovery of the misconduct. We also find that during periods in which the SEC is actively investigating the firm daily returns and price volatility improves while spreads widen and liquidity declines. Our work highlights some of the benefits and costs of having an active regulator over US securities markets

Shades of Trade: Dark Trading and Price Efficiency

Using a comprehensive approach, we investigate how various forms of non-displayed order flow such as hidden orders on exchanges, brokerage internalizations, and orders submitted to off-exchange venues affects price efficiency. By considering the multiple forms of dark trading available to traders, we are able to better understand the nuances of dark trading, its impacts on price efficiency, and mitigate the unobserved variable problems present in studies that examine only one aspect of dark trading. We find that hidden orders on exchange have a deleterious impact on price efficiency. The impacts of other types of pre-trade, non-displayed orders on price efficiency is more nuanced

Executive Networks and Global Stock Liquidity

We examine whether executive networks affect the information environment around stocks in an international setting. We find that firms whose executives are more connected enjoy lower stock liquidity costs, as executive networks lower information asymmetries for market participants. However, the positive effects of executive networks on stock liquidity are subsumed in countries where investor protections are weaker. We empirically separate network effects into an information channel and a power channel, and find that the information channel dominates where institutions foster transparency and accountability. Effects of the power channel are visible where institutions are weak. These results suggest that the detrimental effects of network connections (e.g., managerial entrenchment, extraction of private benefits, propensity to commit fraud) documented in prior studies create space for asymmetric information around stocks when formal institutions are weak. Our results are robust to alternative model specifications and tests for endogeneity