The momentum effect on the London Stock Exchange

This study intends to investigate the momentum effect, which states that shares which performed the best (worst) over the previous three to twelve months continue to perform well (poorly) over the subsequent three to twelve months. Evidence suggests that a strategy that buys previous winner shares and sells short past loser stocks can generate abnormal profitability of about 1 per cent per month (Jegadeesh and Titman, 1993). Although momentum payoffs tend to persist when share returns in international markets are employed (e. g., Griffin et al., 2003, Rouwenhorst, 1998), a significant number of studies have debated the potential explanation of the momentum effect without reaching a consensus. Using data from the London Stock Exchange from January 1975 to October 2001, this thesis investigates some factors that influence the magnitude of continuation gains that have not been previously identified. I examine the relationship between momentum profitability and the stock market trading mechanism and is motivated by recent changes to the trading systems that have taken place on the London Stock Exchange. Since 1975 the London stock market has employed three different trading systems: a floor based system, a computerised dealer system called SEAQ and the automated auction system SETS. I find that after the introduction of the computerised dealer system SEAQ momentum profits are higher than when the floor based system operated. I also document that companies trading on the SETS auction system display greater momentum profitability than shares trading on SEAQ. Results are robust to the use of different samples and alternative risk adjustments. I investigate the role of volatility in influencing momentum profits. Shares with high volatility display wide spread out returns and therefore, potential higher magnitude momentum profitability. Given that shares displayed higher volatility traded on the post-Big Bang period (Tonks and Webb, 1991) and on the SETS system (Chelley-Steeley, 2003), I examine whether the different levels of momentum profitability achieved in alternative stock market structures arises from volatility. I find that momentum profits are strongly influenced by volatility, but the finding that the organisation of a stock market influences the momentum profits holds even after considering differences in volatility. I examine whether the magnitude of momentum profitability varies following bull and bear markets. Momentum profits stem from the winner shares in bull markets and from the loser stocks in bear markets. I report that momentum profits are stronger following bear markets, showing a sign of mean reversion in the UK stock market. Overall, this study contradicts the model of Hong and Stein (1999) that the momentum effect arises from the gradual expansion of information among investors and the model of Daniel et al, (1998) that the momentum effect stems from the investors' overconfidence that increases following the arrival of confirming news. This study also indicates that a significant portion of momentum profits stem from the magnitude of volatility

Information leakage prior to market switches and the importance of Nominated Advisers

This study tests the information leakage hypothesis prior to the public announcement of firms switching between the Alternative Investment Market (AIM) and the Main Market (MM) in the UK. We find significant abnormal stock returns 60 trading days prior to the announcement of these switches. The results are robust after controlling for switching anticipation, rumors, other major corporate announcements, and firm performance a year prior to the switch. We also show that having a reputable Nominated Adviser (Nomad) significantly moderates the abnormal stock returns prior to market switches. However, this effect does not hold when Nomads also act as brokers in firms that switch markets. Overall, these findings provide novel evidence about abnormal stock returns prior to the announcement of market switches in the UK and the role of Nomads. As such, we shed light on the significance and the limits of decentralized regulation on informed trading activity

Why Do Financially Unconstrained Firms Borrow to Repurchase Shares?

The authors are grateful to Seth Armitage, Vidhan Goyal, Yulia Merkoulova, Patrick Verwijmeren, and Betty Wu for helpful comments and suggestions. Special thanks go to two anonymous referees and to Alan Lowe and Nathan Joseph, the editors, for their very helpful comments.Preprin

Trump’s fake news and stock market returns

We use a novel database that identifies allegedly Donald Trump’s fake news during his presidency. We find that the number of daily fake news is positively related to contemporaneous US stock market returns. Fake news is typically positively biased in our context, increasing stock returns in the short term. We invalidate alternate explanations of the main relation, such as the notion that newly arrived information drives the relation. The mechanism of the relationship is the source used and the reliability of the fake news. Fake news matters to the extent that participants believe it is true. This positive relation reverses over the following days, indicating some evidence of correction. Overall, we find that a politician’s fake news influences financial markets temporaril

Climate theory & managerial decisions on cross-border mergers

We explore the significance of climate theory concerning managerial decisions in cross-border mergers. We report that temperature offers a good familiarity proxy showing that country pairs that experience little (large) distance in temperature experience relatively more (less) acquisitions. A one-unit decrease in the difference of the temperature in a country pair is linked with an increase in the number of cross-border mergers by 1.09%. We then highlight the significance of relatively warm temperatures on managerial decisions: We find that (i) the relationship is driven by the Summer months; during June-August for country pairs in the Northern hemisphere and December-February for pairs in the Southern hemisphere, (ii) relatively more cross-border mergers occur towards countries with modestly warmer temperatures showing evidence of managerial affinity towards warmer places, and (iii) country pairs with relatively high temperatures exhibit more acquisitions. Overall, this study highlights a new perspective in the field of climate finance

Treatment of chronic dry eye: focus on cyclosporine

To review the current treatment of chronic dry eye syndrome, focusing on cyclosporine A (CsA), a systematic literature search was performed using PubMed databases in two steps. The first step was oriented to articles published for dry eye. The second step was focused on the use of CsA in dry eye. A manual literature search was also undertaken based on citations in the published articles. The knowledge on the pathogenesis of dry eye syndrome has changed dramatically during the last few years. Inflammation and the interruption of the inflammatory cascade seem to be the main focus of the ophthalmologic community in the treatment of dry eye, giving the anti-inflammatory therapy a new critical role. The infiltration of T-cells in the conjuctiva tissue and the presence of cytokines and proteasis in the tear fluid were the main reason introducing the use of immunomodulator agents such as corticosteroids, cyclosporine, and doxycicline in order to treat dry eye syndrome. CsA emulsion is approved by the FDA for the treatment of dry eye, while clinical trials of this agent have demonstrated efficacy and safety of CsA. CsA seems to be a promising treatment against dry eye disease. New agents focused on the inflammatory pathogenesis of this syndrome in combination with CsA may be the future in the quest of treating dry eye. More studies are needed to determine the efficacy, safety, timing, and relative cost/effect of CsA

International Music Preferences as a Measure of Culture: Evidence from Cross-Border Mergers

This paper introduces the significance of international music preferences as a determinant of cross-border mergers. We argue that international music preferences capture the distance in culture between nations. We find that country pairs whose citizens experience relatively small distance in their music preferences (listen to each other’s music) exhibit more cross-border mergers. Overall, this study highlights that music preferences can measure international similarities in culture