Information Asymmetry and Adverse Wealth Effects of Crowdfunding

The Jumpstart Our Business Startups (JOBS) Act of 2012 in the U.S. expanded the capital markets so that entrepreneurs can appeal directly to non-traditional small crowd investors for investment funds. The final rules and forms of the JOBS Act became effective in May 16, 2016. Existing literature is thus relatively small but contains ample praises for expected positive consequences of the new crowdfunding laws for the capital markets and for the crowd in general but has only limited analysis on the prospect of adverse wealth effects of crowdfunding for the crowd investors. A limited number of existing studies have highlighted the prospect of a rise in opportunity for fraud as a consequence of information asymmetry between venture capital seekers and crowd investors. This study establishes a new and secondary form of adverse wealth effect of crowdfunding for the crowd in a setting that focuses on information asymmetry between non-accredited crowd investors and accredited traditional investors. The analysis is performed within a two-period, two-state signaling model with information asymmetry between two groups of signal recipients

Do Size and Value Premia Vary across Industry and during the Bull and Bear Market Conditions? : Evidence from the Euro Area

The elimination of exchange rate risk and overall integration of the European equity markets have created new opportunities to utilize industry-specific diversification strategies for portfolio and risk management decisions. Using daily return data for five major industries in the Euro area over the period, 2001-2012, our findings show that an industry-specific three-factor Fama and French type model provides a robust explanation of security returns. While, our results further emphasize the widespread influence of the “value” and “size” premiums in the Euro area, we show that the pattern, sign, size, and significance of these factors vary widely across different industries and during the “bull” (2003-2007) and “bear” (2007-2009) market conditions. The size premium predominantly plays a positive, stable and significant role in explaining security returns under different market conditions. On the other hand, the results for the value premium is not convincing. Its estimated coefficients are both positive and significant (30% of all cases), and negative and significant (66% of all cases). Nor does our results provide convincing evidence for the conventional risk-based argument in support of the existence of size and value premiums in the Euro area. Value stocks are generally associated with higher betas than those of growth stocks only during the bear market condition. The betas for small caps are consistently lower than those for the large caps. Finally, the momentum effect does not appear to play a strong rule in explaining security returns in the Euro area