Browsing by Author "Yu, Jerry"
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Item CEO-Employee Pay Ratio and Bond Yield Spreads(Social Science Research Network, 2018-01-25) Huang, Guan-Ying; Huang, Henry H.; Yu, JerryThis study explores the effect of CEO-employee pay ratio on bond yield spreads. We find that there exists a positive relation between CEO-employee pay ratio and bond yield spreads. Since bond yield spread has been used as a proxy for a corporation’s cost of debt, our finding suggests that bondholders tend to perceive a higher CEO-employee pay ratio as a risk factor, therefore requiring a higher return from the debt, thus the higher cost of debt. We further analyze how industrial homogeneity and labor unionization, which proxies for employee’s bargaining power, affects such a relation and find that employee’s bargaining power plays a mitigating role on the effect of CEO-employee pay ratio on bond yield spreads. Finally, we investigate how such a relation is affected by a firm’s financial constraints. The result shows that the effect of CEO-employee pay ratio on bond yield spreads tends to be more pronounced when the firm has a higher level of financial constraints.Item The holdings markup behavior of mutual funds: evidence from an emerging market.(Review of Quantitative Finance & Accounting, 2018-02) Wang, Ching-Chang; Yu, Jerry; Finance & EconomicsThis paper uncovers a seasonal mutual fund holdings markup pattern in Taiwan's market. Specifically, we find that fund's equity holdings jump up significantly at the quarter ends and year-end while drop back immediately to the previous level in the following month. While the holdings markup pattern found in this paper may look similar to the price markup phenomenon found by Carhart et al. (J Finance 57:661-693, 2002), the mechanism used by fund managers in the performance inflation may be quite different. In specific, while Carhart et al. (J Finance 57:661-693, 2002) document that fund managers use the stocks currently held in their portfolio to mark up the fund performance, we find that fund managers in fact use both the stocks already held in their portfolio and the new stocks to mark up their holdings. Furthermore, Carhart et al. (J Finance 57:661-693, 2002) do not explicitly examine if there exists a holdings markup in addition to the price markup. In this study, we fill this gap by directly exploring the holdings markup behavior by the fund managers. We also identify the specific stock characteristics that fund managers prefer in their holdings markup. In specific, fund managers prefer to trade growth stocks, stocks with larger market capitalization, higher institutional ownership, higher quality of earnings, and stocks in the high-tech industry, to inflate the fund performance. We also find that fund managers tend to avoid stocks that are herded by other funds.Item Institutional Trading and Price Momentum(International Review of Finance, 2008-03) Yu, JerryThis paper aims to explore the effect of institutional trading on the two asymmetric phenomena found by Lee and Swaminathan (2000): (1) asymmetric price momentum: price momentum is more pronounced among high turnover stocks; (2) asymmetric return phenomenon: low turnover stocks tend to outperform high turnover stocks. Lee and Swaminathan use a “momentum life cycle” to explain the asymmetric momentum effect while attributing the asymmetric return phenomenon to the analysts’ overestimating (underestimating) the future profitability of high (low) turnover firms. However, it essentially needs trading activity to induce both of the above asymmetric results. Since institutional investors exhibit momentum trading pattern (Chan, Jegadeesh and Lakonishok, 1996; Grinblatt, Titman and Wermers, 1995; Sias and Starks, 1997) and the trading behavior of institutional investors may have large impact on the movement of stock prices (Lakonishok, Shleifer and Vishny, 1992; Wermers, 1999), institutional trading may be one of the major driving forces leading to both of the above asymmetric patterns. The empirical results show that, first of all, after controlling for the turnover, the price momentum is still more pronounced among stocks with higher institutional ownership, while high turnover stocks no longer exhibit pronounced momentum effect after controlling for the institutional ownership. Furthermore, stocks with higher institutional ownership have better return performance in any of the turnover groups. While low turnover stocks still outperform high turnover stocks after controlling for the institutional ownership level, for some winner stocks this is no longer true. The results suggest that the asymmetric momentum effect is not induced by stock’s turnover, but rather it is driven by institutional trading. Turnover is only a proxy for institutional trading. That is, turnover per se has no economic significance in such a momentum phenomenon.Item Liquidity Provision of Limit Order Trading in the Futures Market Under Bull and Bear Markets(Journal of Business Finance & Accounting, 2009-09) Chiang, Min-Hsien; Lin, Tsai-Yin; Yu, JerryThis study investigates how limit orders affect liquidity in a purely order-driven futures market. Additionally, the possible asymmetric relationship between market depth and transitory volatility in bull and bear markets and the effect of institutional trading on liquidity provision behavior are examined as well. The empirical results demonstrate that subsequent market depth increases as transient volatility increases in bull markets. Market depth exhibits significantly positive relationship to subsequent transient volatility in bull markets. Additionally, although trading volume positively influences transient volatility in bull markets, no such relationship exists in bear markets. Liquidity provision decreases when institutional trading activity intensifies during bear markets. Thus, liquidity provision for limit orders differs between bull and bear markets.Item Mutual Fund Herding and Price Discovery – Evidence from an Emerging Market(Advances in Investment Analysis and Portfolio Management, 2014) Yu, Jerry; Wang, Wann-CherngIn this paper, we directly investigate the impact of mutual funds’ herding behavior on the price discovery process by using a VAR test procedure, which simultaneously and sequentially tests the multiple hypotheses of the return dynamics. Results show that mutual funds’ herding contains information in the sense that stocks that mutual funds herd tend to adjust information faster than stocks that mutual funds do not herd. This implies that mutual fund managers herd on new information about the firms’ future prospects and will expedite the incorporation of information into stock prices. Furthermore, we also find that mutual funds’ herd buying contains more information than their herd selling behavior. Finally, we evidence that without herding mutual fund managers may still exhibit their private information via their act of trading.