Showing papers by "Wei Jiang published in 2007"
TL;DR: In this paper, the authors show that two measures of the amount of private information in stock price (price nonsynchronicity and probability of informed trading) have a strong positive effect on the sensitivity of corporate investment to stock price.
Abstract: The article shows that two measures of the amount of private information in stock price—price nonsynchronicity and probability of informed trading (PIN)—have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover, the effect is robust to the inclusion of controls for managerial information and for other information-related variables. The results suggest that firm managers learn from the private information in stock price about their own firms’ fundamentals and incorporate this information in the corporate investment decisions. We relate our findings to an alternative explanation for the investment-to-price sensitivity, namely that it is generated by capital constraints, and show that both the learning channel and the alternative channel contribute to this sensitivity. (JEL G14, G31) Oneofthemainrolesoffinancialmarketsistheproductionandaggregation of information. This occurs via the trading process that transmits informationproducedbytradersfortheirownspeculativetradingintomarketprices [e.g.,Grossman and Stiglitz (1980), Glosten and Milgrom (1985), and Kyle (1985)]. The markets’ remarkable ability to produce information that generates precise predictions about real variables has been demonstrated empirically in several contexts. Roll (1984) showed that private information of citrus futures traders regarding weather conditions gets impounded into citrus futures’ prices, so that prices improve even public predictions of the weather. Relatedly, the literature on prediction markets has shown that
894 citations
TL;DR: In this paper, the authors studied 793,794 employees eligible to participate in 647 defined contribution pension plans and found that about 71% of them choose to participate, and 12% choose to contribute the maximum allowed, $10,500.
Abstract: Records of 793,794 employees eligible to participate in 647 defined contribution pension plans are studied. About 71% of them choose to participate in the plans, and of the participants, 12% choose to contribute the maximum allowed, $10,500. The main findings are (other things equal) (1) participation rates, contributions and (most remarkably) savings rates increase with compensation; on average, a $10,000 increase in compensation is associated with a 3.7% higher participation probability and $900 higher contribution; (2) women's participation probability is 6.5% higher than men's and they contribute almost $500 more than men; (3) participation probabilities are similar for employees covered and not covered by DB plans, but those covered by DB plans contribute more to the DC plans; (4) the availability of a match by the employer increases employees' participation and contributions; the effect is strongest for low-income employees; (v) participation rates, especially among low-income employees, are higher when company stock is an investable fund.
149 citations
TL;DR: In this paper, the authors apply payoff complementarities to the context of mutual funds and test it empirically using a model of global games and find that funds with illiquid assets will be subject to more redemptions than funds with liquid assets, and this effect weakens in funds that are held primarily by large investors.
Abstract: Theoretical work in financial economics suggests that payoff complementarities lead to financial fragility. Indeed, phenomena like bank runs and currency attacks are often attributed to the feature that investors are better off taking the same action taken by other investors. Due to data limitations, there is virtually no econometric evidence on the link between payoff complementarities and financial fragility. Using a model of global games, we apply this idea to the context of mutual funds and test it empirically. Based on the mutual-fund literature we use the illiquidity of a fund's assets as a proxy for the strength of strategic complementarities among the fund's investors. Consistent with our hypotheses, we find that conditional on low past performance, funds with illiquid assets will be subject to more redemptions than funds with liquid assets, and that this effect weakens in funds that are held primarily by large investors.
48 citations