Do Informed Traders Win? An Analysis of Changes in Corporate Ownership around Substantial Shareholder Notices
KRaymond Da Silva Rosa(WA Centre for Capital Markets Research, UWA Business School, University of Western Australia and SIRCA Limited, Australia)
Nirmal Saverimuttu(Goldman Sachs Australia, Australia)
Terry Walter(Division of Business and Humanities, UNSW Asia and CMRC Ltd)

The financial economics literature typically distinguishes between two classes of investors, namely ‘informed’ and ‘uninformed’ traders. Informed traders are those who possess some fundamental information about the true value of an asset, which is not readily available to other traders. Presuming that this information advantage is obtained from costly information search there is a general assumption that these traders realize superior returns. Unlike previous researchers, we access a unique panel of institutional and retail ownership (Clearing House Electronic Subregister System, CHESS records) that enable us to develop powerful measures that capture and benchmark abnormal changes in the share register across a number of dimensions. We find some evidence of a positive and significant relationship between the level of informed trading in the share register and abnormal market performance. However, our results suggest that informed traders move in and out of the share register in response to abnormal market performance, rather than in anticipation of abnormal market performance.

keywords:

Portfolio Concentration and Investment Manager Performance
Simone Brands(School of Banking and Finance, The University of New South Wales, Australia)
Stephen J. Brown(NYU Stern School of Business, New York, USA)
David R. Gallagher(School of Banking and Finance, The University of New South Wales, Australia)

This study examines the relationship between investment performance and concentration in active equity portfolios. Active management is dependent on the success of two important components in the investment process ? stock selection skill and portfolio management. Our study documents a positive relationship between fund performance and portfolio concentration. The relationship is stronger for stocks in which active managers hold overweight positions, as well as for stocks outside the largest 50 stocks listed on the Australian Stock Exchange (ASX). We find that more concentrated funds tend to be those implementing growth styles, having smaller aggregate assets under management, being institutions that are not affiliated with a bank or life-office entity, whose funds experience past period outflows, and who are benchmarked to narrower indexes than the S&P/ASX 300.

keywords:

Forecasting and Finite Sample Performance of Short Rate Models: International Evidence
Sirimon Treepongkaruna(School of Finance and Applied Statistics, Australian National University, Australia)

This paper evaluates the forecasting and finite sample performance of short-term interest rate models in a number of countries. Specifically, we run a series of in-sample and out-of-sample tests for both the conditional mean and volatility of one-factor short rate models, and compare the results to the random walk model. Overall, we find that the out-of-sample forecasting performance of one-factor short rate models is poor, stemming from the inability of the models to accommodate jumps and discontinuities in the time series data. In addition, we perform a series of Monte Carlo analyses similar to Chapman and Pearson to document the finite sample performance of the short rate models when β3 is not restricted to be equal to one. Our results indicate the potential dangers of over-parameterization and highlight the limitations of short-term interest rate models.

keywords:

Effect of Taxation on Equal Access Share Buybacks in Australia
Christine Brown(The University of Melbourne, Melbourne, Australia)
Katrina Efthim(The University of Melbourne, Melbourne, Australia)

In Australia, equal access share buybacks can be structured so that a portion of the buyback price is designated as a fully franked dividend. The tax benefits derived from this structure imply that off-market buybacks are sometimes offered to shareholders at a discount to the current market price. This is in contrast to the United States, which operates under a classical taxation system, and where off-market buybacks are generally executed at a premium to the market price. The situation in Australia provides a unique opportunity to add to our understanding of taxation explanations for how and why companies buy back their shares. We find that the size of the discount of the offer price to the current share price is significantly related to the proportion of the buyback price designated a franked dividend. Analysis of the after-tax benefits to shareholders leads us to conclude that the structure of many equal access buybacks in Australia is advantageous to superannuation funds holding the stock.

keywords: