Working papers:

“Further evidence on insider trading and the merits of securities class actions ” with Zahid Iqbal and Shetty Shekar

Abstract: To provide further evidence on the merit of securities class actions, we examine insider transactions prior to and during the class period using a larger and newer data set. For our sample of class actions filed between 1996 and 2003, we show that insiders reduce their stock sales by an abnormal amount immediately prior to the class period. Alternative measures of insider transactions and analysis of data before enactment of the Private Securities Litigation Reform Act of 1995 provide consistent results. These new evidence on insider trading indicates that class actions, on average, have merit. Our data also reestablish a previous empirical result that there is no abnormal selling during the class period.

“Are Insider Sales Informative? Evidence Based on Large Open Market Sales by the Top Executives and Their Diversification Motive” with Zahid Iqbal and Chu-sheng Tai

Abstract: Prior research shows that insider sales have weak informational value. We attribute this to a failure to incorporate samples of large transactions and diversification motives of the insiders. We contend that stock sales not motivated by portfolio diversification will have a strong negative implication. Our findings show negative stock price reactions around large open market sales by the top executives and a subsequent drop in firm’s earnings. Using stock option awards as an indicator of diversification, we find results contrary to our contention. Our data show higher negative returns and declining earnings in firms with large option grants. These findings are of apparent interests to academies as well as market participants.

More real-world insider trading information from this link: SEC EDGAR filing

“A Comparison of the Performance of Valuation Models: Evidence from China-Based Companies Cross-listed in the U.S.” with Murphy Smith

Abstract: Properly assessing a firm's value is a very important subject for financial analysts, investors, lenders, policy-makers, and other market participants. When a firm based in one country is traded in another, differences in GAAP between countries can make valuation a more difficult process. This study compares the relative performance of three valuation models based on accounting variables reported under foreign GAAP and IFRS. These valuation models are earnings capitalization model, book value model, and residual income model. Using a sample of Asia-based firms listed in the U.S. , we find the residual income model is the dominant model, followed by the book value model and then the earning capitalization model for accounting numbers based on foreign GAAP and U.S. GAAP. The explanatory power of the three models are also very close under foreign GAAP and U.S. GAAP. However, valuation properties of the three models exhibit different features when analyzing the effect of individual GAAPs. Finally, under accounting variables based on IFRS, we find that the residual income model to be the dominant valuation model in terms of explanatory power and model specification.