Dionigi Gerace - Academia.edu (original) (raw)

Papers by Dionigi Gerace

Journal of Financial Regulation and Compliance, 2008

Purpose-There is conjecture that small and mid-cap companies in highly speculative industries use... more Purpose-There is conjecture that small and mid-cap companies in highly speculative industries use frequent and repetitive disclosure to promote price volatility and heighten market interest. Excessive disclosure could indicate instances of self-promotion or poor disclosure practices, and these habits could mislead investors. This paper quantitatively investigates the impact of firm disclosure on price volatility in the Australian stock market. Design/methodology/approach-This paper considers the effect of information disclosure on the daily stock price volatility of 340 Metals & Mining industry entities listed on the Australian Securities Exchange over the period 2005-07 using regression analysis. Findings-The results indicate the number of disclosures, the number of price and non-price sensitive disclosures and the number of disclosures by category has a significant influence on daily price volatility. Moreover, the volatility impact of disclosure is greater for small and mid-sized firms than large firms. Research limitations-Price volatility is calculated using daily data; intra-day stock prices could provide measures that are more accurate. There is also no attempt to allow for asymmetry in disclosure; categorizing news as 'good' or 'bad' would allow better insights. Practical implications-There is support for the conjecture that disclosure could serve as a self-promotion tool through fabricated and repetitive announcements. Inadvertent poor disclosure practice could also result in excessive price volatility. Disclosure practice requires ongoing consideration by regulatory bodies. Originality/value-This analysis complements basic work by the Australian regulator to establish a quantitative link between disclosure practice and price volatility.

Journal of Banking & Finance, 2008

Several studies find that bid-ask spreads for stocks listed on the NYSE are lower than for stocks... more Several studies find that bid-ask spreads for stocks listed on the NYSE are lower than for stocks listed on NASDAQ. While this suggests that specialist market structures provide greater liquidity than competing dealer markets, the nature of trading on the NYSE, which comprises a specialist competing with limit order flow, obfuscates the comparison. In 2001, a structural change was implemented on the Italian Bourse. Many stocks that traded in an auction market switched to a specialist market, where the specialist controls order flow. Results confirm that liquidity is significantly improved when stocks commence trading in the specialist market. Analysis of the components of the bid-ask spread reveal that the adverse selection component of the spread is significantly reduced. This evidence suggests that specialist market structures provide greater liquidity to market participants.

This paper responds to the general call for integration between finance and strategy research by ... more This paper responds to the general call for integration between finance and strategy research by examining how financial decisions are related to corporate strategy. In particular, the paper focuses on the link between capital structure and strategy. Corporate strategies complement traditional finance paradigms and extend our insight into a firm's decisions regarding capital structure. Equity and debt must be considered as financial instruments as well as strategic instruments of corporate governance (Williamson 1988). Debt subordinates governance activities to stricter management, while equity allows for greater flexibility and decisionmaking power. The literature on finance and strategy analyzes how the strategic actions of key players (managers, shareholders, debtholders, competitors, workers, suppliers, etc) affect firm value and the allocation of value between claimholders. Specifically, financing decisions can concern value creation process (1) influencing efficient investments decisions according to the existence of conflict of interest between managers and firm's financial stakeholders (shareholders and debtholders) and (2) affecting the relationship with non-financial stakeholders, as suppliers, competitors, customers, etc. To summarize, the potential interaction between managers, financial stakeholders, and nonfinancial stakeholders influences capital structure, corporate governance activities, and value creation processes. These in turn, may give rise to inefficient managerial decisions or they may shape the industry's competitive dynamics to achieve a competitive advantage. A good integration between strategy and finance dimensions can be tantamount to a competitive weapon.

Australasian Business, Accounting & Finance Journal

In this article, the authors investigate whether there has been an improvement in the quality of ... more In this article, the authors investigate whether there has been an improvement in the quality of independent expert reports following ASIC's revisions to RG111 and RG112. These revisions include additional disclosures on the valuation methodologies used and explanation if the valuation was materially different from the company's recent trading price. It was expected that these revisions have led to an improvement in report quality where quality is determined by the accuracy of the expert's valuation. Results show that after the 2011 revisions, valuations became more accurate based on updated measures of report quality. However, experts with higher fees did not provide higher quality reports on average. The ﬁndings indicate that the independence provisions within the new rules were effective. Furthermore, they warn commissioning firms that higher fees are not necessarily indicative of higher quality reports.

Australasian Accounting, Business and Finance Journal

This paper evaluates the probability of an exchange traded European call option being exercised o... more This paper evaluates the probability of an exchange traded European call option being exercised on the ASX200 Options Index. Using single-parameter estimates of factors within the Black-Scholes model, this paper utilises qualitative regression and a maximum likelihood approach. Results indicate that the Black-Scholes model is statistically significant at the 1% level. The results also provide evidence that the use of implied volatility and a jump-diffusion approach, which increases the tail properties of the underlying lognormal distribution, improves the statistical significance of the Black-Scholes model.

Purpose-The purpose of this study is to analyze the effect of the 2005 reduction in minimum tick ... more Purpose-The purpose of this study is to analyze the effect of the 2005 reduction in minimum tick size in the Hong Kong Stock Exchange (HKEx). The tick size is the smallest amount by which the price of any exchange traded instrument can move. Design/methodology/approach-This study involved univariate and multivariate (regression) analysis to observe the effect of the 2005 HKEx reduction in tick size on the volume, spread and depth of the market in affected shares. Findings-The shares affected by the reduction in tick size (those valued at over HK$30) showed a significant decline in their quoted spreads, percentage spreads and quoted depth. Originality/value-This finding supports the case that a policy of reduced tick sizes may have the effect of improving market liquidity and contributes to the literature related to minimum price increments in financial markets.

This paper examines the impact of pre-trade information transparency in pre-open call auction on ... more This paper examines the impact of pre-trade information transparency in pre-open call auction on market liquidity on the Shanghai Stock Exchange (SHSE). We examine the natural experiment affected by the Shanghai Stock Exchange in July 2006 when it changed its pre-open auction algorithm from an entirely black box into a limited transparent system with a closed order book. We find that the increase in pretrade information transparency coincides with a statistically significant reduction in spread at the best quotes. The reduction in spread persists even after controlling for known determinants of depth. Furthermore, there is also evidence of a statistically significant reduction in market depths. Finally, the ratio of trading volume to total volume during call auction increases significantly over the first 15 minutes of continuous trading. We conclude that in a more transparent call auction, the change from an entirely black box into a limit transparent limit order book has led to an improvement in market quality in terms of market liquidity and increased participation in the call auction by investors.

The purpose of this paper is to determine whether time weighted consensus estimates offer a more ... more The purpose of this paper is to determine whether time weighted consensus estimates offer a more effective method for predicting company actual EPS figures than simple mean or median analysis. The study aims to construct a more comprehensive earnings forecast signal using analyst earnings forecasts that have been weighted based on the timeliness of updates. Aimed at extracting valuable information from timely analyst forecasts, the time weighted earnings signal (TWES) methodology allows extracting valuable information from analysts who possess some unique insights about the market and issue their updates more frequently. One would expect the time signal to reflect a more realistic representation of analyst estimate changes and thus be more effective in predicting the companies' reported EPS than the mean and median.

Australasian Accounting, Business and Finance Journal, 2015

Despite the capital asset pricing model being one of the most influential models in modern portfo... more Despite the capital asset pricing model being one of the most influential models in modern portfolio theory, it has also been a victim of criticism in numerous academic papers. Its assumptions which seem to be rather unrealistic, have caused many academics to improve the model by relaxing some of its restrictive statements. In this journal article, we compare the performance of an optimal portfolio of securities in the Australian securities market by constructing two theoretical portfolios; one using the capital asset pricing model which uses a single beta throughout a static investment horizon; and another, which allows the optimal portfolio to be rebalanced each week with an adjusted beta. The performance of the two theoretical portfolios is compared to determine the superior model. Overall, findings showed that due to rebalancing of the portfolio, the multiple period model was the superior model based on before and after transaction cost returns.

Australasian Accounting, Business and Finance Journal, 2013

This study involves a detailed discussion on the estimation of intraday time-varying volume synch... more This study involves a detailed discussion on the estimation of intraday time-varying volume synchronised probability of informed trading (VPIN), a proxy for levels of informed trading and flow toxicity, followed by intraday analysis on its impact of the behaviour of intraday trading in a limit order book (LOB) market. The variation of VPIN used is closely based on the original from Easley, Lopez de Prado and O'Hara (2010), using trade volume imbalance information. This study shows that different capitalisation stocks exhibit different VPIN characteristics. Previous studies on other variations of PIN have looked at its determination on price movements, and whether a lead-lag relationship exists. This study examines if VPIN has an effect on several of intraday trading factors in the Australian market, being a LOB. In particular, it documents if Granger causality exists between (1) VPIN and quote imbalance, 20(2) VPIN and intraday price volatility and (3) VPIN and intraday trade frequency or similarly in an inverse manner, duration. For this analysis the Hsiao-Kang methodology for Granger testing has been followed and the posterior odds ratio test used to measure the strength of Granger causality in equity markets as suggested recently by Atukeren (2005). Feedback causality between VPIN and all three intraday factors is apparent.

International Review of Finance, 2015

ABSTRACT Several studies find that bid-ask spreads for stocks listed on the NYSE are lower than f... more ABSTRACT Several studies find that bid-ask spreads for stocks listed on the NYSE are lower than for stocks listed on Nasdaq. However, the nature of trading on the NYSE, which comprises a specialist and a limit order book, complicates the comparison. In 2001, a structural change was implemented on the Italian Bourse. Many stocks that traded in an auction market switched to a specialist market, where the specialist controls the order book. Our results indicate that spreads tightened when stocks moved to the specialist market. This reduction in spreads is robust to market capitalization, industry affiliation and the event window around the structural change. Using a third market to control for market wide factors, we confirm the reduction in spreads. The specialists' ability to offer price improvement further lowers the cost of executing trades. Specialist market structures are more advantageous to market participants.

Several studies have analysed liquidity across a trading day, and have documented that bid-ask sp... more Several studies have analysed liquidity across a trading day, and have documented that bid-ask spreads exhibit a U-shaped pattern, with spreads wider at the start and end of the trading day, whilst spreads are tighter in the middle of the day. This pattern has been attributed to inventory holding costs, the specialist's market power and adverse selection risk. On the 2nd April, 2001, several stocks on the Italian Bourse switched from an auction market to a specialist market. This provides a natural experiment where intraday spreads across different market structures can be compared. Results indicate that volume, volatility and bid-ask spreads exhibit the U-shaped intraday pattern both before and after the structural change. While time-weighted spreads are consistently higher throughout the trading day under the specialist structure, the specialists ability to offer price improvement with the best quotes results in the 'real' cost of trading being lower under a specialist system. These results are robust to the size of the firm, the event window around the structural change, as well as overall market-wide changes.