Sunday, April 8, 2007
Online Broker Investors: Demographic Information, Investment Strategy, Portfolio Positions, and Trading Activity by MARKUS GLASER, University of Mannheim - Department of Banking and Finance, was recently posted on SSRN. Here is the abstract:
It is often argued that the internet influences investor behavior. Furthermore, the recent bubble in internet stocks is sometimes ascribed, at least in part, to online trading. However, little is known about how online investors actually behave. This paper contributes to this gap. A sample of approximately 3,000 online broker investors is studied over a 51 month period ending in April 2001. The main goal of this paper is to present various descriptive statistics on demographic information, investment strategy, portfolio positions, and trading activity. The main results of this paper can be summarized as follows. Online broker investors trade frequently. The median stock portfolio turnover is about 30% per month. The average number of stocks in portfolios increases over time suggesting that, ceteris paribus, diversification increases. Trading activity is tilted towards technology, software, and internet stocks. About half of the investors in our sample trade warrants and half of the transactions of all investors are purchases and sales of foreign stocks. Income and age are negatively and the stock portfolio value is positively related to the number of stock transactions. Warrant traders buy and sell significantly more stocks than investors who do not trade warrants. Warrant traders and investors who describe their investment strategy as high risk have higher stock portfolio turnover values whereas the opposite is true for investors who use their online account mainly for retirement savings. The stock portfolio value is negatively related to turnover. The higher the stock portfolio value, the higher the average trading volume per stock market transaction.
Which Way for Market Institutions? The Fundamental Question of Self-Regulation by CALLY E. JORDAN, University of Melbourne - Faculty of Law, and PAMELA HUGHES, Affiliation Unknown, was recently posted on SSRN. Here is the abstract:
It is a fundamental question. How should financial market institutions be regulated? Is self-regulation alive and well, at least in some parts of the world, for some market functions? Or, despite a last gasp here and there, is self-regulation shuffling towards extinction? In particular, the wave of demutualizations and consolidations of exchanges has prompted questions as to traditional roles, governance models and the nature of regulation of exchanges. Demutualization of exchanges has been a catalyst for these debates, but the debates are not new. Although numerous studies have discussed the advantages and disadvantages of a self-regulatory structure for exchanges and other market institutions, few have considered the interaction of factors that have determined the traditional allocations of regulatory powers: market history, business culture, legal system, the concept of public interest, the corporate form, the political system, forces of internationalization. How have these factors affected the allocation of regulatory power? Will the self-regulatory model of market institution, where it has been dominant, be pushed to the margins by the interplay of these various factor, as in the UK? Do unitary regulators oust self-regulatory principles? Is self-regulation in the US merely a façade? Are small and emerging markets adopting outdated self-regulatory models at the behest of the international financial institutions? Do self-regulatory organizations have a new role to play as liaison between national and supranational regulators?. It may be too soon to definitively answer the questions posed by this paper, but for the moment, self regulation is here to stay; it just might not be staying where it used to.
The Missing Link Between Insider Trading and Securities Fraud by RICHARD A. BOOTH, University of Maryland School of Law, was recently posted on SSRN. Here is the abstract:
In a recent article, I argued that diversified investors - the vast majority of investors - would prefer that securities fraud class actions under the 1934 Act and Rule 10b-5 be dismissed in the absence of insider trading or similar offenses during the fraud period. See Richard A. Booth, The End of the Securities Fraud Class Action as We Know It, 4 Berk. Bus. L. J. 1 (2007). In this article, I draw on the classic case, SEC v. Texas Gulf Sulfur Company, to show that the federal courts originally viewed securities fraud as inextricably connected to insider trading and that the recognition of separable causes of action has caused much of the difficulty in this area. I argue that the federal law of insider trading fails to capture many of ways that insiders can misappropriate stockholder wealth. For example, timing and backdating in connection with stock option grants likely do not constitute insider trading but likely do constitute misappropriation. Thus, I here address the question of how to define misappropriation of stockholder wealth in the context of a derivative action based on securities fraud. I conclude that the question is essentially one of state law fiduciary duty that should be decided by state courts under the emerging duty of candor. Although this solution raises potential conflicts with federal law in general and SLUSA in particular, I argue that these conflicts are no different from conflicts that arise in many state law cases that touch on issues of disclosure. Moreover, I argue that handling such claims under state law is more consistent with the federal statutory scheme and ultimately preferable to developing or maintaining a separate body of federal law addressing either securities fraud or insider trading.