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AbstractIn this paper we examine the relation between bid‐ask spread and ownership structure variables based on 1985 data for 1,063 NYSE firms. We document a nonpositive relation between bid‐ask spread and insider ownership and conclude that spread is unrelated to insider trading. We also find a robust significantly negative relation between spread and institutional ownership. Finally, we find a positive but generally insignificant relation between spread and blockholdings. Overall, our evidence does not support the predictions of asymmetric information models in markets with anonymous trading.

AbstractAnnouncements of seasoned equity offerings are associated with a statistically significant negative market reaction. This finding is consistent with both the cash flow signaling and the free cash flow hypotheses. We test these hypotheses by examining whether revisions in analyst earnings forecasts and abnormal stock returns associated with equity offering announcements are related to the issuing firm's q‐ratio. We find an inverse relation between revisions in analysts' earnings forecasts and q‐ratios, and no relation between announcement‐period abnormal returns and q‐ratios. These findings provide direct evidence of the cash flow signaling hypothesis and, at best, indirect evidence of the free cash flow hypothesis.

AbstractWe examine the sensitivity of the abnormal profitability of the earnings' yield (E/P)‐based contrarian investment strategy to the following two risk measurement issues: (a) return‐measurement interval over which systematic risk is estimated and (b) time variation in systematic risk. We conduct our analysis using the capital asset pricing model to parameterize risk. We find that the estimates of systematic risk of E/P‐ranked portfolios are not sensitive to the return‐measurement interval. Consequently the abnormal profits to the E/P‐based contrarian investment strategy observed in prior studies are not artifacts of the return‐measurement interval. Furthermore, although both the raw and abnormal returns to E/P‐ranked portfolios exhibit mean reversion, time variation in systematic risk ensuing from this mean‐reverting behavior does not substantially affect abnormal profits to E/P‐ranked portfolios.JEL classification: G11, G12, G14