Abstract This paper investigates the impact of coronavirus disease 2019 (COVID‐19) on Chinese stock market. We show that COVID‐19 outbreak not only hurts returns but also affects price sensitivity to firm‐specific information. document heterogeneous effects epidemic infection scale and public attention about pandemic. The market response information is decelerated (accelerated) by (infection scale). Moreover, decreasing (increasing) effect scale) such more intensive positively toned...

The Black–Scholes asset price dynamics is well known to be inadequate for capturing the volatility smile in financial market. Therefore, constant elasticity of variance (CEV) model has become a popular alternative valuing options fitting smile. American option pricing, however, computationally intensive, as there are no analytical formulas available. This paper proposes an artificial boundary method partial differential equations (PDEs) compute prices and Greeks under CEV model. idea reduce...

Abstract Our paper examines the relationship between industry tournament incentives for CEOs and corporate innovation. We find that external pay gap is positively associated with subsequent innovation output its economic value. results are robust to using different classifications, alternative measures of innovation, various controls governance, business strategy, CEO attributes. employ a quasi‐natural experiment an instrumental‐variable approach mitigate endogeneity concerns. also evidence...

This paper investigates American option pricing under general diffusion processes. Specifically, the underlying asset price is assumed to follow a process in which both dividend yield and volatility are functions of time price. Using generalized homotopy analysis method, determination early exercise boundary separated from valuation procedure options. Then, an exact explicit solution for options on dividend-paying stock derived as Maclaurin series. In addition, corresponding optimal Greeks...

This paper develops a novel approach to information-based securities trading by characterizing the hidden state of market, which varies following Markov process. Extensive simulation demonstrates that can successfully identify market states and generate dynamic measures outperform prevailing models. A sample 120 NYSE stocks further verifies it better depict dynamics. With this sample, we characterize features information asymmetry belief dispersion around earnings announcements. The is also...

Abstract This paper investigates the valuation of currency options when underlying follows a mean‐reverting lognormal process with multi‐scale stochastic volatility. A closed‐form solution is derived for characteristic function log‐asset price. European are then valued by means Fourier inversion formula. The proposed model enables us to calibrate simultaneously observed futures and implied volatility surface within unified framework. fractional fast transform (FFT) adopted implement...

This paper investigates how anchoring-induced investors' trading behavior drives momentum anomaly. The results show that price does not retain its ability to predict future returns after considering the stock's nearness 52-week high. stock price's high is a stronger return predictor for stocks with higher retail proportion. suggests an pattern, which affected by investor heterogeneity. Our flow analysis reveals investors are subject anchoring bias. Their causes underreaction good (bad)...

Abstract Using a sample of Australian stocks during the 1996–2014 period, this study examines how tax heterogeneity between domestic and foreign investors affects trading behaviour stock prices around ex‐dividend day. Domestic prefer dividends tend to buy cum‐dividend sell them whereas trade in opposite direction. Abnormal turnover increases with heterogeneity. Moreover, larger investor base are associated higher price drop‐off ratio on day market value franking credits. Overall, our...

Abstract This paper provides novel evidence of information asymmetry in exchange‐traded fund (ETF) markets. By decomposing daily ETF flows, we find that the unexpected flow component, orthogonal to components driven by market making and arbitraging, wields substantial power predicting next day's returns. Informed traders are able exploit their advantage realize an annualized open‐to‐close return 19.16% or close‐to‐close 22.42%. The informativeness component is further confirmed its strong...