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Professor Dave Michayluk

Biography

Professor Michayluk obtained his Ph.D. at Louisiana State University in 1998 for his work on intraday price formation and bid-ask spread components of stocks traded on the New York Stock Exchange and the Paris Bourse. David cofounded the International Journal of Managerial Finance and is the current editor. Before joining UTS, he has been on the faculty at the University of New South Wales and University of Rhode Island and has taught at a number of institutions including the University of Saskatchewan,  the University of Adelaide in their Singapore program and Bond University in their South African program. 

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RePEc page

Professional

David is a Chartered Accountant and Certified Public Accountant. 
Professor, Finance Discipline Group
Core Member, Quantitative Finance Research Centre
B.Comm (Hons), PhD Philosophy (Business)
 
Phone
+61 2 9514 7761
Room
CB08.07.32

Research Interests

David has a broad range of interests including corporate finance, market microstructure, behavioural finance and related areas. His current projects include improving the representation of risk, measuring financial literacy and risk, examining superannuation decision-making and identifying the perceived drivers of value of financial planners.

Can supervise: Yes

Postgraduate research degree students supervised:
Leonardo Fernandez
Scott Walker

Corporate Financial Analysis, Business Finance, Investments / Security Valuation, Corporate Finance

Chapters

Michayluk, D. 2009, 'Stock splits, stock dividends and reverse stock splits' in Baker, H.K. (ed), Dividends and Dividend Policy, John Wiley and Sons, USA, pp. 325-341.
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Conferences

Putnins, T. & Michayluk, D.M. 2014, 'Liquidity provision in limit order book markets', 4th Behavioural Finance and Capital Markets Conference, Adelaide, Australia.
Patel, V., Putnins, T. & Michayluk, D.M. 2014, 'Price Discovery in Stock and Option Markets', 4th Behavioural Finance and Capital Markets Conference, Adelaide, Australia.
Doan, H., Michayluk, D.M. & Putnins, T. 2014, 'Are more liquid markets more informative?', 4th Behavioural Finance and Capital Markets Conference, Adelaide, Australia.
Gerig, A. & Michayluk, D.M. 2014, 'Automated Liquidity Provision and the Demise of Traditional Market Making', 2014 Conference on High Frequency Data and Derivative Markets, Auckland, New Zealand.
Patel, V., Putnins, T. & Michayluk, D.M. 2014, 'Price Discovery in Stock and Option Markets', 2014 FMA Annual Meeting, Nashville, USA.
Putnins, T.J. & Michayluk, D. 2013, 'Liquidity provision in limit order book markets', Proceedings of the 26th Australasian Finance & Banking Conference, Australasian Finance & Banking Conference, Social Science Research Network, Sydney, Australia, pp. 1-40.
This study examines what drives informed traders to provide liquidity by submitting limit orders versus consuming liquidity by submitting market orders. Based on recent theoretical work on limit order markets, we develop and validate two empirical measures of the relative use of market orders by informed traders: (i) how quickly limit order book quotes reflect changes in the fundamental value compared to trade prices; and (ii) the price impact of limit orders compared to market orders. Using these measures, we find that informed traders are more likely to use limit orders when the market has high uncertainty about the fundamental value (high volatility, wide spreads and low volume). Limit orders are used because when the market is highly uncertain, the informed trader faces a lower risk of mispricing being quickly corrected (lower risk of `price slippage) and thus can trade more patiently to obtain better execution prices. We also find that a greater use of limit orders by informed traders impedes resolution of the markets uncertainty, implying that informed traders order choice acts as an uncertainty multiplier.
Michayluk, D.M. & Patel, V. 2013, 'What Drives Large Price Changes and the Subsequent Pattern in Returns?', 1st Paris Financial Management Conference, Paris, France.
Gerig, A. & Michayluk, D.M. 2013, 'Automated Liquidity Provision and the Demise of Traditional Market Making', 1st Paris Financial Management Conference, Paris, France.
Michayluk, D.M., Patel, V. & Putnins, T. 2013, 'Price Discovery in Stock and Option Markets', 1st Paris Financial Management Conference, Paris, France.
Michayluk, D.M., Neuhauser, K. & Walker, S. 2013, 'Rewarding Stability: The Dividend-Increase Repetition Premium', 2013 Financial Management Association Annual Meeting, Chicago, USA.
Van de Venter, G., Michayluk, D. & Davey, G. 2012, 'A longitudinal study of financial risk tolerance', JOURNAL OF ECONOMIC PSYCHOLOGY, pp. 794-800.
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Fernandez, L. & Michayluk, D. 2012, 'Information content of analyst recommendation revisions under continuous disclosure requirements', 2012 FMA Annual Meeting, Atlanta, USA.
Gerig, A. & Michayluk, D. 2011, 'Automated liquidity provision and the demise of traditional market making', Financial Management Association Annual Meeting, Denver, USA.
Fernandez, L. & Michayluk, D. 2011, 'Continuous disclosure requirements and the timeliness of price discovery in Australia', Financial Management Association Annual Meeting, Denver, USA.
Fernandez, L. & Michayluk, D. 2011, 'Continuous disclosure requirements and the timeliness of price discovery in Australia', Edwards Symposium on Financial Markets and Institutions, Saskatoon, Saskatchewan, Canada.
Hall, A.D., Mercorelli, L.R. & Michayluk, D. 2010, 'Modelling adverse selection on electronic order-driven markets', UTS Market Microstructure Conference, Sydney, Australia.
Michayluk, D. 2010, 'Reducing transaction taxes in Shanghai: Increased speculation can improve market quality', 4th Annual University of Sydney Market Microstructure Conference, Sydney, Australia.
Clifton, M. & Michayluk, D. 2010, 'The impact of short selling restrictions and extreme uncertainty on liquidity and order flow: Evidence from the London stock exchange', Annual Conference of the Multinational Finance Society, Barcelona, Spain.
Akyol, A. & Michayluk, D. 2010, 'Day end returns on the Istanbul stock exchange', Annual Conference of the Multinational Finance Society, Barcelona, Spain.
Michayluk, D., Neuhauser, K. & Walker, S. 2010, 'Are certain dividend increases predictable? The effect of repeated dividend increases on market returns', Financial Management Association 2010 Meetings, Financial Management Association Annual Meeting, Financial Management Association, New York, USA, pp. 1-38.
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Positive abnormal returns around dividend increase announcements are well documented. The conventional explanation for these abnormal returns is that a dividend increase conveys favorable information about a firms prospects causing the stock price to increase in response to the announcement. This study offers a new perspective by studying a special group of firms that consistently increase their dividends each year. Abnormal returns around each dividend increase announcement are investigated based on the number of consecutive annual increases. In light of survey results that indicate firms endeavor to maintain steady dividend payments, one hypothesis is that after a certain number of dividend increases, a firm may develop a reputation as a dividend-increasing firm and consequently the market will learn to anticipate future dividend increases. Consistent with this hypothesis, we find that abnormal returns are significantly positive for the first and second dividend increase. Returns are not significant for all other increases, with the exception of the ninth consecutive increase. Our results suggest that, by the third consecutive increase, the market has learned to expect further increases. Our findings are robust and provide further evidence that, consistent with other types of corporate announcements, the stock market reacts differently depending on the frequency of an action.
Michayluk, D. & Van de Venter, G. 2009, 'Does financial risk tolerance change over time?', Seminar Presentation, University of Virginia, Charlottesville, USA.
Michayluk, D. 2009, 'Liquidity and the global financial crisis', The 4th International Conference on Business and Management Research - The New World Order After the Crisis, Bali, Indonesia.
Bertin, W., Michayluk, D., Prather, L., Woo, L. & Yip, H. 2009, 'Decomposing the bid-ask spread of stock options: A trade and risk indicator model', Annual Conference of the Multinational Finance Society, Juen, Crete.
Fernandez, L. & Michayluk, D. 2009, 'Are short sellers really informed?', Northern Finance Association Annual Meeting, Niagra-on-the-Lake, Canada.
Mercorelli, L.R., Michayluk, D. & Hall, A.D. 2008, 'Modelling Adverse Selection on Electronic Order-Driven Markets'.
The vast majority of models that decompose the bid/ask spread assume the quote-driven, specialist structure of the NYSE. This paper critically evaluates these models to construct a model specific for an electronic order-driven exchange. The model not only captures adverse selection and the impact of order flows on price discovery but it includes the imbalance of supply and demand inherent in the public limit order book. With this new model we investigate the change to anonymity on the Australian Securities Exchange (ASX). Following the change to anonymity, both adverse selection and the demand/supply imbalance have an increased impact on prices while order flow has a decreased influence, suggesting the change to anonymity has improved market efficiency. The model also uncovers a change in traders' behavior once their fear of front-running is reduced. We show that the model is stable and robust across high liquidity stocks as well as stocks with as few as 5 trades per day.
Van de Venter, G. & Michayluk, D. 2008, 'An empirical examination of factors related to risk tolerance', The 47th Annual Southwestern Finance Association Meeting, Houston, USA.
Mercorelli, L.R., Michayluk, D. & Hall, T. 2008, 'Modeling adverse selection on electronic order-driven markets', Seminar Presentation, UBS, Sydney, Australia.
Mathew, P. & Michayluk, D. 2008, 'How does bunching affect bid-ask spread component estimation?', Financial Management Association 2008 Annual Meeting, Financial Management Association 2008 Annual Meeting, Financial Management Association, Dallas, Texas, USA.
Michayluk, D. & Zhao, L. 2007, 'Risk changes subsequent to stock splits', 43rd Annual Meeting of the Eastern Finance Association, 43rd Annual Meeting of the Eastern Finance Association, Eastern Finance Association, New Orleans, USA, pp. 1-32.
Lam, D., Lin, B. & Michayluk, D. 2007, 'Downward-sloping demand curves and liquidity: Evidence from the S&P 500 change to free float', Financial Management Association Annual Meeting, Orlando, Florida.
Bertin, W., Fowler, P., Michayluk, D. & Prather, L. 2007, 'The intraday price behaviour of Australian exchange traded options and warrants', Multinational Finance Society Annual Conference, Thessaloniki, Greence.
Bertin, W., Fowler, P., Michayluk, D. & Prather, L. 2007, 'The intraday price behaviour of Australian exchange traded options and warrants', Pacific Basin Finance, Economics, Accounting and Management Annual Conference, Ho Chi Minh City, Vietnam.
Bertin, W., Fowler, P., Michayluk, D. & Prather, L. 2007, 'Price discovery in the option and warrant markets', 43rd Annual Meeting of the Eastern Finance Association, New Orleans, USA.
Lin, L., Michayluk, D., Oppenheimer, H. & Sabherwal, S. 2007, 'French and U.S. trading of cross-listed stocks around the period of NYSE decimalization: Volume, spreads and depth effects', 43rd Annual Meeting of the Eastern Finance Association, New Orleans, USA.
Lin, L., Michayluk, D., Oppenheimer, H. & Sabherwal, S. 2007, 'French and U.S. trading of cross-listed stocks around the period of NYSE decimalization: Volume, spreads and depth effects', 43rd Annual Meeting of the Eastern Finance Association, 43rd Annual Meeting of the Eastern Finance Association, Eastern Finance Association, New Orleans, USA, pp. 1-41.
Michayluk, D. & Neuhauser, K. 2007, 'Is liquidity symmetric? A study of newly listed internet and technology stocks', 43rd Annual Meeting of the Eastern Finance Association, New Orleans, USA.
Michayluk, D. & Neuhauser, K. 2007, 'Is liquidity symmeric? A study of newly listed internet and technology stocks', 43rd Annual Meeting of the Eastern Finance Association, 43rd Annual Meeting of the Eastern Finance Association, Eastern Finance Association, New Orleans, USA, pp. 1-30.
Michayluk, D., Prathier, L., Woo, L. & Yip, H. 2007, 'Decomposing the bid-ask spread of stock options: A trade and risk indicator model', University of Sydney Microstructure Meeting, Sydney, Australia.
Michayluk, D. & Zhao, L. 2007, 'Risk changes subsequent to stock splits', 43rd Annual Meeting of the Eastern Finance Association, New Orleans, USA.
Michayluk, D. 2007, 'Liquidity dysfunctionality on the Australian stock market', Investing Strategies and Financial Market Inefficiency Conference, Investing Strategies and Financial Market Inefficiency Conference, Paul Woolley Centre for Capital Market Dysfunctionality, University of technology, Sydney, Sydney, Australia, pp. 1-27.
Michayluk, D., Prathier, L., Woo, L. & Yip, H. 2006, 'Decomposing the bid-ask spread of stock options: A trade and risk indicator model.', Proceeding if the 2006 FMA Annual Meeting, FMA Annual Meeting, FMA, Salt Lake City, USA, pp. 1-48.
Lin, B., Michayluk, D., Oppenheimer, H. & Sabherwal, S. 2006, 'French and US trading of cross-listed stocks around the period of US decimalization: Volume, spreads and depth effects', Proceedings of the Paris Finance International Meeting, Paris Finance International Meeting, AFFI, Paris, France, pp. 1-41.
Michayluk, D., Prather, L., Woo, L. & Yip, H. 2006, 'Decomposing the bid-ask spread: A cross market model using options data', European Financial Management Association Conference, European Financial Management Association Conference, Madrid, Spain.
Graham, A., Lin, B., Michayluk, D. & Stuerke, P. 2006, 'Sarbanes-Oxley: Some unintended consequences', American Accounting Association Midwest Regional Conference, Chicago, Illinois, USA.
Michayluk, D. & Zhao, L. 2006, 'Risk changes subsequent to stock splits', Southern Finance Association Annual Meeting, Destin, Florida, USA.
Lin, B., Michayluk, D., Oppenheimer, H. & Sabherwal, S. 2006, 'French and US trading of cross-listed stocks around the period of US decimalization: Volume, spreads and depth effects', French Finance Association (AFFI), Paris, France.
Van de Venter, G. & Michayluk, D. 2006, 'Financial planners' interpretations: A survey of asset allocation recommendations', The 19th Annual Australasian Finance and Banking Conference, Australasian Finance and Banking Conference, Sydney, Australia.
Michayluk, D. & Neuhauser, K. 2005, 'Cross-industry differences in liquidity: evidence from an examination of new issues', 2005 FMA Meetings, FMA Meetings, -, Chicago, USA.
Graham, A., Lin, B., Michayluk, D. & Stuerke, P. 2005, 'Sarbanes-Oxley: Some unintended consequences', American Accounting Association Northeast Regional Meeting, New York City, NY, USA.
Michayluk, D. & Prather, L. 2005, 'A liquidity motivated algorithm for discerning trade direction', Eastern Finance Association, Norfolk, Virginia, USA.
Bertin, W., Lin, B. & Michayluk, D. 2005, 'The impact of immaterial corporate disclosure on market liquidity: Evidence of the disjunction effect', Eastern Finance Association, Norfolk, Virginia, USA.
Lin, B. & Michayluk, D. 2004, 'The impact of immaterial corporate disclosure on market liquidity: Evidence of the disjunction effect', Proceedings of the 2004 Decision Sciences Institute annual meeting, Annual Meeting of the Decision Sciences Institute, Decision Sciences Institute, Boston, Massachusetts, USA, pp. 1-11.
Lin, B. & Michayluk, D. 2004, 'The impact of immaterial corporate disclosure on market liquidity: Evidence of the disjunction effect', Southern Finance Association annual meeting, Naples, Florida, USA.
Michayluk, D. & Neuhauser, K. 2004, 'Overreaction or increased uncertainty: Evidence from the October 1997 stock market decline', Financial Management Association annual meeting, New Orleans, Louisiana, USA.
Mathew, P., Michayluk, D., Prather, L. & Roth, B. 2004, 'Liquidity and the intraday variation in components of the bid-ask spread', Eastern Finance Association Annual Meeting, Mystic, Connecticut, USA.
Bertin, W., Holland, C. & Michayluk, D. 2004, 'Liquidity and the neglected firm effect', Eastern Finance Association Annual Meeting, Mystic, Connecticut, USA.
Michayluk, D. & Neuhauser, K. 2004, 'Overreaction or increased uncertainty: Evidence from the October 1997 stock market decline', Eastern Finance Association Annual Meeting, Mystic, Connecticut, USA.
Kofman, P., Mathew, P. & Michayluk, D. 2003, 'How has regulation fair disclosure affected liquidity?', Financial Management Association annual meeting, Denver, Colorado, USA.

Journal articles

Michayluk, D. & Zurbruegg, R. 2014, 'Do lead articles signal higher quality in the digital age? Evidence from finance journals', Scientometrics, vol. 98, no. 2, pp. 961-973.
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Michayluk, D., Neuhauser, K. & Walker, S. 2014, 'Are Certain Dividend Increases Predictable? The Effect of Repeated Dividend Increases on Market Returns', Journal of Applied Corporate Finance, vol. 26, no. 4, pp. 118-126.
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Cotton, D. & Michayluk, D.M. 2014, 'Ambiguity in markets: A test in an Australian emissions market', ACRN Journal of Finance and Risk Perspectives, vol. 3, no. 4, pp. 99-119.
Gibson, R.J., Michayluk, D. & Van de Venter, G. 2013, 'Financial risk tolerance: An analysis of unexplored factors', Financial Services Review, vol. 22, no. 1, pp. 23-50.
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Using data from a survey alliance between Kiplinger's Personal Finance Magazine, PBS's Nightly Business Report, and FinaMetrica, this study explores various demographical and attitudinal factors related to financial risk tolerance. Investigating risk tolerance scores of more than 2,000 individuals immediately after the 2008 Global Financial Crisis, we find a positive relationship between risk tolerance and income, investment knowledge and positive stock market expectations. Risk tolerance is found to be lower for females, older individuals, those that currently use a financial advisor and individuals that perceive the stock market to be riskier than two years before.
Van de Venter, G., Michayluk, D. & Davey, G. 2012, 'A longitudinal study of financial risk tolerance', Journal of Economic Psychology, vol. 33, no. 4, pp. 794-800.
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Academics are divided as to whether financial risk tolerance is an enduring psychological trait and as a consequence is less likely to change over the life of an individual, or a variable psychological state which varies readily in response to internal and external influences. In this study we report the findings of a longitudinal study that investigates the annual change in financial risk tolerance scores of individuals over a 5. year period and the factors that influence such change. Our results indicate a relatively small annual change in individuals' financial risk tolerance. Although our regression model is ineffective in providing a clarification for a change in the financial risk tolerance scores of individual respondents, we find a slight decrease in financial risk tolerance associated with a decrease in household size and an increase in financial risk tolerance after terminating the services of a financial planner. From our results we propose that financial risk tolerance is a stable personality trait and is unlikely to change substantially over the life of an individual.
Lam, D., Lin, B. & Michayluk, D. 2011, 'Demand and Supply and Their Relationship to Liquidity: Evidence from the S&P 500 Change to Free Float', Financial Analysts Journal, vol. 67, no. 1, pp. 55-71.
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In the context of the switch to free-float weighting in the S&P 500 Index, this study of the effect of the availability of shares on liquidity in the medium term found cross-sectional differences in liquidity and price impact measures that gradually narrowed following each phase of the freefloat adjustment.
Michayluk, D. & Zhao, L. 2010, 'Stock splits and bond yields: Isolating the signaling hypothesis', The Financial Review, vol. 45, no. 2, pp. 375-386.
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One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits.
Bertin, W., Fowler, P., Michayluk, D. & Prathier, L. 2010, 'An analysis of Australian exchange traded options and warrants', Journal of Economics and Finance, vol. 34, no. 2, pp. 150-172.
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This study focuses on the price discovery process in Australian option and warrant markets. Characterizing these two markets in terms of their cost structures and institutional features, we formally test competing price discovery hypotheses. The general findings indicate that the warrants market is the dominant market suggesting that their lower trading cost outweigh their less attractive institutional features. Additionally, we find that idiosyncratic differences among firms may result in a clientele effect thus providing justification for the coexistence of these seemingly redundant markets.
Michayluk, D., Prather, L., Woo, L. & Yip, H. 2009, 'What do options have to do with it?: Inclusion of options market indicators in bid-ask spread decomposition', Asia-Pacific Journal Of Financial Studies, vol. 38, no. 3, pp. 455-489.
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This paper develops a cross-market model to extend Huang and Stoll (1997) by utilizing information from trade flows in the options market. Empirical tests reveal a significant increase in the estimated adverse information component, which stays consistent irrespective of the degree of option leverage. Further, intraday variation in stock bid-ask spread components is affected by the stock trade size and the extent of imbalance in information-based option trades. Including the options market information in decomposition of the stock bid-ask spread enhances the quality of its estimation.
Lin, B., Michayluk, D., Oppenheimer, H. & Sabherwal, S. 2009, 'French and U.S. trading of cross-listed stocks around the period of U.S. decimalization: Volume, spreads, and depth effects', International Review of Financial Analysis, vol. 18, no. 5, pp. 223-231.
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We analyze how U.S. decimalization affects stocks cross-listed in France (Euronext) and the U.S. (NYSE). The French stocks examined are much larger than the non-U.S. stocks examined in prior studies of decimalization, and their U.S. trading is likely to be dominated by institutions. So, we explore whether a reduction in depths in the U.S. due to decimalization makes the U.S. market less competitive for institutions trading these French stocks. We find evidence consistent with the above. First, the average NYSE trade size for these stocks relative to that on Euronext declines substantially after decimalization. Second, we categorize individual trades by the number of shares traded. We find that mainly driven by large trades, the NYSE proportion of trading of French firms declines markedly after decimalization. Third, using regression analysis, we find that the decline in the U.S. share of institutional trading volume is significantly positively related with the decline in NYSE depths relative to Euronext, and the decline is greater for French firms. Overall, we find consistent results indicating a migration of institutional order flow in French firms to France after NYSE decimalization. Also, intraday analysis indicates that the institutional volume in both France and the U.S. is greatest when both the markets are open.
Lin, B., Michayluk, D., Oppenheimer, H. & Reid, S.F. 2008, 'Hubris amongst Japanese bidders', Pacific-Basin Finance Journal, vol. 16, no. 1-2, pp. 121-159.
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We consider the issue of hubris in the Japanese mergers and acquisitions (M&A) market. Although prior research suggests that hubris should be and is less severe in the Japanese market, our findings suggest that it still has a significant presence. Using past (excess) market return as a proxy for the likelihood of hubris, we find that high hubris bidders frequently have negative event period abnormal returns, while low hubris bidders have positive event period abnormal returns. Given the importance of keiretsu in Japan and their similarity to Korean chaebols we consider these results in light of the alternative hypothesis of tunneling, which explains similar results in Korea. Finally we consider whether the results are driven by better performing bidders using acquisitions to pay in stock while poorer performing bidders choose to pay in cash. Our results are largely consistent with the hubris hypothesis where over-confident managers may engage in value-destroying M&A.
Van de Venter, G. & Michayluk, D. 2008, 'An Insight into Overconfidence in the Forecasting Abilities of Financial Advisers', Australian Journal of Management, vol. 32, no. 3, pp. 545-557.
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Financial market participants exercise judgment in decision making and psychological studies have shown that individuals are overconfident about their ability to evaluate financial securities. Range estimation calibration studies indicate that individuals tend to estimate narrow intervals in their estimation of unknown future quantities, suggesting overconfidence. Financial planners have an inherent duty of care and this may lead these individuals to behave differently in their estimation methodology and behaviour. From a survey of Australian financial planners, we find extensive overconfidence in respondents ability to make judgements under uncertainty as shown by a narrow range of forecasts and a substantial number of inaccurate predictions. The overconfidence is present both when comparing estimates to the ex-post outcome of a predicted quantity and to an interval based on historical return volatility.
Michayluk, D. 2008, 'The Rise and Fall of Single-Letter Ticker Symbols', Business History, vol. 50, no. 3, pp. 368-385.
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A single-letter stock ticker symbol is a limited resource - only 26 possibilities are available in a stock universe of over 475,000 possible one-, two-, three- or four-letter ticker symbols. These symbols were first allocated based on trading volume therefore some of the most important companies at the time were initially placed into this group. This paper examines the history of this group of stocks and documents a decline in the importance of these firms due to a natural turnover in commercial leadership and no established mechanism to remove the single-letter designation from firms that lost their prominence.
Michayluk, D. & Prather, L. 2008, 'A Liquidity Motivated Algorithm for Discerning Trade Direction', Multinational Finance Journal, vol. 12, no. 1/2, pp. 45-66.
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Most exchanges do not report trade direction thus researchers and traders must deduce whether a trade is buyer or seller initiated since this information is required to evaluate models of bid-ask spread components and to understand the market for immediacy. Algorithms that assign trade direction based on the proximity to bid or ask quotes are easily implemented but ignore information readily discernable from orders, changes in the quoted depth and subsequent price movements. Using the New York Stock Exchange Trades, Orders and Quotes database, systematic biases in existing trade direction algorithms are documented that can be rectified by recognizing that the impact on liquidity is the fundamental characteristic underlying order placement. Although this liquidity-based method is difficult to implement, it more closely captures the actual behavior of market participants (JEL : G 10, G14)
Michayluk, D. & Neuhauser, K. 2008, 'Is liquidity symmetric? A study of newly listed internet and technology stocks', International Review of Finance, vol. 8, no. 3-4, pp. 159-178.
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Imbedded in liquidity measures is an implicit assumption of symmetry. Although market microstructure models rely on this assumption, there may be directional pressure that creates differences in buy and sell liquidity. This paper develops methods of assessing asymmetric liquidity and empirically examines a sample of newly listed Internet and technology stocks that are hypothesized to be especially subject to asymmetry due to the rapid inflation and deflation of the Internet bubble. Evidence of asymmetric liquidity is observed and the level of asymmetry is found to change over time. These findings suggest that the assumption of symmetry is inconsistent with more precisely constructed market liquidity measures
Bertin, W., Michayluk, D. & Prather, L. 2008, 'Liquidity issues surrounding neglected firms', Investment Management and Financial Innovations, vol. 5, no. 1, pp. 57-65.
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The neglected firm effect is the phenomenon where stocks of less widely-known firms have larger returns than that predicted by asset pricing models. Researchers have found mitigating variables, such as the price of the stock, that have partially explained the performance of neglected firms. Neglect and price may be proxies for the liquidity of each firm½s stock, and the higher observed returns may actually be a premium for the lack of liquidity. This paper compares two definitions of neglect and their relationship with liquidity. When neglect is measured by the number of analysts following a stock, more analysts are associated with higher liquidity for the stock. An even stronger relationship is observed when the proxy for neglect is widely disseminated earnings announcements. These results are confirmed in regression analyses that control for the stock price.
Graham, A., Lin, B., Michayluk, D. & Stuerke, P. 2007, 'Sarbannes-Oxley: Some Unintended Consequences', Journal of Business and Economic Perspectives, vol. 33, no. 1, pp. 39-46.
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Mathew, P., Michayluk, D. & Kofman, P. 2007, 'Are Foreign Issuers Complying with Regulation Fair Disclosure?', Journal of International Financial Markets, Institutions and Money, vol. 17, no. 3, pp. 246-260.
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Regulation Fair Disclosure (RFD) requires that any release of material information be made to the general public rather than to select individuals. The regulation represents an attempt by the Securities and Exchange Commission to restore a level of fairness to the market. Foreign issuers, however, are currently exempt from this rule. We examine liquidity changes around earnings announcements of American Depository Receipts (ADRs) before and after the introduction of RFD. We find that market makers have adjusted spreads to reflect the new, less information asymmetric environment for U.S. issues, but the same changes are not observed for our ADR sample. Similarly, the decline in activity measures of U.S. issues is not observed in our ADR sample. Our results suggest that investors and market makers are not yet convinced that foreign issuers are complying with RFD.
Van de Venter, G. & Michayluk, D. 2007, 'Subjectivity in Judgements: Further Evidence from the Financial Planning Industry', The Journal of Wealth Management, vol. 10, no. 3, pp. 17-24.
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Asset allocation is a critical component of portfolio performance and is a significant component of the advice provided by financial plan-ners. The fiduciary obligation of financial planners is to provide investment advice that is appropriate to a client's personal circumstances. Academic research has found evidence of inconsistencies in advice provided by financial advisors. Using a survey of 352 Australian financial planners, the article also finds inconsistencies in a hypothetical asset allocation decision. These inconsistencies may be attributed to the presence of subjective judgment in the decision-making process due to the presence of various psychological factors such as expectations, traits, and biases, the lack of any standardized method for collecting information from clients, and different assumptions, perceptions, and interpretations based on the financial planner's own knowledge, experience, intuitions, and skill sets. The choice of financial planners influences the asset allocation and ultimately the investment returns and outcome.
Michayluk, D., Wilson, P.J. & Zurbruegg, R. 2006, 'Asymmetric volatility, correlation and returns dynamics between the US and UK securitized real estate markets', Real Estate Economics, vol. 34, no. 1, pp. 109-131.
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We construct synchronously priced indices of securitized property listed on the New York Stock Exchange and London Stock Exchange. The indices are then utilized to examine dynamic information flows between the two markets. By analyzing returns behavior,
Michayluk, D. & Neuhauser, K. 2006, 'Investor overreaction during market declines: evidence from the 1997 Asian financial crisis', Journal of Financial Research, vol. 29, no. 2, pp. 217-234.
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Unlike the 1987 stock market crash, the 1997 stock market decline was clearly preceded by new information that affected fundamental values of U.S. firms. We provide a detailed description of U.S. stock returns surrounding the Asian financial crisis. Consistent with the overreaction hypothesis, we find strong evidence of a magnitude effect in short-term return reversals. Additionally, we find evidence of short-term return predictability in the aftermath. Our results are robust to controls for size, price, risk, and bid-ask bounce effects. Overall, the results are indicative of investor overreaction in times of market crisis.
Michayluk, D. & Sanger, G. 2006, 'Day-end effect on the Paris bourse', Journal of Financial Research, vol. 29, no. 1, pp. 131-146.
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We study the day-end effect on the Paris Bourse, a computerized order-driven market with competing dealers. The day-end return is approximately double the magnitude found in U.S. data and is nearly four times larger for stocks trading with a registered dealer. However, this is largely explained by the time between trades and the bid-ask spread. Unlike the U.S. data, the effect does not decline as stock price increases, probably because of a variable tick size in the Paris market. Finally, a change to a closing call auction in May 1996 for a subset of stocks did not reduce the day-end effect.
Broussard, J.P., Michayluk, D. & Neely, W. 2005, 'The Role of Growth in Long Term Investment Returns', The Journal of Applied Business Research, vol. 21, no. 1, pp. 93-105.
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Stocks with a high valuation compared to fundamental values imply a high growth rate, yet these stocks have typically under-performed in subsequent years supporting Lakonishok, Shleifer and Vishney's (1994) contrarian investment strategies. The precise definition of growth and subtle differences of measuring growth are explored in assessing the role of growth in long-term investment decisions and stock valuation. Results from a later period and with additional tests than employed by LSV indicate that growth is a primary valuation factor, and valuation measures such as E/P and B/M, are imperfect proxies for expected growth. Growth appears mean reverting, but investors do not seem able to discern changes in growth rates and this miss-specification of expected growth may help explain the superiority of value versus growth strategies. In addition, investors' nave extrapolations of past growth provide explanatory power in future holding period returns.
Bertin, W., Kofman, P., Michayluk, D. & Prather, L. 2005, 'Intraday REIT liquidity', Journal of Real Estate Research, vol. 27, no. 2, pp. 155-176.
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Glascock, J.L., Michayluk, D. & Neuhauser, K. 2004, 'The Riskiness of REITs Surrounding the October 1997 Stock Market Decline', The Journal of Real Estate Finance and Economics, vol. 28, no. 4, pp. 339-354.
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Real estate investment trusts (REITs) are viewed as low risk/low return stocks that exhibit defensive stock characteristics. The stock market decline of October 1997 provides an excellent opportunity to examine the riskiness of REITs during high levels of market uncertainty. We find that the decline in REIT stock values was about one-half as large as the decline of non-REIT stocks. Additionally, market uncertainty on the event day was shown with an increased bid-ask spread for all stocks. On the following day when the market decline was partially reversed, the bid-ask spreads continued to increase for non-REIT stocks, but declined for REIT stocks. This suggests that REITs, like defensive stocks in general, are less prone to significant declines during market-wide disturbances. Also, we order stocks based on the standard deviation measures of risk and show that this risk measure explains the cross-section of returns for non-REITs but is not valid for REITs.
Lin, B. & Michayluk, D. 2004, 'The liquidity response to auditor reputation concerns', Finance Letters, vol. 2, no. 5, pp. 1-18.
Kosedag, A. & Michayluk, D. 2004, 'Repeated LBOs - The Case of Multiple LBO Transactions', Quarterly Journal of Business and Economics, vol. 43, no. 1 & 2, pp. 111-122.
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Firms that undergo a second LBO transaction are unique because they have a second experience in the capital markets after being privately held. Motivations for repeated LBOs may differ from first-time LBOs--because of the past experience, the market may be able to better distinguish the competing motivations that have been suggested in the literature. We find that for repeated LBOs, the market response is more strongly positive than that typically found for first-time LBOs. The market reaction is also strongly related to a variant of Tobin' Q, implying that the timing of the LBO may coincide with a low perception in market value. It is not surprising that the majority of the repeated LBOs were performed following the 1987 stock market crash. It appears that the instigators of the LBO believed the price was undervalued and their experience let them act accordingly.
Bertin, W., Michayluk, D. & Prather, L. 2003, 'Trading Costs Surrounding Earnings and Recommendations Announcements', Journal of Accounting and Finance Research, vol. 11, no. 5, pp. 90-107.
McDonald, C.G. & Michayluk, D. 2003, 'Suspicious trading halts', Journal of Multinational Financial Management, vol. 13, no. 3, pp. 251-263.
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Trading halts are designed to protect investors from price fluctuations under conditions of illiquidity, but on the Paris Bourse specific price limits can be used to manipulate prices. Trading is halted when a trader submits an order outside the maximum daily price limit and this feature permits traders, at little cost, to easily close the market intentionally or in error. We document over 300 suspicious halts where unfilled orders halted trading. These halts are suspicious because the unfilled order was on the opposite side of the market. Discovering potentially inefficient procedures is important for the Paris Bourse and also for French and overseas investors who may be impacted by inappropriate prices.
Brockman, P. & Michayluk, D. 1998, 'The Persistent Holiday Effect: Additional Evidence', Applied Economics Letters, vol. 5, no. 4, pp. 205-209.
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The holiday effect is one of the most perplexing of all seasonal anomalies. Based on evidence using pre-1987 equity returns, this anomaly has been shown to be responsible for somewhere between 30 to 50% of the total return on the market while exhibiting

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Mercorelli, L.R., Michayluk, D. & Hall, A.D. 2008, 'Modelling adverse selection on electronic order-driven markets', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 220 Abstract: The vast majority of models that decompose the bid/ask spread assume the quote-driven, specialist structure of the NYSE. This paper critically evaluates these models to construct a model specific for an electronic order-driven exchange. The model not only captures adverse selection and the impact of order flows on price discovery but it includes the imbalance of supply and demand inherent in the public limit order book. With this new model we investigate the change to anonymity on the Australian Securities Exchange (ASX). Following the change to anonymity, both adverse selection and the demand/supply imbalance have an increased impact on prices while order flow has a decreased influence, suggesting the change to anonymity has improved market efficiency. The model also uncovers a change in tradersâ behavior once their fear of front-running is reduced. We show that the model is stable and robust across high liquidity stocks as well as stocks with as few as 5 trades per day.
Michayluk, D. & Kofman, P. 2001, 'Market structure and stock splits', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 62 Abstract: Enhanced liquidity is one possible motivation for stock splits but empirical research frequently documents declines in liquidity following stock splits. Despite almost thirty years of inquiry, little is known about all the changes in a stock's trading activity following a stock split. We examine how liquidity measures change around more than 2,500 stock splits and find a pervasive decline in most measures. Large stock splits exhibit a more severe liquidity decline than small stock splits, especially on Nasdaq. We also examine a longer time period around stock splits and find that the differences between small and large stocks may be short-lived. Following the 1997 changes in order handling rules and reduction in tick size, liquidity declines following stock splits continue, however, the declines are not as severe on Nasdaq, suggesting the change in order handling rules may have been effective.