The Argentine banking system went through a period of major restructuring during the 1990s. After an unsuccessful prior experience with financial liberalization in the 1980s, Argentina began a process of strengthening and restructuring its banking system, which accompanied the introduction of a currency board in 1991. This process was characterized by the adoption of stricter regulatory standards, the privatization of several provincial banks, the facilitation of foreign entry into the domestic banking system, and the introduction of market-based approaches for bank discipline.
During the period 1992-1999, the structure of the banking system changed substantially. More than 90 institutions were closed, including 54 banks and 14 non-banks. The number of institutions in the system decreased from 212 in 1992 to 119 by mid-1999. There were also 18 privatizations, mainly of provincial banks (Calomiris and Powell, 2000). In addition, beginning in 1995, several foreign banks entered the domestic market, primarily through acquisitions of domestic institutions. As a result, by 1999, around half of the assets in the banking system were under foreign control. Foreign banks also had minority stakes in several other institutions. Privatization and foreign entry resulted in aggressive competition among financial institutions for market share.
Numerous studies, starting from Amihud and Mendelson (1986) have shown that liquidity is an important variable that affects the stock prices. Using various measures of liquidity, these studies generally support the liquidity premium theory, which provides a rationale for a trade off between return on assets and their liquidity. In general, higher rate of returns are associated with less liquid assets.. For example, using bid-ask spread as a measure of liquidity, Amihud and Mendelson (1986) show that the quoted bid-ask spread has a significant positive effect on stock returns. Similarly, Eleswarapu and Reinganum (1993) using the same quoted bid-ask spread as a proxy for liquidity find that the positive relation documented in Amihud and Mendelson is restricted only in January.
Brennan and Subrahmanyam (1996) take an innovative approach by estimating the price impact of a trade based on Kyle’s (1985) model and find that it is significantly positively related to average returns. Easley, Hvidkjaer, and O’Hara (2002) document a similar result using their measure of illiquidity called the probability of information trading, which reflects the adverse selection cost arising from information asymmetry among traders. Additional evidence on positive illiquidity-return relation is provided by Chalmers and Kadlec (1998) using the amortized bid-ask spread, by Datar, Naik, and Radcliff (1998) using share turnover, by Brennan, Chordia, and Subrahmanyam (1998) using dollar trading volume, and most recently by Hasbrouck (2003) using a liquidity proxy based on a newly created effective spread in the daily data.
Information is the key point in efficient market hypothesis and one of the important sources of information for investors is from stock analysts. There are tremendous literatures in this regard. Most of the empirical researches demonstrate that positive (negative) returns following the positive (negative) earnings news. The analysts’ revision of their forecasts is also an important factor to influence the stock returns and it is also well documented in literatures. But there are not many empirical works to deal with the information uncertainty issue. The latest research in this area is Zhang (2006).
