In this paper, we study the effect of relative (to a benchmark) performance evaluation on the provision of incentives for the search of private information under moral hazard when managers face exogenous portfolio constraints that limit their ability to sell short and purchase on margin.
Rotating savings and credit associations (Roscas) are an important informal financial institution around the world. They are most common in developing countries, but immigrant groups in the United States also used them. All forms of Roscas share the following common feature: a group of individuals, mostly connected in some close social networks, commit to contribute a fixed sum of money into a "pot" in each of the equally spaced periods of the life of the Rosca; in each period, the "pot" is then allocated to one member of the Rosca through some mechanisms. The mechanism through which the"pot"is allocated is one of the key dimensions of the many variations of how Roscas operates around the world, as documented by the classic anthropological studies of Roscas by Geertz (1962) and Ardener (1964).
There is a long-standing literature on seasonal patterns, say at the monthly, quarterly, or annual frequency, in stock returns (see Keim (1983), Ariel (1987), Lakonishok and Smidt (1988)). Some of this periodicity is consistent with patterns of trading by investors. For example, Keim (1989) finds the turn-of the-year trading patterns induce patterns in equity trades that occur at the ask price versus the bid price and that this trading pattern explains the size-related turn-of-the-year effect in stock prices. Intraday patterns in returns and volatility are found by Wood, McInish, and Ord (1985). Returns and volatility are higher, on average, at the beginning and end of the trading day. Harris (1986) and Andersen and Bollerslev (1997) find similar results.
While intraday patterns of volume and volatility found in Wood, McInish, and Ord (1985), Harris (1986), and Pagano, Peng, and Schwartz (2008) can be justified with models of discretionary liquidity trading (e.g., Admati and Pfleiderer (1998) and Hora (2006)), predictable patterns in returns are harder to explain. We study the nature of this intraday periodicity of returns. We divide the trading day into 13 half-hour trading intervals. A stock’s return over a trading interval is negatively related to its returns over recent intervals, which is consistent with the negative autocorrelation induced by "microstructure effects" such as bid-ask bounce. However, there is a statistically significant positive relation between a stock’s return over an interval and its past returns at daily frequencies (i.e., 13, 26, 39, ... interval lags). This relation is stronger over the first and last half-hour of the trading day, as one might expect, given the results of Wood, McInish, and Ord (1985) and Harris (1986), but remains statistically significant over the other periods of the day. Thus, the intraday return pattern is not merely due to uniformly high returns at the beginning and end of the trading day.
