1,720,990 research outputs found
Market Liquidity and Competition Among Designated Market Makers
No full textDo competition and incentives offered to designated market makers (DMMs) improve market liquidity? We employ data from NYSE Euronext Paris to show that exogenous changes in contract design lead to significant decreases in quoted and effective spreads. In particular, market liquidity increases the most for stocks with the largest increase in competition among DMMs. Our analysis shows that competition among DMMs is an important aspect of contract design, along with elements such as rebates and requirements
Recovery from fast crashes: Role of mutual funds
Get PDFWe study the role mutual funds play in the recovery from fast intraday crashes based on data from
the National Stock Exchange of India for a single large stock. During normal times, trading activity
and liquidity provision by mutual funds is negligible compared to other traders at around
4% of overall activity. Nevertheless, for the two intraday market-wide crashes in our sample,
price recovery took place only after mutual funds moved in. Market stability may require the
presence of well-capitalized standby liquidity providers for recovery from fast crashes
Low-Latency Trading and Price Discovery without Trading: Evidence from the Tokyo Stock Exchange in the Pre-Opening Period and the Opening Batch Auction
No full textWe study whether the presence of low-latency traders (including high-frequency traders (HFTs)) in the pre-opening period contributes to price discovery in the subsequent opening call auction and the continuous trading session. Our analysis evokes shades of the debate on the switch from the current continuous auction in many markets to a periodic auction, affecting the speed advantage of low-latency traders. We empirically investigate these questions using a unique dataset based on server IDs provided by the Tokyo Stock Exchange (TSE), one of the largest stock markets in the world. Our data allow us to develop a more comprehensive classification of traders than in the prior literature,
and to investigate the behavior of the different categories of traders, based on their capability for low-latency trading. We find that, perhaps due to the lack of immediate execution, about three quarters of the low-latency traders do not participate in the pre-opening period, but do participate in and dominate the continuous trading session. Furthermore, we find that the larger presence of
low-latency traders in the trading of a stock in the pre-opening period as well as in the continuous session improves the price discovery process. Our results suggest that HFTs may not participate in trading in the periodic batch auction because of a lack of immediate execution, and that this large reduction in HFT participation may impede the quality of price discovery
Paying for market liquidity : competition and incentives
No full textDo competition and incentives offered to designated market makers (DMMs) improve market liquidity? Using data from NYSE Euronext Paris, we show that an exogenous increase in competition among DMMs leads to a significant decrease in quoted and effective spreads, mainly through a reduction in adverse selection costs. In contrast, changes in incentives, through small changes in rebates and requirements for DMMs, do not have any tangible effect on market liquidity. Our results are of relevance for designing optimal contracts between exchanges and DMMs and for regulatory market oversight
Momentum in Nordic Stock Returns : Industry Effects and Possible Strategy Improvements
Get PDFThis thesis documents a strong momentum effect in the Nordic stock market that does not seem to be explained by traditional risk factors or industry effects, in contrast to the findings of Moskowitz and Grinblatt (1999). Specifically, the winner-minus-loser (WML) strategy on both the individual stock- and industry level is significantly profitable alone, but only individual stock momentum remains significant when controlling for the other. This indicates that the individual stock WML strategy is not as poorly diversified as initially thought and that the identified industry dependency in the United States may be country-specific.
Having established that industry effects do not explain the momentum in Nordic stock returns, I explore momentum crashes as another possible explanation. The WML strategies are found to suffer from severe drawdowns in the sample period, making them unappealing to investors with reasonable risk-aversion. The explored combinations of momentum and value reduce crash risk and improve risk-adjusted returns significantly. In conclusion, the combination of momentum and value is a much bigger puzzle than either anomaly alone
The impact of leverage on firm performance : an empirical study of non-financial listed companies in Norway
Get PDFWe study the impact of leverage on firm performance in the post-financial crisis period using a sample of non-financial listed companies in Norway. Based on various capital structure literature we expect a positive effect of increased leverage on performance at lower debt-ratios and negative effects on higher debt-ratios. We use Tobin’s Q as a measure of firm performance and a dynamic panel data model to control for the reverse effect from performance on leverage and unobserved firm heterogeneity. We show that the positive relationship between leverage and performance occurs only when leverage is sufficiently high. We find a negative coefficient for the linear term and a positive coefficient on the square term which contradicts our predictions. However, the relationship between leverage and firm performance is not robust to other measures of performance. Testing for differences in the relationship between leverage and performance for low-growth and high-growth firms separated based on P/E-ratio and Tobin’s Q yield inconclusive results. The results partly indicate that firms with high-growth potential are more affected by an increase in leverage than low-growth firms. Furthermore, the findings based on our sample do not support the predictions that the impact of leverage is different across industries
Liquidity Following MiFID II estimating the effect of research unbundling on norwegian small and mid-cap stocks
Get PDFMiFID II was implemented in 2018 and requires that cost of research products is unbundled
commission fees. An anticipated consequence of the” inducement rule” is reduced coverage of
small-and mid-cap stocks. In light of prior literature on the relationship between analyst
coverage and stock liquidity, we investigate whether MiFID II has 1) affected the analyst
coverage of Norwegian small- and mid-cap stocks, and 2) affected the liquidity of Norwegian
small- and mid-cap stocks. Through our empirical analysis, we are not able to estimate a
meaningful impact of MiFID II on the number of analysts, with a marginal, insignificant
reduction of 0.04 per cent. However, we do find that the liquidity of Norwegian small- and
mid-cap stocks has decreased following MiFID II and estimate an increase in the relative Bid-
Ask spread of ~100 bps in the subsequent period
Coming early to the party
No full textWe examine the strategic behavior of High Frequency Traders (HFTs) during the pre-opening phase and the opening auction of the NYSE-Euronext Paris exchange. HFTs actively participate, and profitably extract information from the order flow. They also post "flash crash" orders, to gain time priority. They make profits on their last-second orders; however, so do others, suggesting that there is no speed advantage. HFTs lead price discovery, and neither harm nor improve liquidity. They "come early to the party", and enjoy it (make profits); however, they also help others enjoy the party (improve market quality) and do not have privileges (their speed advantage is not crucial)
Founder-CEOs and stock market performance in the Nordic region : an empirical study conducted on publicly listed companies in the Nordic region during the period from 2008 to 2020
Get PDFAbout nine per cent of the publicly listed companies in the Nordic region are managed by one of its founders. These companies are different from others in terms of firm valuation and to some extent, stock market performance. An equal-weighted portfolio containing only founder-CEO firms from the period from 2008 to 2020 has earned an abnormal return of 5.2% annually when controlled for its skewed sector-distribution. This portfolio performs significantly well during the generally challenging period from 2008-2013. These findings become somewhat mixed when looking at a value-weighted portfolio, and when controlling for a variety of equity characteristics, leaving a mixed conclusion for these firms’ stock market performance. Nonetheless, these firms have a higher firm valuation despite no systematic differences in investment levels.nhhma
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