The impact of option listing on the price volatility and trading volume of underlying OTC stocks

This paper examines the impact of an initial option listing on the price volatility and trading volume of underlying OTC stocks. The sample is divided by market value to determine whether larger firms are impacted differently by option listing than smaller firms. We find relative trading volume increases significantly, with the small and medium market value firms showing the largest gain. However, the tests show no evidence of changes in price volatility following option listing. No significant changes were found in either the firms' betas or variance following option initiation. The results provide further evidence that option listing does not destabilize the market for the underlying stock.     

Autocorrelation of the trade process: Evidence from the Helsinki Stock Exchange

This study investigates how duration-based trading intensity modifies the first-order autocorrelation and the transitory variance of the trade process. Because prices are conditional expected values, a structural model in which the trade duration represents the rate at which prices incorporate new information is developed. This refined model is an extension of the one developed by Madhavan, Richardson, and Roomans (1997) and allows parameters characterizing the arrival rate of new information to be derived. Testing this model with data from the Helsinki Stock Exchange, I was able to determine that a model ignoring trading intensity effects on price changes would underestimate the transitory effects of the trade process. This finding suggests that trade duration captures neglected elements of implicit trading costs that increase with market microstructure effects.     

Margin trade,short sales and financial stability

We model how leveraged trading activities constrained by dynamic funding availability affect financial stability. In the market, customers trade based on the fundamental value of the risky asset and make full payment for their transactions, while speculators take trading position based on margin, which is constantly adjusted by the financier, the fund provider, according to the price volatility. As a result of equilibrium price discontinuity triggered by dynamic margin requirements, trivial shocks to external supply, wealth or fundamental value can be transmitted into asset price crashes or jumps. We find that tightening margin requirements improves (mitigates) the market liquidity in the bull (bear) market, and that imposing short sale constraints helps prevent the price from falling further when the asset is sufficiently under-priced and accelerate price collapse when the asset is over-priced.

     

The effectiveness of price-stabilizing share buybacks: Evidence from listed firms in Vietnam

The majority of share buybacks in Vietnam involve the sole stated purpose of price stabilization. Using a sample of repurchases announced in 2008–2016 and control firms based on propensity score matching, we find the Vietnamese repurchases to be effective in stabilizing prices and enhancing liquidity. Utilizing the special disclosure features in Vietnam that allow clearly-defined sub-windows of pre-trading, trading, and post-trading, we further examine the different mechanisms of market reactions and actual firm buyback transactions in the buyback process. We document significantly higher abnormal returns over the pre-trading window driven by market reactions, and improved liquidity and reduced volatility over the firm’s actual transaction window for the buyback firms. We also report a significant moderating effect of target shares announced and actual shares repurchased depending on the sub-window under examination. We do not find any evidence of effectiveness in the post-trading window or over a longer-term beyond the buyback period.     

住房流动性对房价指数的影响及其定量分析

目前中国城市住房市场不稳定程度较高,这不仅体现为房价的迅速变化,而且反映在交易量的大幅波动上,后者就是住房流动性的变化。有学者研究指出,以实际交易价格为基础的房价指数可能会低估住房市场的波动程度。为了更准确地把握住房市场的运行状态,本文借鉴美国MIT的相关技术,分析了住房流动性（交易活跃程度）对房价指数的影响,并尝试将流动性信息引入房价指数当中。我们发现,住房流动性对于房价指数有较大影响,且符合人们对于市场走势的直观判断,能够较好地反映市场转折点。     

An empirical analysis of the Carbon Financial Instrument

This study provides an empirical investigation of the price volatility—trading volume relationship for the Carbon Financial Instrument (CFI). A CFI is a financial contract that is traded on the Chicago Climate Exchange (CCX) and represents the right to emit 100 metric tons of CO₂ equivalent. CFI contracts differ from one another on the basis of their allocation year to CCX member firms, referred to as their respective Vintage year. We provide evidence indicating a positive contemporaneous relationship between price changes and trading volume for the different CFI Vintage contracts. Employing bivariate VAR models that adjust for trade duration, we find that CFI price volatility and trading volume are persistent across time. Furthermore, we provide evidence indicating that lagged volume increases price volatility, in addition to lagged price volatility increasing trading volume levels in the CCX market. Our results are in agreement with prior research documenting significant positive price volatility—volume relationships in traditional equity markets.     

Retail investors’ trading and stock market liquidity

The paper investigates the relation between retail investors’ participation in trading and aggregate stock market liquidity. The findings show a positive and significant relation between retail investors’ trading and stock market liquidity. Examination of the determinants of retail investors’ trading reveals that, on average, retail investors with more diversified trading activity tend to trade when liquidity is higher, the frequency of their arrival to the market is not affected by the level of liquidity, and retail investors are willing to trade at a lower liquidity level as sellers than as buyers. Moreover, retail investors’ trading does not create price noise at the aggregate market level. Overall, the evidence suggests that retail investors contribute to market quality.     

Day trading and stock price volatility

When an investor buys and sells the same stock on the same day, he is said to have made a day trade. Using the trading records of Finnish traders, this paper examines whether day trading is related to volatility of stock prices. I find a strong positive time-series relation between the number of day trades by individual investors and intraday volatility among heavily day traded stocks. This effect is robust after controlling for a previously documented volume–volatility relation. The result suggests that the joint hypothesis of price pressure and volatility induced day trading dominates the liquidity effects of day trading.     

成交量、持仓量对我国大豆类期货价差波动影响的实证分析

采用GARCH(1,1)模型就成交量、持仓量对大豆类期货价差波动率的影响进行实证分析,结果显示：当期成交量、持仓量对大豆期货价差波动的整体影响是显著的;滞后成交量、持仓量对大豆期货价差波动的整体影响也是显著的;当成交量、持仓量同时进入条件方差方程时,它们对大豆类期货价差波动的影响整体上也是显著的。这一结论揭示了我国大豆期货市场信息传递过程,验证了我国大豆期货市场的信息非有效性,对期货市场投资者以及期货市场监管者具有一定的借鉴意义。     

The impact of reduced pre-trade transparency regimes on market quality

This paper studies the effects of pre-trade quote transparency on spread, price discovery and liquidity in an artificial limit order market with heterogeneous trading rules. Our agent-based numerical experiments suggest that full quote transparency incurs substantial transaction costs to traders and dampens trading activity in an order-driven market. Our finding reveals that exogenous restriction of displayed depth, up to several best quotes, does not benefit market performance. On the contrary, endogenous restriction of displayed quote depth, by means of iceberg orders, improves market quality in multiple dimensions: it reduces average transaction costs, maintains higher liquidity and moderate volatility, balances the limit order book, and enhances price discovery.     

Institutional investors' attention to environmental information,trading strategies,and market impacts: Evidence from China

Using a large proprietary database of intraday high‐frequency trading, we investigate the trading strategies of institutional investors in dealing with the negative environmental event disclosure of listed companies and their impact on markets, aiming to reveal the mechanism of the lack of “green efficiency” in China's capital market from the perspective of institutional investors. The results show that institutional investors react to negative environmental events prior to the announcements, indicating premature information leakage in the market; in addition, their trading behaviors mitigate the immediate effect of negative environmental event announcements on stock price. After the event is disclosed, institutional investors engage in short‐term selling and long‐term buy and hold. This trading strategy undermines the irrational selling of individual investors in the event of disclosure, short‐term decline in stock price, and long‐term reversal of market overreaction. In a China context, institutional investors generally take environmental information into consideration. However, they fail to recognize the long‐term value effect of negative environmental events and instead cater to trading strategies towards market volatility.     

Market transparency and closing price behavior on month-end days: Evidence from Taiwan

On February 20, 2012, the Taiwan Stock Exchange launched an information disclosure mechanism that changed its closing auction system from a black box to a more transparent system, with indicative best bid and ask prices disseminated every 20 s throughout the five-minute closing call period. This paper examines the impact of this change on closing price behavior on month-end days. The results show that, following the introduction of the new mechanism, day-end returns and effective spreads decreased significantly on month-end days, suggesting an improvement in market quality and a decline in possible closing price manipulation on month-end days. In addition, the trading volume at market close increased. Further examination of order submission behavior and order imbalance in the closing interval shows that the increase in trading volume at closing is a result of increased market liquidity due to improved transparency. Overall, the introduction of the new closing disclosure rule has effectively enhanced market quality on month-end days.     

Impact of leveraged ETF trading on the market quality of component stocks

We investigate the effect of leveraged ETF trading on the trading activity and market quality of their component stocks. The results show that both quoted and effective spreads of component stocks increase about 0.2–3.0 basis points after the inception of leveraged ETFs, while other liquidity measures do not show significant changes. The trading volume of component stocks is positively and significantly correlated with the trading volume of leveraged ETFs, but the volatility of component stocks is not affected by ETF trading either at the daily level or during the last hour of trading. In addition, the volatility of component stocks decreases slightly after ETF inception. These findings do not support the previous claim that the trading of leveraged ETFs increases price volatility of component stocks.     

Position limit for the CSI 300 stock index futures market

The aim of this study was to find the optimal position limit for the Chinese stock index (CSI) 300 futures market. A low position limit helps to prevent price manipulations in the spot market, and thus keeps the magnitude of instantaneous price changes within the tolerance range of policymakers. However, setting a position limit that is too low may also have negative effects on market quality. We propose an artificial limit order market with heterogeneous interacting agents to examine the impact of different levels of position limits on market quality, measured as liquidity, return volatility, efficiency of information dissemination, and trading welfare. The simulation model is based on realistic trading mechanisms, investor structure, and order submission behavior observed in the CSI 300 futures market.Our results show that on the basis of the liquidity status in September 2010, raising the position limit from 100 to 300 could significantly improve market quality and at the same time keep the maximum absolute price change per 5 s below the 2% tolerance level. However, the improvement becomes only marginal if the position limit is further increased beyond 300. Therefore, we believe that raising the position limit to a moderate level can enhance the functionality of the CSI 300 futures market, which should benefit the development of the Chinese financial system.     

Stock volatility and trading

Both, rational and behavioral models predict that stock and market volatility affect trading by investors. Tax-induced trading hypothesis predicts that investors increase realization of capital losses short term and capital gains only long term as volatility increases. Behavioral models predict that disposition biases of holding on to losers and disposing of winners intensifies with volatility. We document that market and stock volatility influence stock trading. Evidence on trading in response to rise in market volatility supports tax-loss harvesting hypothesis – abnormal trading of losers increases and winners decreases. However, evidence on trading patterns conditional on individual stock volatility is in support of both tax-loss-harvesting and behavioral models: trading in both losing stocks (tax-loss-harvesting hypothesis) and winning stocks (disposition effect hypothesis) increases with rise in stock volatility.     

Experimental evidence on trading behavior,market efficiency and price formation in double auctions with unknown trading duration

The reasons for the highly efficient market outcomes observed under the double auction remain unclear. This paper presents a series of experimental financial markets designed to investigate the importance of unknown trading period duration on trading behavior and the convergence tendencies of such markets. Using panel data techniques the results support the conclusions that individuals generally display more aggressive trading strategies, trading earlier in a period, and that markets exhibit reduced levels of informational efficiency when unknown duration is present. Markets with imperfect information structures are also studied and, in a unique result, are associated with significantly slower rates of trade, as traders become more cautious over their trading strategies. Investigation of the price formation process provides evidence that the pricing error varies over time and the estimation of a fixed effects model provides unique support that learning effects and unknown trading period duration influence the price formation process. Future refinement of theoretical models of the price formation process or institutions of exchange should recognize the effect of unknown trading period duration on market behavior, along with potential learning effects. Copyright © 2005 John Wiley & Sons, Ltd.     

Testing the stabilization hypothesis in the UK short-term interest rates: Evidence from a GARCH-X model

The objective of this paper is to examine the validity of one of the recurring arguments made against futures markets that they give rise to price instability. The paper concentrates on the impact of futures trading on the spot market volatility of short-term interest rates. The analytical framework employed is based on a new statistical approach aiming to reconcile the traditional models of short-term interest rates and the conditional volatility processes. More specifically, this class of models aims to capture the dynamics of short-term interest rate volatility by allowing volatility to depend on both scale effects and information shocks. Using a GARCH-X and asymmetric GARCH-X model four main conclusions emerge from the present study. First, the empirical results suggest that there is an indisputable change in the nature of volatility with evidence of mean reversion after the onset of futures trading. Second, the information flow into the market has improved as a result of futures trading. Third, a stabilization effect has been detected running from the futures market to the cash market by lowering volatility levels and decreasing the risk in the spot market. Finally, trying to capture the leverage effect the findings suggest that positive shocks have a greater impact on volatility than negative shocks.     

流动性衡量及对资产定价的影响研究述评

流动性一般被认为是市场执行交易的能力,这种能力表现为交易的便利性和交易对价格冲击的最小化.对于流动性的衡量有基于买卖价差的方法、流动比率的方法、交易对价格的冲击的方法等等,许多文献在衡量流动性水平的基础上,就流动性对资产定价的影响进行了理论和实证研究,本文系统总结了这些代表性的模型和研究成果.最后本文认为应该在参考国外成熟理论的基础上,深入研究适合我国资本市场的流动性衡量方法、内在规律和对价格的作用机制.     

Do real estate investors trade on momentum?

Real estate markets are known to be less-than-efficient for many reasons, but what roles short-term trading plays are unclear. Do short-term investors bring additional risk to the market and cause prices to deviate from fundamental values? Based on an extensive dataset of property transactions and a policy shock that substantially raised the cost of short-term trading in Hong Kong, we estimate ‘real estate risk’ with and without short-term trading based on return predictability, return volatility, and price dispersion. Our results show that as short-term investors exit the market, market returns are less predictable and less volatile, while prices are less dispersed cross-sectionally. Consistent with herding models in behavioral finance, the findings suggest that short-term investors are momentum traders who do not enhance price efficiency.     

Does options trading convey information on futures prices?

This paper studies the presence of informed trading in Taiwan stock index options (TXO) and analyzes the informational role of foreign institutions in incorporating information into Taiwan stock index futures (TX). We have found that only the option-induced part (OOI) of the total TX order imbalance can predict future TX prices, and the OOI calculated from open-buy TXO, defined by Ni et al. (2008), provides incremental predictability. This finding shows that the price predictability stems from the information flow resulting from option transactions rather than from liquidity pressure. We conclude further that option transactions from foreign institutions provide the most significant predictability, out-of-the-money option transactions in particular. These empirical results show that option transactions conducted by foreign institutions have played the primary role in conveying the information inherent in the TXO market to the TX market, foreign institutions being delta-informed traders. Retail investors, the major players in both the TXO and TX markets, have done almost nothing of significance with regard to TXO information transmission into the TX market, with the exception of some near-the-money and out-of-the-money options.