REITs,Decimalization, and Ex-dividend Stock Prices

The ex-dividend pricing of real estate investment trust (REIT) stocks under fractional and decimal pricing regimes is investigated. For REITs, with the move from discrete to decimal pricing, the price drop on the ex-dividend day approaches the dividend amount, the ex-date abnormal return decreases, the spread-to-dividend ratio declines, abnormal trading volume increases, and the potential erroneous appearance of a tax-clientele effect is diminished. Discreteness and other transaction costs are reduced with decimalization implying that part of the persistence in the appearance of the tax-clientele effect when modeling ex-dividend stock pricing might be generated by the interaction between transaction costs, dividend amount, and yield.      

Outsourcing with long term contracts: capital structure and product market competition effects

This paper analyzes how capital structure and product market competition affect the firms’ strategic choice between outsourcing with long term contracts and outsourcing to the spot market. When outsourcing to the spot market firms are exposed to price uncertainty, whereas a long term contract allows them to set in advance the outsourcing price. We show that, to the extent that leverage and uncertainty can lead to financial distress costs in bad states of nature, firms may use long term contracts as a risk management device to hedge input price uncertainty. With a monopoly in the final product market, the outsourcing decision involves a trade-off between a positive convexity effect of input price uncertainty under the spot regime and the option to avoid financial distress costs under the long term contract regime. Moreover, product market competition among buyers can lead to an increase in financial distress costs not only for firms outsourcing to the spot market but also for firms outsourcing with a long term contract. We examine the monopolist’s outsourcing decision and derive the equilibrium for an oligopoly, and show that the equilibrium depends on the magnitude of these costs and on the level of efficiency of the supplier.     

Two months in the life of several gilt-edged market makers on the London Stock Exchange

We investigate the micro structure of the UK gilt market studying the behaviour of several gilt-edged market makers on the London Stock Exchange. Through a structural model of the price process we can test different microstructural hypotheses, concerning information asymmetries, transaction and inventory carrying costs, and market liquidity. Our results suggest that inventories do not alter the price process in the gilt market. Moreover, in contrast to customer orders, inter-dealer transactions possess an information content. Transaction costs in the inter-dealer market are also substantially smaller than those for external customers.     

The impact of the Japanese market on the intraday Hong Kong stock returns

This paper examines the impact of the price movement of the Japanese market on the Hong Kong market. We find that the Hong Kong stock prices react rapidly to the return information of the Japanese market. The evidence also indicates that the large price movement of the Japanese market can be used as an indicator for the Hong Kong market. The price reaction of the Hong Kong market is instantaneous and takes place in the opening minutes of the afternoon session. However, there is no excess profits when the transactions costs are included. Finally, the Hong Kong market has a significantly higher turnover when the Japanese market is open.     

Splitting orders

A standard presumption of market microstructure models is thatcompetition between risk-neutral market makers inevitably leadsto price schedules that leave market makers zero expected profitsconditional on the order flow. This article documents an importantlack of robustness of this zero-profit result. In particular,we show that if traders can split orders between market makers,then market makers set less-competitive price schedules thatearn them strictly positive profits and hence raise tradingcosts. Thus, this article can explain why somebody might willinglymake a market for a stock when there are fixed costs to doingso. The analysis extends to a limit order book, which by itsnature is split against incoming market orders: equilibriumlimit order schedules necessarily yield those agents positiveexpected profits.     

Dual transfer pricing with internal and external trade

This paper examines a transfer pricing problem between two divisions of a decentralized firm. The selling division is privately informed about its own costs and produces a good that is sold both externally in an intermediate market and internally within the firm. Unlike most previous work, we focus on dual transfer pricing systems that allow the selling division to be credited for an amount that differs from the amount charged to the buying division. We identify conditions under which efficient decentralized trade and external price setting incentives can be provided with a properly chosen set of dual transfer prices that do not rely on direct communication. Instead, the optimal dual transfer prices will depend only on public information about the market price charged by the upstream division in the external market, which indirectly communicates information about production costs to the downstream division. For a variety of well-known demand functions, the optimal transfer prices will be linear functions of the market price. Our main results hold when the upstream division faces multiple internal buyers or faces a binding capacity constraint.     

美国黄金期货与黄金现货互动关系的实证研究

文章通过建立误差修正模型（ Error Correction ModeL,ECM）和基于持有成本理论的误差修正模型（ Error Correction ModeL Cost of Carry,ECM-CoC）,对美国黄金市场的期货与现货市场在金融危机前后的互动关系进行了实证分析。结果表明：在2007年金融危机前美国黄金期货市场引导黄金现货市场,期货市场的价格发现功能得以实现;在金融风暴后美国黄金现货和期货市场存在双向引导关系;美国黄金期货市场和现货市场之间存在长期均衡关系,期货市场和现货市场均存在误差修正机制,美国现货市场价格恢复均衡的调整速度高于黄金期货市场。     

The specialist's discretion: stopped orders and price improvement

When a market order arrives, the NYSE specialist can offer aprice one tick better than the limit orders on the book andtrade for his own account. Alternatively, the specialist can'stop' the market order, which means he guarantees executionat the current quote but provides the possibility of price improvement.My model shows that specialists can use stops to sample thefuture order flow before making a commitment to trade. I presentempirical evidence that both stops and immediate price improvementimpose adverse selection costs on limit order traders.     

Information shares of two parallel currency options markets: Trading costs versus transparency/tradability

This paper studies whether trading costs or transparency/tradability are more important to price discovery using a unique dataset of currency options that trade simultaneously in two parallel markets. The Over-The-Counter (OTC) market is characterized by sophisticated investors, low trading costs, and low transparency/tradability compared to the Tel-Aviv Stock Exchange (TASE). Pricing errors are much larger on the TASE and the information share of the OTC market is significantly larger than that of the TASE by various information share measures, showing that trading costs and trader type have a first-order effect on price discovery while transparency/tradability have a second-order effect.     

Information and the Cost of Capital in a Mean‐Variance Efficient Market

Before information ? arrives, market observers must be uncertain whether the stock price conditioned on ? will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the mean‐variance CAPM that information that leaves the future value of a firm more certain, in the sense that its perceived covariance with the market is reduced towards zero, can lead to a higher expected return on that asset. A further result is that it is theoretically possible that the required return on the stock will necessarily fall after observing signal ?, or (in other circumstances) that it will necessarily rise. In general, information that allows better discrimination between firms leads some firms to have higher costs of capital and other firms to have lower costs of capital. Less obviously, better discrimination between firms can induce a higher average cost of capital across the market.     

OPTIMAL BOND CALL POLICIES UNDER TRANSACTIONS COSTS

In this paper I analyze the effects of refunding transactions costs on the firm's optimal call policy. Refunding transactions costs cause the firm to delay calling a bond when its market value first reaches the call price. This effect causes the price path of a callable bond to be a locally concave function of the interest rate, reaching a maximum price above the call price. Comparative static results show that the magnitude of the premium above the call price is an increasing function of transactions costs. An empirical test on a sample of nonconvertible bonds supports the model's transactions costs prediction.     

Intraday price reversals in the US stock index futures market: A 15-year study

This paper gives a long-term assessment of intraday price reversals in the US stock index futures market following large price changes at the market open. We find highly significant intraday price reversals over a 15-year period (November 1987–September 2002) as well as significant intraday reversals in our yearly and day-of-the-week investigations. Moreover, the strength of the intraday overreaction phenomenon seems more pronounced following large positive price changes at the market open. That being said, the question of whether a trader can consistently profit from this information remains open as the significance of intraday price reversals is sharply reduced when gross trading results are adjusted by a bid–ask proxy for transactions costs.     

Efficiency Tests of the Foreign Currency Options Market

Based on a new options transactions data base from the Philadelphia Stock Exchange Foreign Currency Options Market, this paper examines the importance of the effect of nonsynchronous prices and transaction costs on the usual option market efficiency tests. The tests conducted are based on the transaction cost adjusted early exercise and put-call parity pricing boundaries applicable to the American foreign currency options market. The test results show that the put-call parity boundary tests are sensitive to both nonsynchronous prices and transaction costs. The early exercise boundary tests are sensitive to transaction costs but are not very sensitive to simultaneity of the option price and the underlying spot price. Under the no-transaction costs scenario, a large number of early exercise boundary violations is found even when simultaneous spot and option prices are used. These violations disappear when actual transaction costs are taken into account.     

股票停牌、涨跌停与ETF定价效率——基于上证50ETF日度数据的实证研究

本文应用中国股市2007年至2011年的数据,研究了上证50ETF市场价格和基金净值的相关关系,以及折溢价水平及其影响因素。基于ETF的申购赎回和交易机制,在成分股涨跌停板和停牌期间,由于ETF二级市场价格具有价格发现功能,ETF市场价格可能较大偏离(形式上的)ETF净值,造成ETF的异常折溢价,而此类异常折溢价并不是真正的套利机会。另外,上证50ETF的市场价格与基金净值存在显著同步变动的关系;在涨跌停板和停牌期间之外,上证50ETF的折溢价水平低于套利所需的交易成本。本文研究表明,上证50ETF具有较高的定价效率。     

开盘集合竞价透明度与市场质量

通过采用个股与市场同步法和价格反转的分析方法研究开盘集合竞价透明度与市场质量之间的关系，发现从日内效应来看，开盘集合竞价透明度提高以后，交易者的执行成本增加，整体来说市场的流动性是降低了；从事件前后市场模型的拟合优度比较结果来看，开盘集合竞价透明度提高以后股票个股与市场反应不一致，价格发现效率降低，市场质量降低。     

Can splits create market liquidity? Theory and evidence

We present a market microstructure model of stock splits in the presence of minimum tick size rules. The key feature of the model is that discretionary trading is endogenously determined. There exists a tradeoff between adverse selection costs on the one hand and discreteness related costs and opportunity costs of monitoring the market on the other hand. Under certain parameter values, there exists an optimal price. We document an inverse relation between the coefficient of variation of intraday trading volume and the stock price level. This empirical evidence and other existing evidence are consistent with the model.     

Stock price effects and costs of secondary distributions

This study does not support the view that a large number of shares can be sold at the prevailing market price and at a small cost. A significant stock price decrease is observed at the initial announcement of secondary distributions. The price declines are greater for offerings by officers and directors and for larger offerings, but are significant for all types of sellers and for large and small offerings. There is no significant price decline at the offering when secondaries are announced in advance. Underwriting and other selling costs are substantial and are positively related to relative offering size.     

Sticky prices or economically-linked economies: The case of forecasting the Chinese stock market

We explore whether economic links via trade affect aggregate Chinese stock market returns. We find that market return indices from countries that China net imports from can forecast the Chinese aggregate market return at the weekly time horizon. The stock returns of countries that China net exports to have no consistently significant OOS predictability.The economic intuition for our results follows from the fact that China has positioned itself as a low-cost provider competing on price. As a low-cost provider China has a more difficult time passing cost increases through to export customers because of sticky prices. However, import costs, e.g., raw materials, are subject to both consumption and speculative demand and thus vary. We can conclude that costs will drive short term economic gains for the overall Chinese economy. One interpretation of our results is that supply shocks are absorbed within 2 weeks.     

The Impact of Mispricing and Asymmetric Information on the Price Discount of Private Placements of Common Stock

The price discount on privately placed stock is large and can vary substantially among firms. While earlier studies attribute price discounts on privately placed stock to illiquidity and costs of gathering information, we offer a more complete explanation. We find that firms exhibiting higher overvaluation have significantly larger price discounts in private stock sales. We also find that higher levels of asymmetric information about the issuing firm and about the stock market environment at the time of the private placement cause more pronounced discounts in the offer price. Our analysis also shows that post-issue abnormal returns following private placements are higher when discounts are less pronounced.     

Debt Issue Costs and Issue Characteristics in the Market for U.S. Dollar Denominated International Bonds

This paper analyzes the issue costs and initial pricing of bonds in the international market. In particular, we investigate the determinants of three components of issue costs: underwriter fee, underwriter spread (the difference between the offering price and the guaranteed price to the issuer), and underpricing (the difference between the market price and the offering price). Total underwriter compensation increases with the bonds' credit risk and maturity, but it is insignificantly related to issue size. Interestingly, underwriters appear to price some issue characteristics directly (by adjusting the fee) and other characteristics indirectly (by setting the guaranteed price). The two compensation components (fee and spread) are negatively related to each other. We provide evidence that this trade-off is consistent with income tax considerations, as well as with two-tier pricing by underwriters. We find no evidence of underpricing.