Conflict and the ethnic structure of the marketplace: Evidence from Israel

How and why does ethnic conflict affect the ethnic structure of the marketplace? To answer these questions, this paper merges a unique administrative dataset covering the universe of transactions in the Israeli market for used cars during 1998–2010 with data on the intensity of the Israeli-Palestinian conflict. The analysis shows that violence reduces the number of transactions between Arab sellers and Jewish buyers while increasing the number of transactions between Arab sellers and Arab buyers; violence has no effect on the number of transactions involving Jewish sellers. I relate these findings to the economic literature studying the sources of discrimination.     

Information,market power,and price volatility

We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. Regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (the competitive outcome) or arbitrarily large (so there is no trade). By contrast, price volatility is always lower than the variance of the aggregate shock across all information structures. Alternative trading mechanisms lead to very distinct bounds as a comparison with Cournot competition establishes.     

Agency costs and product market competition: The case of audit pricing in Greece

Jensen and Meckling (1976) argue that agency costs are not dependent on product market competition. However, elsewhere in the economics literature, theoretical analysis and empirical research have indicated that product market competition reduces agency costs by reducing the marginal cost of eliciting effort from agents. We investigate the relationship between product market competition and audit fee, as an example of agency cost. Taking advantage of a proprietary data set for Greek audit firms, we find that the audit fee and audit hours are inversely associated with client firm product market competition. We conclude that audit effort, as an agency cost, is reduced where competitive forces reduce the need for shareholders to bear the costs of monitoring agents.     

Product price and performance level in one market or two separated markets under various cost structures and functions

Market characteristics, including intrinsic demand and customer sensitivity on price and product performance level, are distinct at different markets. Comparisons of various product development strategies in one market or two geographically separated markets are conducted for three classes of products: development intensive products (DIPs) with constant unit cost, marginal cost-intensive products (MIPs) with constant fixed cost, and marginal and development intensive products (MDIPs) with non-constant unit cost and fixed cost. Results show that larger demand size, less customer sensitivity on price and/or more sensitivity on performance level lead to more profit, a higher sale price and a not-lower product performance. The customer reservation or the saturation performance level should be generally adopted though the optimal performance level does exist occasionally. Unit cost and/or fixed cost must increase in performance at an increasing rate for the existence of one optimal performance level. Due to the impact of demand size, one high-end (low-end) MDIP or DIP could be introduced into one low-end (high-end) market at a different price if the demand size is significantly large in the low-end market. For DIPs, offering one niche high-end product is not worse than offering the low-end product into two markets. For MIPs with negligible fixed cost, the product line strategy is not worse than the standard product development strategy. Additionally, the product cost reduction approach adopted in one product line has significant effects on the best product development strategy and sequence.     

Impact of short selling activity on market dynamics: Evidence from an emerging market

With unique daily short sale data of Borsa Istanbul (stock exchange of Turkey), we investigate the dynamic relationship between short selling activity and volatility, liquidity and market return from January 2005 to December 2012 using a VAR(p)-cDCC-FIEGARCH(1,d,1) approach. Our findings suggest that short sellers are contrarian traders and contribute to efficient stock market in Turkey. We also show that increased short selling activity is associated with higher liquidity and decreased volatility. However this relation weakens during the financial turmoil of 2008. Our results indicate that any ban on short sales may be detrimental for financial stability and market quality in Turkey.     

Market maker competition and price efficiency: Evidence from China

We test the relationship between market maker competition and stock price efficiency. Using the number of market makers as a proxy for competition, the results show a strong positive correlation between competition and stock price efficiency. Moreover, price efficiency is higher when competing market makers have higher research ability. We suggest that market maker competition increases price efficiency through two channels: 1) Competition decreases transaction costs, and 2) Uninformed market makers learn from orders submitted by informed market makers through competition. The latter happens only in the group of market makers with higher experiences. The results imply that the price efficiency can be improved by enhancing the competition of market makers with high research ability and experiences.     

Estimating the value of generic entry and intellectual property litigation in the pharmaceutical market

In this study, we examine the relationship between, and implications of, the market entry and intellectual property litigation of brand name and generic pharmaceuticals from 2003 to 2012 in Japan. We focus on the effects of a firm’s litigation behavior on market competition, including not only anticipated damage and injunction costs but also reputation and reliability costs. The results show that market entry of generic pharmaceuticals decreases market sales of brand name pharmaceuticals by 45%. However, in the case of intellectual property rights, litigation increases market sales of branded pharmaceuticals by 120%.     

Bank liquidity,stock market participation,and economic growth

We develop a growth model with banks and markets to reconcile the observed decreasing trend in the relative liquidity of many financial systems around the world with the increasing household participation in direct market trades. At low levels of economic development, the presence of fixed entry costs prevents the agents from accessing the market, and pushes them towards the banks, which provide high relative liquidity. We characterize the threshold after which the agents are rich enough to access the market, where the relative liquidity is lower, and show that the relative liquidity of the whole financial system (banks and markets) drops because of the increasing market participation. We provide some evidence consistent with this theoretical prediction: a one-unit increase in an index of securities market liberalization leads to a drop in the relative liquidity of between 17 and 27 per cent.     

Liquidity,information, strategic trading in an electronic order book: New insights from the European carbon markets

The electronic limit order book (LOB hereafter) has rapidly become the primary way of trading European carbon assets over the 4 years of the EU ETS programme (2008–2012). In this first attempt of examining the informational content of an electronic order book, we evidence that order flow imbalances have a moderate capacity to predict short term price changes. However, we find that both LOB slope and immediacy costs help to forecast quote improvements and volatility in the next 30 min. Further, we explain why informed trading is highly influential and show that it consists in mixing order splitting strategies and posting fleeting orders once the asymmetric information is reduced (Rosu, 2009). Overall, the consolidated status of the order book mirrors a high level of market uncertainty and a low degree of informational efficiency. In this way, strategic trading can in itself explain some of order book properties, independently of the degree of traders’ sophistication and market competition.     

Reactive or proactive? Investor sentiment as a driver of corporate social responsibility

Investors and financial markets have been a neglected stakeholder group in studies on a firm’s motivations to be socially and environmentally responsible. Despite being a strong driving force behind firm value, no study has investigated the influence of market and investor sentiments on CSR behaviour. Using a global sample, we investigate the effects of market and investor sentiments on firm CSR performance. We find negative market and investor sentiments in the prior year motivate firms to improve their CSR performance in the next year. We also find the magnitude of improvement in CSR performance differs not only by country, but by CSR sub-category as well. These findings imply that a firm’s motivation to improve its CSR performance is reactionary, rather than being driven by altruism. Regulators and proponents of CSR should thus seek to persuade investors and financial markets to put pressure on firms to further advance the CSR agenda.