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.     

The rise and fall of technical trading rule success

The purpose of this paper is to examine the performance of an important set of momentum-based technical trading rules (TTRs) applied to all members of the Dow Jones Industrial Average (DJIA) stock index over the period 1928–2012. Using a set of econometric models that permit time-variation in risk-adjusted returns to TTR portfolios, the results reveal that profits evolve slowly over time, are confined to particular episodes primarily from the mid-1960s to mid-1980s, and rely on the ability of investors to short-sell stocks. These findings are demonstrated to be consistent with theoretical models that predict a relationship between TTR performance and market conditions.     

Microstructures,financial reforms and informational efficiency in an emerging market

This paper investigates the effects of microstructures and financial reforms on time-varying informational efficiency in an emerging equity market setting. Our data comprises of firm level data from the Trinidad and Tobago Stock Exchange, over the period 1990–2013. Using a dynamic panel regression framework while controlling for firm size, we find that microstructures, specifically liquidity, volatility, automation and the number of shareholders have an important role in influencing the time-varying efficiency of this emerging market. The financial reforms, namely liberalisation and regulation are not found to have a notable influence. We also consider heterogeneity at the firm level, finding that the microstructures of the banking firms listed in this market have a greater impact on market efficiency, in relation to the other listed firms.     

Spillovers between sovereign CDS and exchange rate markets: The role of market fear

As important variables in financial market, sovereign credit default swaps (CDS) and exchange rate have correlations and spillovers. And the volatility spillovers between the two markets become further complicated with the effect of market fear caused by extreme events such as global pandemic. This paper attempts to explore the complex interactions within the “sovereign CDS-exchange rate” system by adopting the forecast error variance decomposition method. The results show that there is a relatively close linkage between the two markets and the total spillover index of the system is dynamic. For most of the past, the exchange rate has a higher spillover effect on the sovereign CDS than vice versa. Moreover, after the market fear variables are introduced, the “sovereign CDS-exchange rate” system and market fear variables present bidirectional spillovers. The results of the study have particular significance for maintaining the financial stability and preventing risk contagion between markets.     

Microfoundations of network exploration and exploitation capabilities in international opportunity recognition

While international entrepreneurship (IE) recognizes opportunity recognition (OR) as a central activity and the prominent role of network capabilities in OR, it is not informative as to how different network capabilities influence OR in international markets. We utilize dual network capability through the lens of exploration-exploitation to better understand how these two different capabilities influence the identification of international opportunities. Given that microfoundations perspective and prior experience in IE are under-developed and under-theorized, we explore founder’s prior experience as an essential microfoundation for the dual network capability. By employing structural equation modeling on a sample of 647 early internationalizing firms from a developing country, the study demonstrates that founders’ prior experience is a significant microfoundation of dual network capability in international OR. However, both exploration and exploitation capabilities fail to bring new opportunities in a changing market environment. A post-hoc analysis reveals that at a higher level of market change, younger firms benefit more from network exploration, whereas older firms achieve greater success when leveraging benefits from network exploitation. The study concludes with implications and future research avenues.