Belief-free price formation

We analyze security price formation in a dynamic setting in which long-lived dealers repeatedly compete for the opportunity to trade with short-lived retail traders. We characterize equilibria in which dealers’ pricing strategies are optimal irrespective of the private information that each dealer may possess. Thus, our model’s predictions are robust to different specifications of the dealers’ information structure. These equilibria reconcile, in a unified and parsimonious framework, price dynamics that are reminiscent of well-known stylized facts: excess price volatility, price to trading flow correlation, stochastic volatility and inventory-related trading.     

Limit order books,uninformed traders and commodity derivatives: Insights from the European carbon futures

This paper provides a suitable model for studying the strategic behavior of uninformed investors that trade commodity derivatives via limit order books. Two main testable implications are obtained after solving for the model equilibrium. The adverse selection costs of uninformed traders depend on the inflow of market orders and their risk aversion. Next, the adverse selection costs of uninformed buyers and sellers and the difference of their asset valuations determine the size of their bid-ask spread.An analysis of European carbon futures data confirms the relevance of these implications. Moreover, we detect a diagonal effect that results in a positive correlation of market orders, which is driven by adverse selection, then by order splitting strategies and by imitative strategies of uninformed traders to a lesser extent.     

Dissecting the idiosyncratic volatility anomaly

The idiosyncratic volatility (IVOL) anomaly, documented in Ang, et al. (2006), has garnered a great deal of attention in the literature. Yet questions remain regarding the robustness and pervasiveness of the IVOL anomaly, with a particular concern that the IVOL anomaly might simply be the manifestation of market microstructure effect. In this paper, we show that the IVOL anomaly is strong and pervasive after we exclude stocks most susceptible to market microstructure noise — such as microcap stocks, penny stocks, and stocks with strong short-term return reversal. These results are robust to equal-weighting or value-weighting stocks in the IVOL portfolios. Our findings suggest that rather than being the cause of the anomaly, market microstructure noise actually weakens the IVOL anomaly.     

Is competition beneficial? The case of exchange traded funds

New ETF creation has surged in recent years, giving investors the option to choose from a wide range of similar ETFs within each group of competitors. We identify groups of ETFs that can be considered direct competitors and examine the impact of competition on their market quality. Results show improved market quality measures when competition increases. A change equivalent to going from a monopoly to a highly competitive market results in a 29% decrease in bid–ask spreads, a 72% decrease in illiquidity, and a 52% increase in turnover. However, we find that competition has a differential impact on ETFs according to their market depth. Market quality improves with competition for large or well-performing ETFs, while it worsens for small or under-performing ETFs. A case study on ETFs banned by the SEC in March 2010 further highlights our results in the artificially controlled competitive environment of the moratorium.     

Do aggressive orders affect liquidity? An evidence from an emerging market

This paper investigates how aggressive orders affect spreads and trading activity measures on the stock market. Based on a sample of stocks listed on the Warsaw Stock Exchange this study finds that spreads and trading activity measures increase significantly when aggressive orders are executed, but quickly revert to initial levels. The reaction to these orders on the bid and ask side of the market is similar. The effect of aggressive orders differ depending on the size of the firms. Trading activity measures such as volumes or number of transactions increase stronger for bigger than for smaller stocks, while spreads increase more for smaller firms than for bigger ones. These findings enrich the understanding of liquidity dynamics especially on the emerging markets where liquidity is an important price formation factor.     

High-frequency trading and stock liquidity: An intraday analysis

This paper studies the impact of high-frequency trading (HFT) on intraday liquidity of CAC40 stocks listed on Euronext. Spreads display an intraday L-shaped pattern, while quoted depth follows an inverse pattern: low at the open and increasing towards the end of the trading day. When liquidity demand is particularly high, there is a high rate of order cancellations attributable to high-frequency traders who use frequent order cancellations to strategically manage their limit orders and close positions near the market close. Using the generalized method of moments estimator, we generate strong evidence that greater intensity of HFT is associated with lower spreads and higher depth. The positive effect of HFT on liquidity is due mainly to decreased adverse selection costs arising from asymmetric information among market participants.     

微析柱镜光栅微结构热压成型技术

随着经济的发展和人民生活水平的提升,工业产品在我国的经济建设中发挥着越来越重要的作用。但是传统的工业设计同时代的发展实际需要不相符合,因此,微结构制造技术在全新的时期的工业生产中取得广泛的应用。热压成型技术就是一种微结构制作的技术,因为其特点在工业生产中得到了广泛的应用。因此,本文微析柱镜光栅微结构热压成型技术,希望可以为工业生产提供建议。     

Risk allocation under liquidity constraints

Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements that a portfolio should obey. To comply with the liquidity policy, a financial entity may have to liquidate part of its assets, which is costly.The definition of a risk allocation game under liquidity constraints is not straightforward, since the presence of a liquidity policy leads to externalities. We argue that the standard worst case approach should not be used here and present an alternative definition. We show that the resulting class of transferable utility games coincides with the class of totally balanced games. It follows from our results that also when taking liquidity considerations into account there is always a stable way to allocate risk.     

PORTFOLIO LIQUIDATION IN DARK POOLS IN CONTINUOUS TIME

We consider an illiquid financial market where a risk averse investor has to liquidate a portfolio within a finite time horizon [0, T] and can trade continuously at a traditional exchange (the “primary venue”) and in a dark pool. At the primary venue, trading yields a linear price impact. In the dark pool, no price impact costs arise but order execution is uncertain, modeled by a multidimensional Poisson process. We characterize the costs of trading by a linear‐quadratic functional which incorporates both the price impact costs of trading at the primary exchange and the market risk of the position. The solution of the cost minimization problem is characterized by a matrix differential equation with singular boundary condition; by means of stochastic control theory, we provide a verification argument. If a single‐asset position is to be liquidated, the investor slowly trades out of her position at the primary venue, with the remainder being placed in the dark pool at any point in time. For multi‐asset liquidations this is generally not the case; for example, it can be optimal to oversize orders in the dark pool in order to turn a poorly balanced portfolio into a portfolio bearing less risk.     

Why Do Stock Prices Drop by Less Than the Amount of the Dividend? Evidence from a Unique Environment

Abstract:

This paper investigates the effect of a lack of an automated limit order adjustment mechanism on ex-dividend day stock price behavior in a unique environment in which there are no taxes on dividends and capital gains. It finds that the overnight drop in the ask price is smaller than the overnight drop in the bid price. In addition, the study finds that average price drops are smaller than the dividend amount for all dividend sizes. I also find no evidence of a sawtooth-shaped relationship between the dividend amount and the ex-day price drop. These results are generally consistent with the lack of an automated limit order adjustment mechanism.