Modelling and forecasting liquidity supply using semiparametric factor dynamics

We model the dynamics of ask and bid curves in a limit order book market using a dynamic semiparametric factor model. The shape of the curves is captured by a factor structure which is estimated nonparametrically. Corresponding factor loadings are modelled jointly with best bid and best ask quotes using a vector error correction specification. Applying the framework to four stocks traded at the Australian Stock Exchange (ASX) in 2002, we show that the suggested model captures the spatial and temporal dependencies of the limit order book. We find spill-over effects between both sides of the market and provide evidence for short-term quote predictability. Relating the shape of the curves to variables reflecting the current state of the market, we show that the recent liquidity demand has the strongest impact. In an extensive forecasting analysis we show that the model is successful in forecasting the liquidity supply over various time horizons during a trading day. Moreover, it is shown that the model's forecasting power can be used to improve optimal order execution strategies.     

SSNIP, state-owned enterprises, public goods and complements

State-owned enterprises sometimes operate in markets below marginal costs in order to provide public goods. In practice it happens that they can cross-subsidize their activity in other markets since regulation is not perfect. Based on a simple model, I show that such cross-subsidization reduces at least consumer welfare. In competition law, the SSNIP test is used to identify market power. If the state-owned enterprises have some scope for price discrimination, the paper argues that the paradox of the SSNIP test that companies operating below marginal costs are a monopolist on a ??relevant market?? makes sense. The paper recommends imposing a duty to deal as a special responsibility for these companies. Finally, it is argued that some criteria are necessary to refine the applicability of competition law in such situations. Subadditivity of the underlying cost structure should be one sufficient condition to apply competition law.     

Die europ?ische Trag?die: Ein politisches Ordnungsproblem

We argue that self-binding rules in the context of the stabilisation of the eurozone — both monetary and fiscal — are important for a successful long-term European economic policy. The present loss of reputation due to the breaking of fundamental rules such as the no-bailout clause generates high cost, especially with respect to raising money in the financial markets, because no institutional stability and political credibility exist. We propose to install a compliance system similar to what large enterprises have introduced. It would perfectly fit into the system of regulatory principles of the social market economy, but also focus on administrative and implementation issues.     

What you are is what you like—similarity biases in venture capitalists' evaluations of start-up teams

This paper extends recent research studying biases in venture capitalist's decision making. We contribute to this literature by analyzing biases arising from similarities between a venture capitalist and members of a venture team. We summarize the psychological foundations of such similarity effects and derive a set of hypotheses regarding the impact of similarity on the assessment of team quality. Using data from a conjoint experiment with 51 respondents, we find that venture capitalists tend to favor teams that are similar to themselves in type of training and professional experience. Our results have important implications for academics and practitioners alike.     

Strategic Patenting in Biotechnology

Patents can be used by their owners in a variety of strategic ways in the market place that do not necessarily conform with the original idea of patents as a remedy against market failure. More patenting does not lead to more innovation in all cases. This article looks at the relevance of patents and their strategic uses in the biotechnology industry. The article considers the different motives for applying for patents and various strategies. Theoretical considerations are made based on empirical findings from a survey of the Swiss biotechnology industry carried out in 2003. The empirical data confirm that patents for biotechnological inventions are important as an incentive for investment in R&D and that patents are an efficient tool for protecting biotechnological inventions. Strategic patenting is not very common in Switzerland and there are no signs for an abusive level of strategic patenting.     

Stochastic Conditional Intensity Processes

In this article, we introduce the so-called stochastic conditionalintensity (SCI) model by extending Russell’s (1999) autoregressiveconditional intensity (ACI) model by a latent common dynamicfactor that jointly drives the individual intensity components.We show by simulations that the proposed model allows for awide range of (cross-)autocorrelation structures in multivariatepoint processes. The model is estimated by simulated maximumlikelihood (SML) using the efficient importance sampling (EIS)technique. By modeling price intensities based on NYSE trading,we provide significant evidence for a joint latent factor andshow that its inclusion allows for an improved and more parsimoniousspecification of the multivariate intensity process.     

Order aggressiveness and order book dynamics

In this paper, we study the determinants of order aggressiveness and traders’ order submission strategy in an open limit order book market. Applying an order classification scheme, we model the most aggressive market orders, limit orders as well as cancellations on both sides of the market employing a six-dimensional autoregressive conditional intensity model. Using order book data from the Australian Stock Exchange, we find that market depth, the queued volume, the bid-ask spread, recent volatility, as well as recent changes in both the order flow and the price play an important role in explaining the determinants of order aggressiveness. Overall, our empirical results broadly confirm theoretical predictions on limit order book trading. However, we also find evidence for behavior that can be attributed to particular liquidity and volatility effects.