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1.
In this paper I show that the co-movements between bid-ask spreads of equities and credit default swaps vary over time and increase over crisis periods. The co-movements are strongly related to systematic risk factors and to the theoretical debt-to-equity hedge ratio. I document that hedging and asymmetric information, besides higher funding costs and market volatility risk, are driving factors of the commonality and are significantly priced in CDS bid-ask spreads.  相似文献   

2.
This paper examines the impact of currency volatilities on the average monthly spreads in ADRs and their underlying local shares. We employ a novel estimator for spreads based on two-day-period high and low values of a comprehensive universe of stocks over fifteen years using dynamic panel data estimation. Surprisingly, we find that currency volatility has a larger impact on spreads of ADRs than on their underlying local shares. This adds novel information to the well-documented evidence that local shares and exchange rate variations are the primary drivers of ADR returns. FX implied volatility accounts for about 16.6% of the variance in our sample. We also observe that, on average, ADR spreads are smaller than the spreads on their corresponding underlying shares. We posit that size matters and therefore provide measures of the economic significance of all our estimated results.  相似文献   

3.
A comparison is made between the bid-ask spreads of 30 high volume German stocks traded on IBIS and 30 high volume US stocks traded on Nasdaq. IBIS and Nasdaq are best described as agency and dealer auction markets, respectively. On average, the market spread for these IBIS and Nasdaq stocks is the same, but for the 10 most active stocks in each market, IBIS spreads are considerably lower. For these latter stocks, IBIS spreads change in a predictable manner throughout the day. Nasdaq spreads do not. The critical factor appears to be the unrestricted access of suppliers of immediacy that is distinctive for agency auction markets.  相似文献   

4.
This paper develops a model of exchange rate bid-ask spreads which is used to examine the relationship between exchange rate risk and volatility and to measure transactions costs. The empirical results indicate that market-makers judge the probability of exchange rate changes based on both recent and long-term volatility and that the second moment alone is not a complete measure of volatility. While a proxy for trading volume does not have the expected relationship with spreads, weekend and holiday effects conform to theory. Transactions costs vary over time and seem responsive to the imposition of exchange controls.  相似文献   

5.
This paper examines the impact of electronic trading systems on the bid-ask spreads in the foreign exchange market. The paper finds: first, the EBS reduces spreads significantly; second, the EBS is more influential than the Reuters system for the currency pair DEM/USD; third, dealers with information advantage tend to quote relatively wider spreads with the new systems; fourth, geographical differences in market liquidity are reduced through the new systems, and finally, the effects occur immediately and persist in the long-term. Thus, both proposed positive and negative impacts of the electronic systems are found to be true in this paper, but our findings also suggest that positive effects dominate and the electronic systems overall increase FX market liquidity.  相似文献   

6.
We propose a model for determining the optimal bid-ask spread strategy by a high-frequency trader (HFT) who has an informational advantage and receives information about the true value of a security. We employ an information cost function that includes volatility and the volume of the asset. Subsequently, we characterize the optimal bid-ask price strategies and obtain a stable bid-ask spread. We assume that orders submitted by low-frequency traders (LFTs) and news events arrive at the market with Poisson processes. Additionally, our model supports the trading of the two-sided quote in one period. We find that more LFTs and a higher exchange latency both hurt market liquidity. The HFT prefers to choose a two-sided quote to gain more profits while cautiously chooses a one-sided quote during times of high volatility. The model generates some testable implications with supporting empirical evidence from the NASDAQ-OMX Nordic Market.  相似文献   

7.
Entry, exit, market makers, and the bid-ask spread   总被引:2,自引:0,他引:2  
The probability of entry and exit of dealers on the NASDAQ NationalMarket (NNM) is significantly affected by trading intensity,volatility and the quoted bid-ask spread. Entry and exit ofmarket makers is a pervasive phenomenon. Large-scale entry (exit)is associated with substantial declines (increases) in quotedend-of-day inside spreads, even after controlling for the effectsof changes in volume and volatility. The spread changes arelarger in magnitude for issues with few market makers; however,even for issues with a large number of market makers, substantialchanges in quoted spreads take place. The results are consistentwith the competitive model of dealer pricing.  相似文献   

8.
This paper uses unique NYSE audit trail data to evaluate spreads and information content for different order types. Actual spreads are positive for liquidity-demanding orders and negative for liquidity-supplying orders after controlling for order direction. However, because a large fraction of liquidity-demanding orders get price improvement, the actual spread for liquidity-demanding orders is up to 50 percent less than the Lee and Ready (1991) algorithm would suggest. Regression results show that the order composition of trades affects traditional measures of spreads and information. They also show that NYSE non-displayed liquidity reduces trading costs facing market orders, and that liquidity-demanding floor broker orders are the most informative order type.  相似文献   

9.
Trading volume and order flow have both been closely associated with informed trader activity in the market microstructure literature. Using theory that explains regular intraday patterns in trading data, we transform these two variables into proxies for private information and examine their relationships with bid–ask spreads and return volatility. We use a unique and unusually rich high-frequency intraday dataset from the world's largest financial market, namely, the electronic inter-dealer spot foreign exchange market. Our analysis takes account of institutional features peculiar to this order-driven market. Our empirical results strongly affirm our theoretical understanding of how these markets work. They also reveal how the structure of the inter-dealer spot FX market affects exchange rate volatility. Finally, we also explore how private information contributes to the evolution of prices.  相似文献   

10.
This paper examines the implications of market microstructure for foreign exchange markets. We argue that the usual order flow model needs to be recast in broader terms to incorporate the transaction costs of liquidity and the limitation of price discovery through order flows that involve low trading density currencies. Using a daily data set, we find that order flows are inadequate when it comes to explaining the changes in the low trading density currencies. Alternatively, within the high trading density, both order flows and bid-ask spreads significantly affect the foreign exchange rate returns. Our findings suggest that the order flow model is better at incorporating these microstructure effects except for some currencies with a very high level of trading density.  相似文献   

11.
This study empirically examines the impact of the interaction between market and default risk on corporate credit spreads. Using credit default swap (CDS) spreads, we find that average credit spreads decrease in GDP growth rate, but increase in GDP growth volatility and jump risk in the equity market. At the market level, investor sentiment is the most important determinant of credit spreads. At the firm level, credit spreads generally rise with cash flow volatility and beta, with the effect of cash flow beta varying with market conditions. We identify implied volatility as the most significant determinant of default risk among firm-level characteristics. Overall, a major portion of individual credit spreads is accounted for by firm-level determinants of default risk, while macroeconomic variables are directly responsible for a lesser portion.  相似文献   

12.
A variant of the neoclassical growth model is considered to study the role of innovation, lags in technology adoption, total factor productivity TFP, and price markups as main determinants of asset price volatility. The model confers a prominent role to price markups as opposed to other macroeconomic sources of uncertainty. In the data, price markups are highly correlated with stock market values, whereas other financial measures of profitability exhibit much less volatility and are weakly correlated with stock market values.  相似文献   

13.
14.
This study examines the effects of information uncertainty and information asymmetry on corporate bond yield spreads using American data from 2001 to 2006. Empirical results of this study show that investors charge a significant risk premium for both information uncertainty and information asymmetry when controlling for variables well known in the literature. The results are robust even when controlling for credit ratings. Finally, information uncertainty and asymmetry help structural-form credit models explain the yield spreads of bonds with short maturities.  相似文献   

15.
Review of Quantitative Finance and Accounting - The purpose of this paper is to examine whether industry-level risk affects corporate bond yield spreads. We use three types of industry risk...  相似文献   

16.
This paper theoretically compares yields and optimal default policies for callable and non-callable corporate debt. It shows that, contrary to the conventional wisdom, it is possible for the yield spread (callable minus non-callable) to be negative. It also identifies the key determinants of the yield spread. Next, it shows that the optimal default trigger for non-callable debt is higher than the trigger for callable debt, resulting in additional default-related costs. Thus, the use of non-callable debt gives rise to an indirect agency cost of early default, which is the difference in total firm value with callable and non-callable debt. This agency cost provides a rationale for the existence of callable debt. By examining the determinants of the magnitude of this agency cost, the conditions that make callable debt more attractive (to the issuing firm) relative to non-callable debt are identified. This allows certain predictions to be made regarding the likelihood of a call feature in a corporate bond. The model's implications are supported by existing empirical studies.  相似文献   

17.
We document several facts about corporate debt maturity: (1) debt maturity is pro-cyclical, (2) higher-beta firms tend to have longer maturity, and (3) shorter maturity amplifies the sensitivity of credit spreads to aggregate shocks. We present a dynamic capital structure model that explains these facts. In the model, leverage and maturity choices are interdependent, which reflect the tradeoffs of liquidity discounts of long-term debt, repayment risks of short-term debt, and the benefit of short-term debt as a commitment device for timely leverage adjustments. Additionally, the model helps quantify the effects of maturity dynamics on the term structure of credit spreads.  相似文献   

18.
We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords in alleviating the output-inflation trade-off faced by central banks, and cast doubt on the desirability of conventional (and unconventional) Taylor rules during periods of financial distress.  相似文献   

19.
This article notes that dealers' bid/ask spreads should vary directly with their costs of adjusting to inventory imbalances. Thus, well-diversified dealers are expected to quote lower bid/ask spreads on stocks with substantial total risk caused by undiversifiable risk. Furthermore, the effect of systematic risk on bid/ask spreads should be negligible if dealers are compensated for systematic risk by market returns. This article shows that, empirically, bid/ask spreads of OTC stocks are insensitive to the systematic risk of individual stocks—even when only stocks with stable betas are considered. Furthermore, bid/ask spreads are not sensitive to changes in market variance, as would be expected if systematic risk affected spreads. While unsystematic risk affects bid/ask spreads, its effect is pronounced for stocks traded by small, undiversified dealers. If stocks are only traded by large dealers with low diversification costs, unsystematic risk does not affect bid/ask spreads.  相似文献   

20.
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