The Components of Electronic Inter-Dealer Spot FX Bid-Ask Spreads

Abstract:  This paper applies an established bid-ask spread decomposition model to the inter-dealer spot foreign exchange market. In addition, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets and which is found to produce more plausible results than the original model. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the composition of bid-ask spreads in this market.     

Price Clustering in Individual Equity Options: Moneyness,Maturity, and Price Level

Equity options have a significant influence on the price discovery process. This study presents unique evidence of substantial price clustering in individual equity options contracts. A particular contribution arises from investigating competing hypotheses on the roles of moneyness and maturity as determinants of option price clustering. We assert that options price clustering can be decomposed to price level, moneyness, and maturity effects. After controlling for other factors, price clustering has an inverse relation with time‐to‐maturity. This supports the negotiation hypothesis, but not the price resolution hypothesis. Price clustering also tends to be inversely related to moneyness. This effect is linked to the intrinsic value component of option price. Both the maturity and moneyness effects act in an opposite direction to what would be anticipated on the basis of price level alone; hence, these two effects are identified as additional influences on option price clustering. It is also found that the designated market maker scheme at NYSE Euronext London International Financial Futures Exchange (LIFFE) has little influence on trade price clustering. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:55–76, 2013     

Investors’ heterogeneous beliefs and the impact of sovereign credit ratings in foreign exchange and equity markets

We propose a model in which sovereign credit news from multiple rating agencies interacts with market heterogeneity. The model illustrates that the first messenger discloses new information while additional messengers play an important role of coordinating heterogeneous beliefs. Empirical investigations based on sovereign credit ratings, foreign exchange and equity markets confirm that rating news coordinates investors’ beliefs. Sovereign credit rating news from both types of messenger induces a significant impact on exchange rates and stock indices. Volatility measures increase in response to news from the first messenger while ex-post volatility reduces following news from an additional messenger.     

Differences of opinion in sovereign credit signals during the European crisis

Motivated by the European debt crisis and the new European Union regulatory regime for the credit rating industry, we analyse differences of opinion in sovereign credit signals and their influence on European stock markets. Rating disagreements have a significant connection with subsequent negative credit actions by each agency. However, links among Moody’s/Fitch actions and their rating disagreements with other agencies have weakened in the post-regulation period. We also find that only S&P’s negative credit signals affect the own-country stock market and spill over to other European markets, but this is concentrated in the pre-regulation period. Stronger stock market reactions occur when S&P has already assigned a lower rating than Moody’s/Fitch prior to taking a further negative action.     

Productivity and Policy in Higher Education

Understanding and improving the performance of public higher education institutions is a matter of growing interest to university and government leaders. To this end, this article surveys dimensions of recent approaches to productivity measurement in higher education, illustrating trends, limitations and developments, and exemplifies these with reference to Australian universities. The article closes by discussing policy considerations that would help augment the design of policy, making comment on the implications for performance‐incentivised funding of higher education.     

Size clustering in the FTSE100 index futures market

Recent literature has begun to explore size clustering in financial markets. If a market is perfectly liquid, traders should be able to trade the exact amount that they desire; however, the presence of size clustering may prevent them from achieving optimal trade sizes. This study is novel in its investigation of size clustering in a futures market. We find that trade sizes cluster in a manner that is similar to the pattern of price clustering found in many financial markets. Importantly, we identify a trade‐off between size resolution and price resolution. We also find that the number of distinct trade sizes increases with trade frequency and with intra‐day volatility, and increases at the end of each calendar quarter. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:432–443, 2010     

Heterogeneity of sovereign rating migrations in emerging countries

This is a unique study of the relationship between emerging sovereign rating migrations and the sources of rating heterogeneity. It employs data from six international rating agencies and 90 emerging countries. Rating momentum is present, and we are the first to document that multiple-notch rating changes have greater impact on the probability of subsequent rating actions. Watchlist status is influential on migration probabilities, and dominates rating momentum in some cases. Rating duration, existing rating and issuer's domicile region are useful determinants in modelling the migration process. Notably, considerable inter-agency differences are revealed, suggestive of different rating processes being employed.     

Intraday Empirical Regularities in Interest Rate and Equity Index Futures Markets, and the Effect of Macroeconomic Announcements

This paper focuses on the intraday behaviour of returns, volatility, volume and price reversals for the Short Sterling interest rate and FTSE100 stock index futures contracts traded on the London International Financial Futures and Options Exchange (LIFFE). It also examines the effect of scheduled macroeconomic announcements and interest rate changes on the intraday behaviour of the variables of interest. We find clear differences and similarities with US studies and between the interest rate and equity contracts, which have important theoretical implications. This new evidence helps discriminate between the theories seeking to explain these intraday patterns.