Relation between bid–ask spread,impact and volatility in order-driven markets

We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that any market taking or liquidity providing strategies is at best marginally profitable, we obtain a linear relation between the bid–ask spread and the instantaneous impact of market orders, in good agreement with our empirical observations on electronic markets. We then use this relation to justify a strong, and hitherto unnoticed, empirical correlation between the spread and the volatility per trade, with R ²s exceeding 0.9. This correlation suggests both that the main determinant of the bid–ask spread is adverse selection, and that most of the volatility comes from trade impact. We argue that the role of the time-horizon appearing in the definition of costs is crucial and that long-range correlations in the order flow, overlooked in previous studies, must be carefully factored in. We find that the spread is significantly larger on the NYSE, a liquid market with specialists, where monopoly rents appear to be present.     

On the Pricing of Contingent Claims with Frictions

This paper studies the problem of pricing contingent claims in a market which has frictions in the form of costs, such as penalty functions corresponding to constraints. An arbitrage-free interval is identified, and a fair price based upon utility functions is proposed. It provides a framework to study incomplete markets that is simplier than the one related to constraints on portfolios introduced by Karatzas and Kou.     

A Review of Heinrich von Stackelberg's Book: ‘Market Structure and Equilibrium’

In this note, we review the recent translation in English by Bazin et al. of Stackelberg's book ‘Marktform und Gleichgewicht’ (1934).     

Bounds for VIX futures given S&P 500 smiles

We derive sharp bounds for the prices of VIX futures using the full information of S&P 500 smiles. To that end, we formulate the model-free sub/superreplication of the VIX by trading in the S&P 500 and its vanilla options as well as the forward-starting log-contracts. A dual problem of minimizing/maximizing certain risk-neutral expectations is introduced and shown to yield the same value.The classical bounds for VIX futures given the smiles only use a calendar spread of log-contracts on the S&P 500. We analyze for which smiles the classical bounds are sharp and how they can be improved when they are not. In particular, we introduce a family of functionally generated portfolios which often improves the classical bounds while still being tractable; more precisely, they are determined by a single concave/convex function on the line. Numerical experiments on market data and SABR smiles show that the classical lower bound can be improved dramatically, whereas the upper bound is often close to optimal.     

Disillusionment from Failure as a Source of Successful Learning

In this article I review the literature on organizational learning from failed product launches. I challenge the view that failure is an inevitable part of the “probe and learn” process as well as the view that companies do not learn anything from such failures. I conclude there is no direct link between learning and commercial failures, and highlight many obstacles that hamper the learning process. Finally, even when learning does occur, it will not always result in improved organizational performance. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Perspectives on the Formal Authority Between Project Managers and Change Managers

Project management and change management both contribute to the management and delivery of changes to organizations; however, they are based on distinct bodies of knowledge, and practitioners of these disciplines have disparate views on how change should be managed. There is a lack of consensus about how these disciplines should work together to deliver organizational change projects, which may result in conflict. This research delves into practitioners’ perspectives on formal authority, the reporting relationship between these disciplines, and also reveals the fundamental differences in how practitioners of these disciplines view the practice of organizational change.     

Information technologies and entrepreneurship

This article shows how the increase of information availability due to new technologies positively affects aggregate entrepreneurship in national economies. We rely on an “occupational choice” model of managerial production, extended to include the managerial use of information, to explain variations in the number of entrepreneurs, and thus of firms, as measured by the aggregate new business creation data. We present evidence that supports such a theory of industrial organization dynamics for a sample of 78 economies over the period 2004–2012 using panel data instrumental variable regressions.     

Global imbalances,cross-market linkages,and the financial crisis: A multivariate Markov-switching analysis

Based on multivariate Markov-switching models, this paper presents new results on the interactions between global imbalances, credit spreads, housing markets, macroeconomic variables, commodities and equities during Q1-1987/Q1-2011. We show that rising global imbalances and the uncontrolled development of the US mortgage and housing markets have been deeply destabilizing the economy, with various shocks impacting subsequently equity markets and macroeconomic variables. But we also uncover, surprisingly, that the cross-market linkages with the commodity markets are strong. Finally, we identify that the US housing market lies at the epicenter of the crisis through its multiple and highly significant interactions with the other variables in the system (including the global imbalances). Sub-samples and alternative time series estimates are provided to check the statistical congruency of the various models.     

Is Extending Compulsory Schooling Alone Enough to Raise Earnings? Evidence from French and British Compulsory Schooling Laws*

In this paper, I compare two reforms that raised the minimum school‐leaving age to 16 in France (1967) and in England and Wales (1972). Using a regression discontinuity design, I find that while the reform in England and Wales led to a 6?7 percent increase in hourly wages per additional year of compulsory schooling, the impact of the change to French law was close to zero. The results suggest that the major difference between the two reforms was that the fraction of individuals holding no qualifications dropped sharply after the introduction of the new minimum school‐leaving age in England and Wales, whereas it remained unchanged in France.