Microstructure-based manipulation: Strategic behavior and performance of spoofing traders

We examine how investors strategically spoof the stock market by placing orders with little chance of being executed, but which mislead other traders into thinking there is an imbalance in the order book. Using the complete intraday order and trade data of the Korea Exchange (KRX) in a custom data set identifying individual accounts, we find that investors strategically placed spoofing orders which, given the KRX's order-disclosure rule at the time, created the impression of a substantial order book imbalance, with the intent to manipulate subsequent prices. This manipulation, which made use of specific features of the market microstructure, differs from previously studied forms of manipulation based on information or transactions. Roughly half of the spoofing orders were placed in conjunction with day trading. Stocks targeted for manipulation had higher return volatility, lower market capitalization, lower price level, and lower managerial transparency. We also find that spoofing traders achieved substantial extra profits. The frequency of spoofing orders decreased drastically after the KRX altered its order-disclosure rule.     

Effects of perceived behavioral control on the consumer usage intention of e‐coupons

To investigate changes that e‐coupons bring to consumers' coupon usage, the authors of this article developed and estimated models of coupon‐usage intention. The models are based on the theory of reasoned action or the theory of planned behavior. Results show that the theory of planned behavior explains e‐coupon usage intention better than the theory of reasoned action. On the other hand, the intention to use traditional coupons is effectively explained by the theory of reasoned action. Both perceived behavioral control and attitude toward Internet searching have significant effects on the intention to use e‐coupons. Also, heavy users of e‐coupons are different from those of traditional coupons. Light users of traditional coupons have relatively high intention to use e‐coupons if they have more access to e‐coupons. On the other hand, heavy users of traditional coupons have relatively low intention to use e‐coupons if they have less access to them. © 2006 Wiley Periodicals, Inc.     

Community-based tourism (TourDure) experience program: a theoretical approach

This research tested the Theory of Planned Behavior model to reveal the formation of tourists’ intention to experience a tour program organized by a local community (i.e. TourDure) by taking the moderating effect of gender and age into account. TourDure is an excellent case of the community-based tourism initiatives in Korea. A field survey was carried out for data collection. Our findings indicated that attitude and subjective norm had a significant impact on intention. Also, destination attachment showed a positive influence on the intention. In addition, subjective norm and attitude was found to be significant across the gender group.     

The disposition effect and investment performance in the futures market

This study examines whether the disposition effect (DE), i.e., the tendency of investors to ride losses and realize gains, exists in the Korean stock index futures market. Using a unique database, we find strong evidence for the DE and explain this in terms of investor characteristics. We also investigate the effect that the disposition bias has on investment performance. There are four main findings. First, individual investors are much more susceptible to the DE than institutional and foreign investors. Second, sophistication and trading experience tend to reduce the DE. Third, the DE is stronger in long positions than in short positions. Finally, there is a negative relationship between the DE and investment performance. This result is consistent with Odean (1998, Journal of Finance, 53, 1775–1798), but contrasts with Locke and Mann (2005, Journal of Financial Economics, 76, 401–444) who find no evidence of any contemporaneous measurable costs associated with the DE. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:496–522, 2009     

Failure Prediction: Evidence from Korea

This study is an attempt to construct and test a distress classification model for Korean companies. Utilizing a sample of 34 distressed firms from the recent 1990-1993 period and a matched (by industry and year) sample of non-failed firms, we observe the classification accuracy of two models. Both models utilize measures of firm size, asset turnover, solvency and leverage with one model available for testing only on publicly traded companies and one model applicable to all public and private entities. We observe excellent classification accuracy based on data from the first two years prior to distress. And, although the accuracy drops off after t -2, the models still provide effective early warnings of distress in many cases. The results of this study are of particular relevance in the current financial market scenario of increased deregulation and greater individual financial institution decision making. It is somewhat ironic for us to be proposing the use of a financial distress early-warning model given the current robust economic growth and low bankruptcy rate in Korea. But, the financial problems in Japan are a sobering reminder that high growth can be followed by financial excesses, increased business failures and large loan losses.     

Traders' strategic behavior in an index options market

We analyze traders' strategic behavior in an index options market, examining the relationships among expected duration, frequency of trades, trade size, and time to maturity using a modified ACD model. Using intraday data at‐the‐money put and call options, we obtain the following results: (1) Frequency of trades contains more information about future option price volatility than does trade size. This may result from institutional or large traders who have issued naked options using the delta‐neutral strategy to hedge those options. This also suggests that informed traders use their informational advantage little by little, rather than all at once. (2) Option volatility increases as the maturity date approaches, contradicting the prediction of the Black‐Scholes model. (3) The duration of the previous interval has a persistent effect on expected duration of the current interval. (4) For the estimation of the modified ACD model, the standardized distribution of duration is Weibull with γ < 1, not exponential. (5) The duration in the options market exhibits an inverse U‐shaped diurnal pattern, much like that of the U.S. stock market. However, unlike in the U.S. stock market, the index options duration becomes much shorter right before lunch hour (12:00 pm). © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:105–133, 2005     

Validation of Consumer Styles Inventory for consumer decision making styles

The Consumer Styles Inventory (CSI) developed by Sproles and Kendall, Journal of Consumer Affairs, 1986, 20: 267–279, is one of the most widely used instruments to classify consumers by their decision making styles. With changes in consumption culture attributable to the coexistence of global and local consumer culture in the past few decades, it is essential to reaffirm that the CSI measurement instrument is valid for contemporary consumers and can be applied in various contexts. This study, therefore, aimed to present a set of CSI validation procedures using contemporaneous participants and targeting two groups of participants in the United States. Two sets of exploratory factor analysis using the main data set (n = 390) were performed and confirmatory factor analysis was applied to the main data set and the cross-validation data set (n = 172). Results from both the exploratory factor and confirmatory factor analyses seem to validate the eight underlying consumer characteristics of CSI.     

Programs trades and trade regulation: An evidence of the Korean securities market

This study addresses the effects of program trade regulation during large market moves. To address this issue, we analyze the effect of sidecars (halts that only affect program trades) on trade imbalance using Korean intraday data. We find that sidecars, as currently designed to halt all program trades, are not effective at controlling trade imbalance around volatile markets. Resolution of trade imbalance is more effective when program trade is unrestricted. Program trade, at least a subset, provides liquidity when it is at a premium. We conclude that current sidecars should be more carefully crafted as some program trades are market stabilizing.     

Structural Models of Corporate Bond Pricing: An Empirical Analysis

This article empirically tests five structural models of corporatebond pricing: those of Merton (1974), Geske (1977), Longstaffand Schwartz (1995), Leland and Toft (1996), and Collin-Dufresneand Goldstein (2001). We implement the models using a sampleof 182 bond prices from firms with simple capital structuresduring the period 1986–1997. The conventional wisdom isthat structural models do not generate spreads as high as thoseseen in the bond market, and true to expectations, we find thatthe predicted spreads in our implementation of the Merton modelare too low. However, most of the other structural models predictspreads that are too high on average. Nevertheless, accuracyis a problem, as the newer models tend to severely overstatethe credit risk of firms with high leverage or volatility andyet suffer from a spread underprediction problem with saferbonds. The Leland and Toft model is an exception in that itoverpredicts spreads on most bonds, particularly those withhigh coupons. More accurate structural models must avoid featuresthat increase the credit risk on the riskier bonds while scarcelyaffecting the spreads of the safest bonds.