Essays On Financial Market Design
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Essays On Financial Market Design
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Author : Ayan Bhattacharya
language : en
Publisher:
Release Date : 2016
Essays On Financial Market Design written by Ayan Bhattacharya and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
The many financial crises of the last century-and most recently, the Great Recession of 2008 have highlighted the crucial role that market design can play in exacerbating or dampening a difficult economic situation. An important thrust of the economic discipline in recent years, therefore, has been to understand the merits and flaws in existing financial market designs in order to provide prescriptions for improvement. The three essays in my dissertation contribute to this undertaking. The first essay studies the effect of post-trade transparency reforms in overthe-counter markets. Contrary to received wisdom, I show that such reforms can hurt investors in many situations because potential counterparties may stay away from the market and monitor trades for information before participating, when there is transparency. This can lead to liquidity dry-ups and speculative prices for investors. The second essay is a joint study with Maureen O'Hara and explores the working of exchange traded funds (ETFs). When ETFs were first launched, they were a sideshow to underlying asset markets. Today, however, we have numerous ETFs on assets that are hard-to-trade otherwise. We demonstrate how inter-market information linkages in such ETF markets can lead to market instability and herding. The third essay, joint work with Gideon Saar, is a theoretical investigation of dynamic limit order markets with asymmetric information. This essay throws light on a vexing question in market microstructure-the use of limit orders by informed traders.
Three Essays On Financial Market Design Liquidity And Long Term Equity Returns
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Author : Pankaj K. Jain
language : en
Publisher:
Release Date : 2002
Three Essays On Financial Market Design Liquidity And Long Term Equity Returns written by Pankaj K. Jain and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
Essays On High Frequency Trading And Financial Market Design
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Author : Fabian Smetak
language : en
Publisher:
Release Date : 2023
Essays On High Frequency Trading And Financial Market Design written by Fabian Smetak and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
Essays On Financial Market Structure And Design
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Author : Mr. Haoxiang Zhu
language : en
Publisher:
Release Date : 2012
Essays On Financial Market Structure And Design written by Mr. Haoxiang Zhu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with categories.
In this doctoral dissertation, I study financial market structure and design, namely how institutional features of financial markets affect price discovery, liquidity, search behavior, efficiency, and welfare. This dissertation consists of three chapters. The first chapter studies dark pools and price discovery. Dark pools are equity trading systems that do not publicly display orders. Orders in dark pools are matched within the exchange bid-ask spread without a guarantee of execution. Because informed traders tend to have common information regarding the asset value, they are more likely to cluster on the heavy side of the market and therefore face a lower execution probability in the dark pool, relative to uninformed traders. Consequently, exchanges are more attractive to informed traders, whereas dark pools are more attractive to uninformed traders. Under natural conditions, adding a dark pool alongside an exchange concentrates price-relevant information into the exchange and improves price discovery. The second chapter offers a dynamic model of opaque over-the-counter markets. I build a theoretical model of OTC markets, in which a seller searches for an attractive price by visiting multiple buyers, one at a time. The buyers do not observe contacts, quotes, or trades elsewhere in the market. A repeat contact with a buyer reveals the seller's reduced outside options and worsens the price offered by the revisited buyer. When the asset value is uncertain and common to all buyers, a visit by the seller suggests that other buyers could have quoted unattractive prices and thus worsens the visited buyer's inference regarding the asset value. This chapter is now published at the Review of Financial Studies, Volume 25, Issue 4, April 2012. The third chapter studies settlement auctions for credit default swaps (CDS). This chapter is the joint work with Songzi Du, a fellow Doctoral Candidate at the Graduate School of Business, Stanford University. We find that the one-sided design of CDS auctions used in practice gives CDS buyers and sellers strong incentives to distort the final auction price, in order to maximize payoffs from existing CDS positions. Consequently, these auctions tend to overprice defaulted bonds conditional on an excess supply and underprice defaulted bonds conditional on an excess demand. We propose a double auction to mitigate this price bias. We find the predictions of our model on bidding behavior to be consistent with data on CDS auctions.
Essays On Technology In Finance And Market Design
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Author : SOOMIN. LEE
language : en
Publisher:
Release Date : 2018
Essays On Technology In Finance And Market Design written by SOOMIN. LEE and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
I develop information-based theoretical frameworks to (i) explain empirical patterns found in the finance literature, and (ii) provide empirical and policy implications related to recent changes in the technology and the market structure of financial markets. The first chapter explains how the over-the-counter market can coexist with easily acces- sible exchanges, and examines the US Dodd-Frank Act and the EU's MiFID II. The second chapter explains the recent trend of higher market quality, and reconciles the finding that high frequency traders increase liquidity with the finding that the HFTs reduce institutional traders' profits. The third chapter analyzes how transparency due to blockchain adoption may affect market quality.
Essays On Banking And Market Design
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Author :
language : en
Publisher:
Release Date : 2014
Essays On Banking And Market Design written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This dissertation comprises an essay on banking and an essay on market design. The first essay integrates ideas from prior work in banking and information economics in order to investigate the private and social incentives for investment in structured finance products, which were at the heart of the financial crisis of 2007-09. The second essay evaluates the performance of a market design innovation by Ticketmaster in the primary market for event tickets.
Behavioral And Financial Change
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Author : Andrej Woerner
language : en
Publisher:
Release Date : 2021
Behavioral And Financial Change written by Andrej Woerner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
Essays In Mechanism Design And Market Design
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Author :
language : en
Publisher:
Release Date : 2014
Essays In Mechanism Design And Market Design written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Full Implementation and Belief Restrictions' considers how information about agents' beliefs might be used to achieve full implementation, which aims to resolve the problem of multiplicity in mechanism design. We find that minimal knowledge about beliefs (described by moment conditions) can be used to reduce strategic externalities induced by the incentive compatible transfers by adding belief-based adjustments to the transfers. When strategic externalities are reduced to the extent that the best reply map becomes contractive, then uniqueness is achieved for a Delta-Rationalizability. We further show that (1) this result often obtains by very little information about agents' beliefs, therefore the uniqueness result holds for a large class of beliefs and (2) suitable moment conditions can be found in many economically interesting information structures, for example in quadratic smooth environments with independent or affiliated types. `Shared Information Sources in Exchanges' explores implications of heterogeneous information sources available to market participants -- due to regulation, choice or comes as a constraint. Traders in financial markets recognize that shared forecast services, differential access to information technology, targeted advertisement induce correlation in inference errors. We show that common information sources, seen as a departure from the private information acquisition assumption, qualitatively affect information aggregation and efficiency properties of markets. Even when traders' values are independent, inference from prices can be useful for learning about valuations. From a market design perspective, we show that imposing differential access to sources can improve informativeness, restricting participation to certain trading venues can be optimal. `Privacy-Preserving Market Design' is motivated by the increasing concern about revealing information on past trades, income, liquidity needs. With improved data collection, preserving privacy has become a de facto participation constraint in exchanges. We suggest an incentive-based approach by formulating a mechanism design problem to study the joint design of the allocation rule, bidding language, observable outcomes (prices, quantities at various levels of aggregation, and other statistics). We show that privacy-preserving market design is feasible, in that the publicly observable outcome is minimally informative about private information. In contrast to the view in the literature, there need not be a trade-off between privacy preservation and efficiency.
Essays On Modern Financial Markets
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Author : Markus Baldauf
language : en
Publisher:
Release Date : 2015
Essays On Modern Financial Markets written by Markus Baldauf and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Trading in public equity markets has changed drastically over the past decade: it has become largely automated and orders of magnitudes faster, and it has become spread out across many venues. This dissertation investigates how this transformation has affected market outcomes. Chapter 1 investigates the effect of the proliferation of exchanges on the bid-ask spread. The welfare consequences of increased exchange competition are theoretically ambiguous. While com- petition does place downward pressure on the bid-ask spread, this force may be outweighed by increased adverse selection of liquidity providers that stems from additional arbitrage opportunities. We investigate this ambiguity empirically by estimating key parameters of the model using detailed trading data from Australia. The benefits of increased competition are outweighed by the costs of multi-venue arbitrage. Compared to the prevailing duopoly, we predict that the counterfactual spread under a monopoly would be 23 percent lower. Further, market design variations on the continuous limit order book would eliminate profits from cross-venue arbitrage strategies and reduce the spread by 51 percent. Finally, eliminating off-exchange trades, so-called dark trading, would reduce the spread by 11 percent. Chapter 2 studies the effect of trading speed on market outcomes in a setting where information acquisition is endogenous. An increase in trading speed crowds out information acquisition by reducing the gains from trading against mispriced quotes. Thus, faster speeds have two effects on traditional measures of market performance. First, the bid-ask spread declines, since there are fewer informational asymmetries. Second, price efficiency deteriorates, since less information is available to be incorporated into prices. A general tradeoff exists between low spreads and price efficiency. We characterize the frontier of this tradeoff and evaluate several trading mechanisms within this framework. The prevalent limit order book mechanism generally does not induce outcomes on this frontier. We consider two alternatives: first, a small delay added to the processing of all orders except cancellations, and second, frequent batch auctions. Both induce equilibrium outcomes on this frontier. Chapter 3 investigates the consequences of information arrival on market outcomes in an environment where both high-frequency traders and slow traders engage in liquidity provision. To that end, we develop a model that predicts that fast traders achieve a relative increase in profits obtained from liquidity provision following a news event, which they achieve both by (i) trading smaller volumes at mispriced quotes, and (ii) winning the race to supply liquidity at updated quotes. We find strong support for these model predictions using data from NASDAQ and the Toronto Stock Exchange. The identification strategy is based on an unanticipated news event in which the Twitter feed of the Associated Press falsely reported a successful terrorist attack.
Essays On Financial Markets And Game Theory
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Author : Joshua Mollner
language : en
Publisher:
Release Date : 2015
Essays On Financial Markets And Game Theory written by Joshua Mollner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Trading in financial markets has changed dramatically over the past decade: it has become largely automated and orders of magnitudes faster, and it has become spread out across many venues. Chapters 1 and 2 of this dissertation investigate how this transformation has affected market outcomes. Chapter 1 studies the effect of speed on market outcomes in a setting where information acquisition is endogenous. An increase in trading speed crowds out information acquisition by reducing the gains from trading against mispriced quotes. Thus, faster speeds have two effects on traditional measures of market performance. First, the bid-ask spread declines, since there are fewer informational asymmetries. Second, price efficiency deteriorates, since less information is available to be incorporated into prices. A tradeoff exists between the dual objectives of minimizing the bid-ask spread and maximizing price efficiency. We characterize the frontier of this tradeoff and evaluate several trading mechanisms within this framework. Despite its popularity, the limit order book mechanism generally does not induce outcomes on this frontier. We consider two alternatives: first, a small delay added to the processing of all orders except cancellations, and second, frequent batch auctions. Both induce equilibrium outcomes on this frontier. Chapter 2 investigates how an increase in the number of exchanges affects the bid-ask spread. The welfare consequences of increased exchange competition are theoretically ambiguous. While competition does place downward pressure on the bid-ask spread, this force may be outweighed by increased adverse selection that stems from additional arbitrage opportunities. We investigate this ambiguity empirically by estimating key parameters of the model using detailed trading data from Australia. The benefits of increased competition are outweighed by the costs of multi-venue arbitrage. Compared to the prevailing duopoly, we predict that the counterfactual spread under a monopoly would be 23 percent lower. Further, market design variations on the continuous limit order book would eliminate profits from cross-venue arbitrage strategies and reduce the spread by 51 percent. Finally, eliminating off-exchange trades, so-called dark trading, would reduce the spread by 11 percent. Chapter 3 introduces two new equilibrium refinements for finite normal form games. Both refinements incorporate the intuitive idea that a costless deviation by one player is more likely than a costly deviation by the same or another player. These refinements lead to new restrictions in games with three or more players. Furthermore, these refinements are applied to two well-known auction games: the generalized second price auction and the first-price menu auction. Both refinements select interesting equilibria in these games, and may be interpreted as providing a strategic foundation for the selections that others have made.