Three Essays On The Trading Behavior Of Market Participants
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Three Essays On The Trading Behavior Of Market Participants
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Author : Orkunt Mesut Dalgic
language : en
Publisher:
Release Date : 2003
Three Essays On The Trading Behavior Of Market Participants written by Orkunt Mesut Dalgic and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Investments categories.
Three Essays On The Behavior Of Financial Market Participants
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Author : Andrea Rossi (Ph. D. in finance)
language : en
Publisher:
Release Date : 2018
Three Essays On The Behavior Of Financial Market Participants written by Andrea Rossi (Ph. D. in finance) and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with Finance categories.
In the third chapter, coauthored with Itzhak Ben-David and Justin Birru, we study whether industry familiarity is an advantage in stock trading by exploring the trading patterns of industry insiders in their own personal portfolios. To do so, we identify accounts of industry insiders in a large data set provided by a retail discount broker. We find that insiders trade firms from their own industry more frequently. Furthermore, they earn abnormal returns exclusively when trading own-industry stocks, especially obscure stocks (small, low analyst coverage, high volatility). In a battery of tests, we find no evidence of the use of private information. The results are most consistent with the interpretation that industry familiarity is an advantage in stock trading.
Three Essays On Trading Behavior
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Author : Adam Daniel Clark-Joseph
language : en
Publisher:
Release Date : 2013
Three Essays On Trading Behavior written by Adam Daniel Clark-Joseph and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
This dissertation analyzes trading behavior in financial markets from multiple perspectives. In chapter 1, "Exploratory Trading," I investigate the mechanisms underlying high-frequency traders' capacity to profitably anticipate price movements. I develop a model of how a trader could gather valuable private information by using her own orders in an exploratory manner to learn about market conditions. The model's predictions are borne out empirically, and I find that this "exploratory trading" model helps to resolve several central open questions about high-frequency trading. Chapters 2 and 3 focus on the trading behavior of individuals. Chapter 2, "Foundations of the Disposition Effect: Experimental Evidence," (co-authored with Johanna Mollerstrom), presents and analyzes results from a laboratory experiment intended to examine if and how "regret aversion"--aversion to admitting mistakes--affects people's trading decisions. Although the experimental results resolve little about regret aversion specifically, they reveal some novel and unexpected effects, most importantly that subjects radically changed their trading decisions when they were compelled to devote a minimal amount of extra attention. In chapter 3, "Price Targets," I analyze how rational investors who privately observe information of indeterminate quality use prices to learn about whether or not their private information is valuable. I derive implications about trading behavior that not only help to explain a variety of empirical puzzles, but also generate several new testable predictions. Although these three essays differ considerably in methodology and focus, they all address the same basic issue of understanding the foundations of trading behavior.
Essays On Algorithmic Trading
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Author : Markus Gsell
language : en
Publisher: Columbia University Press
Release Date : 2010-07-09
Essays On Algorithmic Trading written by Markus Gsell and has been published by Columbia University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-07-09 with Business & Economics categories.
Technological innovations are altering the traditional value chain in securities trading. Hitherto the order handling, i.e. the appropriate implementation of a general trading decision into particular orders, has been a core competence of brokers. Labeled as Algorithmic Trading, the automation of this task recently found its way both into the brokers' portfolio of service offerings as well as to their customers' trading desks. The software performing the order handling thereby constantly monitors the market(s) in real-time and further evaluates historical data to dynamically determine appropriate points in time for trading. Within only a few years, this technology propagated itself among market participants along the entire value chain and has nowadays gained a significant market share on securities markets worldwide. Surprisingly, there has been only little research analyzing the impact of this special type of trading on markets. Markus Gsell's book aims at closing this gap by analyzing the drivers for adoption of this technology, the impact the application of this technology has on markets on a macro level, i.e. how the market outcome is affected, as well as on a micro level, i.e. how the exhibited trading behavior of these automated traders differs from normal traders' behavior.
Three Essays On Current International Financial Markets
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Author : Seungho Lee
language : en
Publisher:
Release Date : 2019
Three Essays On Current International Financial Markets written by Seungho Lee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This dissertation consists of three essays that address recent developments in international financial markets that have been of concern for scholars, policymakers, and practitioners. The first essay examines how cultural factors can influence individual investors' trading behavior in response to risk in nine Eurozone countries. The markets studied were particularly affected by the global financial crisis, the subsequent European banking crisis, and the European sovereign debt crisis. Using mutual fund flows as proxy of investors' trading behavior, our evidence indicates that a country culture variable significantly affects investors' trading responsiveness to risk. Specifically, the impact of risk on fund flows is significantly positive and is larger in scale in countries with individualist cultures. The second essay attempts to investigate the effects of negative interest rate policies (NIRP) on foreign exchange and equity markets of eight European countries and Japan. To see the impacts of these policies, event studies and regime-switching vector autoregressive regression analyses are conducted for the nine countries that implement NIRP. The results provide valid evidence that the announcement of NIRP has a transitory effect on currency depreciation; long term effects are less evident. On the day of NIRP implementation, both currency and equity market returns reacted in response to the event efficiently and negatively, especially in Switzerland's case. These outcomes suggest that simulative monetary policy by lowering interest rates below zero might have counter-effects from those observed when interest rates are lowered, but to rates that remain positive. Additionally, findings from the long term analyses explain that interest rate term structure and cointegration level of local and the U.S. equity index may be related to effectiveness of NIRP in currency and equity markets, respectively. The last essay examines the determinants of the price of the leading cryptocurrency, Bitcoin. The analyses identify a number of factors that significantly affect the returns to investments in Bitcoin including: trading volume, high-low price spread, and extreme price change in the previous period. The latter result supports the assertion that recent severe price fluctuations in Bitcoin markets are primarily due to speculative investment activities. Furthermore, evidences suggested in this study explain possibility of market compromise and inefficiency of the cryptocurrency market, implying pivotal risks for Bitcoin market participants.
Three Essays In Behavioral Finance
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Author : Michael Young
language : en
Publisher:
Release Date : 2018
Three Essays In Behavioral Finance written by Michael Young 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.
Over the last two decades, there has been a significant increase in research related to behavioral finance. As Barberis and Thaler (2002) point out, there are two main aspect of behavioral finance: limits to arbitrage and the effects of psychology. My dissertation will focus on the second aspect, the effects of psychology on individual investor behavior. The first essay examines an important question in this behavioral finance literature: changes in aggregate risk aversion. I use changes in the level of terrorism in the United States as a shock to the aggregate mood of American investors, and examine changes in flows to mutual funds as a proxy for investor risk preferences. After examining investors vulnerable to changes in mood after attacks, and ruling out any possible effect due to changes in expect risk, and changes to expected returns, the first essay concludes that mood driven risk aversion is the likely cause of the change in behavior. In the second essay, we use the insights gained from Essay 1 regarding the change in behavior of U.S. investors following an increase in terrorist attacks. Using household level of equity market participation and individual trading data the second essay examines the array of decisions investors make. The second essay finds that households participate less in equity markets, trade less, but purchase more local stocks in response to terrorist attacks. Additionally, this change in behavior is especially apparent in households where the designated head is a male. Finally, in the third essay we turn away from terrorism, and examine the effects that local NFL team performance on equity market participation. Examining the most popular spectator sport in the U.S. the third essay shows that poor performance by local NFL teams correlates with fewer households in that state owning equity. While previous studies argue that sentiment is the driver of sports related behavior, the third essay find that gambling losses may also play a role in the drop in equity market participation following seasons with a low number of wins. Taken together, the dissertation demonstrates the importance of examining external shocks and the effect they have on the behavior of investors. From terrorism to something as seemingly benign as the NFL, the dissertation adds to the behavior finance literature by identifying new shocks that effect the investing behavior of individuals.
Three Essays On The Cost Components Of The Bid Ask Spread
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Author : Paul Leventhal
language : en
Publisher:
Release Date : 1999
Three Essays On The Cost Components Of The Bid Ask Spread written by Paul Leventhal and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Investment analysis categories.
This dissertation consists of three interrelated essays. The first essay focuses on the adverse selection component of the bid-ask spread. A regime switching model applied to the trading process leads to a parsimonious model of the time-series evolution of the bid-ask spread in which market participants use trade data to answer the following question: Is there currently private information in the market for a given stock? If there is a high probability of private information in the market, this leads contemporaneously to a greater revision in beliefs about the true price. Together with compensation for transactions costs, this leads to a greater revision in transaction price. Using TSE 35 trade and quote data for March and May 1996, the pooled cross-section and time series results support this view. The second essay examines the costs of adverse information and order processing in light of transaction size, type of trader and type of trading method. Specifically, it is found that adverse selection increases with the trade size (consistent with numerous empirical studies relating trade size and the cost components of the bid-ask spread). However, whether the trade was undertaken by the designated market maker, by a principal trader or by an individual belonging to neither of these two categories is also of importance. In addition, we show that trades consummated within the investment dealer's firm have a lower adverse information cost component than trades executed externally. For order processing, it is found that the single most important determinant of cost is whether the transaction is internal or external to the investment dealer firm, with internal trades being more costly. The third essay examines the robustness of the Huang and Stoll (1997) model estimates to the use of different clustering methods and to a minimum quotation increment reduction (MQIR) on the Toronto Stock Exchange. We find that adequate reversal of trade flow is a necessary but not sufficient condition for model performance. We also find that model estimates are quite sensitive to the data clustering method selected. In addition, we show that this model fails to provide adequate cost component estimates of the spread in the post-MQIR period due to a fundamental change in market-maker behavior.
Three Essays On Quote Stuffing Dealer Liquidity And Stub Quoting
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Author : Jared Frank Egginton
language : en
Publisher:
Release Date : 2012
Three Essays On Quote Stuffing Dealer Liquidity And Stub Quoting written by Jared Frank Egginton 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.
This dissertation consists of three essays on quote stuffing, dealer provided liquidity, and stub quoting. The first essay examines the impact that intense episodic spikes in quoting activity (frequently referred to as "quote stuffing") has on market conditions. We find that quote stuffing is pervasive with several hundred events occurring each trading day and that over 74% of US exchange traded securities experience at least one episode during 2010. We find that during periods of intense quoting activity stocks experience decreased liquidity, higher trading cost, and increased short term volatility. In the second we examine the role of the NASDAQ market marker over time. Specifically, we study the liquidity providing behavior of NASDAQ market markers in the trading environment in 2010 compared to 2004. We examine the frequency with which market makers are at the inside quote, the market and stock specific factors that influence market maker participation, changes in the number of market makers over time, and the relation between market maker participation and intraday bid-ask spread patterns. We find that the role of NASDAQ market makers declines over time. In 2004, the percentage of the trading day that market makers quote at the inside bid (ask) is 60% (62%) compared to 2010 when NASDAQ dealers quote at the inside bid (ask) just 12% (11%). The number of market makers declines. We also find evidence that the influence market makers have on intraday variations in the bid-ask declines over time. Finally in the third essay, we examine the liquidity providing behavior of NASDAQ market makers surrounding two periods of changing dealer obligation. The first period is the relaxation of Rule 4613 in November of 2007 which required NASDAQ market makers to place two-sided quotes that must be "reasonably related" to the current best bid and offer. This rule change permitted NASDAQ market makers to post quotes far away from the prevailing market (frequently referred to as a "Stub Quote"). The second is the Securities and Exchange Commission ban on stub quoting in December 2010 which requires that market makers quote within a predefined distance from market prices. We find evidence in both the 2007 and 2010 rule change periods that placing restrictions on stub quoting alters market makers liquidity providing behavior. Stub quote restrictions increase the time that market makers quote at the NBBO. We also find evidence that stub quoting restrictions increase the percent of daily volume executed by market makers. However, we find little evidence that stub quoting rules impact the participation of market makers during days with excessive volatility.
Essays In Financial Economics
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Author : Jiacui Li
language : en
Publisher:
Release Date : 2019
Essays In Financial Economics written by Jiacui Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This dissertation consists of three essays which examine how asset prices are impacted by the behavior and constraints of financial market participants. Chapter 2 shows evidence that slow asset price reaction to information can be driven by constraints in investors' information processing, rather than by illiquidity and transaction costs, which are the current dominant explanations in academia. My core hypothesis is that investors cannot immediately read and understand all value-relevant information, so they have to choose where to allocate their attention, and that drives variation in price underreaction to information. The key testable prediction is that price underreaction will be information source-specific, with lower underreaction to sources that are more value-relevant. Corporate bond and stock return data are strongly supportive of this view. For instance, corporate bonds with higher credit risk respond more quickly to default-relevant news, and bonds with longer duration respond more quickly to interest rate news. These facts cannot be explained by traditional illiquidity mechanisms which only explain security-level variation. Chapter 3 shows that mutual fund flow-induced price pressures explain around 30% of Fama-French size and value factor movements. Throughout 1965 to 2015, mutual fund investors frequently made very large size and value style-level capital reallocations that amount to a few percentage points of the total equity market value. These flows induce fund man- agers to conduct corresponding trading in those factors, and such factor-level trading pressure creates price pressures that revert very slowly. Because size and value are major return factors, this means that price pressures can explain a significant fraction over overall price movements. Chapter 4, which is a joint project with Wenhao Li, examines the intermediation arrangements in institutional trading. When executing trades for institutional investors, intermediaries sometimes act as brokers (e.g. in equities) and earn commissions, and other times (e.g. in currencies) as dealers, taking risks and earning markups. What explains this variation in intermediation style? To this end, we propose a theory based on the trade-off between the cost of monitoring brokers and paying dealers for holding inventory. Brokers have incentives to misbehave so they need to be monitored. In contrast, dealers have aligned incentives, but charge customers for inventory costs. Consistent with our theoretical predictions, broker intermediation is more prevalent in liquid and transparent markets where monitoring is easier, and when intermediary inventory costs are higher.
Three Articles On Knowledgeable Trading
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Author : T'ang Wen
language : en
Publisher:
Release Date : 2023-03-09
Three Articles On Knowledgeable Trading written by T'ang Wen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023-03-09 with Business & Economics categories.
consists of three essays and focuses on informed trading by various economic agents. The first essay provides causal evidence that compensation shocks due to missing relative performance goals prompts more opportunistic insider trading. I use a regression discontinuity design to identify the effect of missing relative performance goals on insider trading. I find that CEOs who narrowly miss relative performance goals and hence receive a lower pay earn higher abnormal profits from their insider trades subsequent to the compensation shock than otherwise similar CEOs who narrowly beat the goals. I also find that CEOs who narrowly miss relative performance goals become less likely to provide earnings and sales guidance. These results suggest that managers can use insider trading to make up for the loss in compensation due to missing relative performance goals, which could reduce the incentive effect of performance-based pay. The second essay, coauthored with Jiekun Huang, identifies the effect of the implementation of the EDGAR system on information production by market participants. Modern information technologies have fundamentally changed how information is disseminated in financial markets.