Download or read book Essays on Over the counter Markets written by Zhuo Zhong and published by . This book was released on 2014 with total page 181 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays studying on over-the-counter trading (OTC henceforth). In Chapter 1, I model the formation of the inter-dealer network in an OTC market, and study how the network affects prices and volumes in the market. The model explains the empirically observed core-periphery network with dealers' capacity of providing liquidity. Specifically, dealers with large capacity comprise the core of the network, connecting them to all other dealers, while dealers who have small capacity operate at the periphery. In addition, my model matches the empirical finding on the negative relation between markups and order sizes. Furthermore, I show that there may be structural breaks in this negative relationship as variations in order sizes may alter the inter-dealer network. These results suggest that empirical studies on OTC markets should control for the stability of an inter-dealer network to avoid model misspecification. Chapter 2 evaluates how a centralized market could provide an incentive for OTC dealers to reduce opacity in trading. In this chapter, opacity is modeled as Knightian uncertainty faced by investors. I find that while a competitive centralized market provides an incentive for dealers to reduce opacity in an OTC market, a noncompetitive centralized market does the opposite. Competition between the competitive centralized market and the OTC market forces dealers in the latter to reduce opacity. With the noncompetitive centralized market, opportunities for collusion provide an incentive for dealers to increase opacity. Dealers do not have the incentive to reduce opacity in this case. In Chapter 3, we test the model implications in Chapter 2 with an empirical study on the corporate bond markets, and find consistent results. We find that transaction costs of bonds traded only in OTC markets are significantly different from (10 basis points larger than) bonds traded both in OTC markets and the NYSE market. Since the latter contains pre-trade information from the NYSE market, this finding suggests that pre-trade transparency reduces bonds' trading costs. This result implies that pre-trade transparency benefits investors but hurts dealers, as the major part of dealers' profits comes from investors' trading costs. We also find that pre-trade transparency increases bonds' values. Bonds with the NYSE pre-trade transparency have significantly lower bond yields than bonds without the pre-trade transparency. Our findings are robust to endogeneity of firms' bond listing decisions on the NYSE.

Download or read book Essays in Over the counter Markets written by Yu An and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays, which examine several issues in over-the-counter financial markets. The first essay shows that dealers build socially excessive inventories in order to compete for market share. The distortion in pricing is empirically identified using transaction level data in the U.S. corporate bond market. The second essay shows that the two roles of a dealer, immediacy provision and matchmaking, create a conflict of interest. A direct implication is that bid-ask spread is a misleading measure of immediacy provision. The third essay introduces reducible intermediation chains in order to quantitatively measure search frictions in over-the-counter markets. This allows us to categorize intermediation chains by their primary intermediation incentives. Specifically, the first essay shows that dealers in over-the-counter markets build socially excessive inventories in order to compete for market share and get the associated intermediation rents. Using the TRACE dataset for the U.S. corporate bond market, I find that, excluding the crisis, the incentive to build inventory raises dealers' bid prices for corporate bonds by an average of 5 basis points. During the crisis, this effect was reversed by 23 basis points of implied additional dealer balance-sheet costs. The second essay, co-authored with Zeyu Zheng, shows that the two roles of a dealer, immediacy provision and matchmaking, create a conflict of interest that leads dealers to hold inefficiently high levels of inventory in order to extract additional rents from customers. Because of this, bid-ask spread is a misleading measure of immediacy provision. Our model suggests the use of execution delays as an additional measure of immediacy provision. The third essay, co-authored with Yang Song and Xingtan Zhang, introduces reducible intermediation chains in order to quantitatively measure search frictions in over-the-counter markets. This allows us to categorize intermediation chains by their primary intermediation incentives. Using interdealer trades in the U.S. corporate bond market, we discover new types of intermediation chains that are not formed to mitigate search frictions or to facilitate liquidity provision. Instead, these chains arise when dealers intermediate trades for other dealers in order to unwind positions at a profit.

Download or read book Essays on frictions in financial over the counter markets written by Shengxing Zhang and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Over the counter Markets written by Jamie Coen and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Over the Counter Financial Markets written by Shuo Liu and published by . This book was released on 2020 with total page 215 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters that study dealer's endogenous search effort in over-the-counter (OTC) financial markets and its effect on asset's liquidity risk in U.S. corporate bond markets. In Chapter 1, I study dealer's search intensity using a transaction-level data set on U.S. corporate bonds. The main target of this chapter is to test whether dealer's search intensity is endogenously determined by their idiosyncratic states and how search intensity affects market efficiency. Existing literatures commonly do not consider dealer's continuous adjustment of search intensity in search-and-match models and there is no paper using transaction-level data to estimate the dealer-level state-dependent search intensity. In this paper, I propose a search-and-match model with dealers' endogeneous and state-dependent search intensity and estimate it using the TRACE data for the U.S. corporate bond market. I find that: [1] if we rank all dealers by their private valuations for holding the bond, the dealer of the middle-level private valuation will choose the highest level of search intensity, and she works as the "dealer of dealers" to reallocate bond positions from the low-type dealers to the high-type dealers; [2] the estimated model gives us a quantitative evaluation of the inefficiency due to the decentralized market structure. At the average level across all sub-markets in our sample, the model estimates that dealers' search cost is 0.75% of bond's face value, and there is on average 8.64% of bond positions being misallocated, comparing with a counterfactual frictionless market. In conclusion, the decentralized market structure generates 8.96% welfare loss relative to the frictionless one. In Chapter 2, I study the correlation between corporate bond's misallocation among dealers and liquidity risk. This chapter bridges the literature on search-and-match models and the literature on explaining the non-default component of corporate bond's credit spread variations. In this paper, I propose a measure of bond's misallocation among dealers. This measure is based on a structural search-and-match model, and is defined as the cross-sectional covariance of dealers' idiosyncratic private valuations for holding the bond and their actual inventory positions in the bond. Using the TRACE data for the U.S. corporate bond market, I construct a panel data which contains yearly series of empirical estimates of bond's misallocation and liquidity risk, and verify that: at the bond level, a higher magnitude of misallocation among the dealers is associated with a higher magnitude of liquidity risk. This finding gives a preliminary market microstructural evidence supporting that: the distribution of market maker's states correlates with the magnitude of asset's liquidity risk. In Chapter 3, I theoretically study the social optimal policy function of dealer's meeting technology in over-the-counter markets. This chapter contributes to the existing literature by considering the dealer-level state-dependent meeting technology in a random search model and obtaining explicit-form solutions of the social optimal policy functions. In the model, I allow the agents (dealers) to freely adjust their meeting technologies based on two types of idiosyncratic states: asset position and liquidity need. I find that in the social optimal policy functions, there is no intermediation in the sense that no dealer will choose to search simultaneously on both the buy side and sell side of the market. This result applies for a general form of search-cost function.

Download or read book Essays on Asset Pricing in Over the counter Markets written by Ji Shen and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Derivatives written by Don M. Chance and published by John Wiley & Sons. This book was released on 2011-07-05 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the updated second edition of Don Chance’s well-received Essays in Derivatives, the author once again keeps derivatives simple enough for the beginner, but offers enough in-depth information to satisfy even the most experienced investor. This book provides up-to-date and detailed coverage of various financial products related to derivatives and contains completely new chapters covering subjects that include why derivatives are used, forward and futures pricing, operational risk, and best practices.

Download or read book Essays on Information and Market Design written by Ji Hee Yoon and published by . This book was released on 2018 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study the design of markets and the performance of various trading mechanisms with respect to efficiency and information aggregation. Endogenous Market Structure: Over-the-Counter versus Exchange Trading For many assets, traders favor either over-the-counter (OTC) or centralized markets. This paper examines how traders' choices between these trading venues depend on asset and trader characteristics. A trader's incentive to choose an OTC market depends on the benefit of learning his asset value and the cost due to price impacts. Traders choose OTC markets over centralized exchanges when the asset values are heterogeneously interdependent and traders' private information is sufficiently inaccurate. Market structures are endogenously determined by traders' individual market choices. This paper provides comparative statics of equilibrium market structures. The OTC and centralized market coexist only when traders are asymmetric. Furthermore, the OTC market decreases information efficiency by being conducive to trade only between informed traders. Uncontingent Trading and Exchange Design (with M. Rostek) In many markets, a trader's demand for each asset is contingent on the price of that asset alone rather than on the price of all assets he trades. This paper examines a uniform-price double auction with arbitrary restrictions on cross-asset conditioning, including contingent demand schedules (demands for each asset condition on the price vector) and uncontingent schedules (demand of each asset conditions on the price of that asset). In contrast to markets with contingent schedules, a trader optimizes with respect to a directional derivative rather than asset-by-asset. A trader's best response itself is determined by a fixed point between his first-order condition and the directional derivative. We characterize equilibrium in markets with limited cross-asset conditioning and examine the welfare effects of conditioning restrictions. If suitably designed, markets with limited demand conditioning are always at least as efficient as markets with contingent demands. Creating multiple exchanges for the same assets is generally not redundant for welfare even if all traders participate in all exchanges. Inference Design (with M. Rostek) This paper examines how market design can be used to induce the desired informational properties of prices and accomplish revenue or efficiency objectives. A model of double auction with quasilinear-quadratic utilities is introduced that allows for arbitrary Gaussian information structures, and in particular allows for heterogeneity in interdependence of trader values. With heterogeneous interdependence, some traders learn more from prices whereas others from private signals; thus, centralized market clearing can isolate informed trading from uninformed trading (learning from signals versus learning from prices). Changes in the information structure can enhance both learning from prices and private signals for all traders; changes that lower price informativeness for some market participants may improve the price informativeness of other agents. We characterize conditions on the information structure for price and signal inference to involve no tradeoff.

Download or read book Essays on the Future written by Siegfried Hecker and published by Springer Science & Business Media. This book was released on 2013-12-01 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt: This collection represents a unique undertaking in scientific publishing to honor Nick Metropolis, the last survivor of the World War II Manhattan Project in Los Alamos. In this volume, some of the leading scientists and humanists of our time have contributed essays related to their respective disciplines, exploring various aspects of future developments in science and society, philosophy, national security, nuclear power, pure and applied mathematics, physics and biology, particle physics, computing, and information science.

Download or read book Platinum Essays in the Philosophy of Applied Economics of Development written by Herbert Onye Orji and published by AuthorHouse. This book was released on 2011-09 with total page 455 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, Platinum Essays In The Philosophy Of Applied Economics Of Development, is a collection of interrelated and interconnected essays on applied economics of development with underlying philosophy contents. The topic and areas of coverage were carefully chosen to comprehensively reflect a mandatory range of issues, germane to the understanding, teaching, research, publication and practice of applied economics of development, particularly in medium-to low income emerging markets. There are twenty one chapters each with a topic of major developmental significance in applied economics. Based on the clear and lucid underlying philosophical statements, the broad scope of the applied definitions, analytical and descriptive review of relevant modern and dated literatures, germane to the discourse, observations, recommendations, conclusions and range of ease or otherwise of policy implementations, the key objectives of the book have been achieved.

Download or read book Essays on Applied Mircoeconomics and Finance written by Fei Song (Ph. D.) and published by . This book was released on 2019 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of four chapters. Chapter 1 studies the effect of online review manipulations on review systems. Chapter 2 and Chapter 3 are co-authored with Ali Kakhbod and focus on post-trade transparency in dynamic over-the-counter markets. Chapter 4 is co-authored with Umut Dur, Parag A. Pathak and Tayfun Sönmez and studies the effect of the Taiwan mechanism, a mechanism that allocates high school seats to applicants. Chapter 1 shows that the conventional impression holds in the short-run that review manipulation makes review systems less informative. In the long-run, however., a manipulated review system can contain the same level of information as an un-manipulated counterpart. I develop a dynamic programming model with fixed product quality and naive buyers who are unaware of manipulation. I then extend it to consider endogenous product quality and sophisticated buyers. I also identify an unexpected effect of a policy to target sellers and check for manipulation. Chapter 2 studies how mandatory transparency (through TRACE), along with the long-term incentive of informed dealers, affects market price informativeness, liquidity and welfare in dynamic over-the-counter (OTC) markets. We show that the public disclosure of additional information about past trades, paradoxically, makes the markets more opaque, by reducing the market price informativeness. Thus, surprisingly, transparency requirements such as U.S. Dodd-Frank Act may make markets more opaque. However, this market opacity creates liquidity and increases welfare. To enhance financial transparency and improve the price informativeness as well as the market liquidity and welfare, an effective approach is to randomly audit dealers. Chapter 3 then studies how public disclosure of past trade details affects price discovery dynamics under asymmetric information with heterogenous hedging motives. We model that an informed buyer (informed trader) sequentially trades with a series of uninformed sellers (hedgers). The informed buyer is forward-looking and risk-neutral, and uninformed sellers are myopic and heterogeneously risk-averse. We discover that sellers' price discovery over the underlying fundamentals is crucially affected by what they can observe about past trade details. Specifically, (i) post-trade price transparency delays price discovery, but once it happens, it is always perfect. (ii) In contrast, when only past order information is available, price discovery can never be perfect, and can even be in the wrong direction. (iii) The availability of past trade details, paradoxically, makes it easier for the informed buyer to hide her private information and offer opaque prices. We establish that, under some minor regularity conditions, our equilibrium characterization achieves the maximal degree of ignorance among all pure-strategy PBE. Hence, this chapter can be viewed as a worst case analysis for regulators who care about market transparency. Moreover, we show that our findings are robust when the informed party's bargaining power decreases along the length of past trade history. Finally, we extend our results to the case where the informed buyer has a non-zero outside option, and the case where both parties switch their trading positions. Chapter 4 analyzes the properties of the Taiwan mechanism, used for high school placement nationwide starting in 2014. In the Taiwan mechanism, points are deducted from an applicant's score with larger penalties for lower ranked choices. Deduction makes the mechanism a new hybrid between the well-known Boston and deferred acceptance mechanisms. Our analysis sheds light on why Taiwan's new mechanism has led to massive nationwide demonstrations and why it nonetheless still remains in use.

Download or read book Essays in Macro and Monetary Economics written by and published by . This book was released on 2016 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two self-contained essays in macro and monetary economics, organized in the form of two chapters. In the first chapter, I develop a model with limited commitment and endogenous monitoring to study the optimal number and size of banks. Banking arises endogenously because of economies of scale. The planner designates a fraction of ex-ante homogenous agents to be bankers and concentrates monitoring efforts on them. Having fewer bankers reduces total monitoring costs, but this means more deposits per banker. Having more deposits, however, increases the bankers’ incentives to divert deposits for their own profit. The result is that the planner needs to give bankers some reward to dissuade such opportunistic behavior. The optimal number of banks is negatively related to the fixed and marginal monitoring costs, impatience, and the temptation to default, but positively related to the return on real investments. To implement efficient allocations, there is a tension between equilibrium with free entry and having positive bank profit for incentive reasons. When the tax on banks is not too high, there exist non-degenerate stationary equilibriums. The equilibrium allocation is optimal only if the government limits entry of banks. One natural way is to charge a tax on bankers and give a transfer to non-bankers; another way is to simply impose a quota by limiting the number of bank charters. In the second chapter, using an overlapping generations model, I propose a resolution of the high household saving puzzle in China by analyzing the impact of the one-child policy and the resulting flattening of age-earning profiles on household saving behavior. Following Ben-Porath’s (1967) human capital accumulation technology, with the implementation of the one-child policy, the initial human capital of each young worker who enters into the job market increases, which results in a decrease of the worker’s on-the-job-training, and thus a flattening of age-earning profiles. The flattened age-earning profiles encourage younger cohorts to save more for consumption smoothing, and, therefore, provides an explanation for the high saving rates among the young. Both the data and the model demonstrate that the mechanism is valid.

Download or read book Essays in Macroeconomic Policy written by Miranda S. Goeltom and published by Gramedia Pustaka Utama. This book was released on 2007 with total page 624 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on The Nature and State of Modern Economics written by Tony Lawson and published by Routledge. This book was released on 2015-04-17 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt: What do modern academic economists do? What currently is mainstream economics? What is neoclassical economics? And how about heterodox economics? How do the central concerns of modern economists, whatever their associations or allegiances, relate to those traditionally taken up in the discipline? And how did economics arrive at its current state? These and various cognate questions and concerns are systematically pursued in this new book by Tony Lawson. The result is a collection of previously published and new papers distinguished in providing the only comprehensive and coherent account of these issues currently available. The financial crisis has not only revealed weaknesses of the capitalist economy but also highlighted just how limited and impoverished is modern academic economics. Despite the failings of the latter being more widely acknowledged now than ever, there is still an enormous amount of confusion about their source and true nature. In this collection, Tony Lawson also identifies the causes of the discipline’s failings and outlines a transformative solution to its deficiencies. Amongst other things, Lawson advocates for the adoption of a more historical and philosophical orientation to the study of economics, one that deemphasizes the current focus on mathematical modelling while maintaining a high level of analytical rigour. In so doing Lawson argues for a return to long term systematic and sustained projects, in the manner pursued by the likes of Marx, Veblen, Hayek and Keynes, concerned first and foremost with advancing our understanding of social reality. Overall, this forceful and persuasive collection represents a major intervention in the on-going debates about the nature, state and future direction of economics.

Download or read book Essays on Frictional Financial Markets written by Fabricius Somogyi and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays that uncover the origins of market frictions and their implications for the functioning of the global foreign exchange (FX) market. The first research paper speaks to the hegemony of the US dollar in FX trading. Over 85% of all FX transactions involve the US dollar, despite the United States accounting for less than one quarter of global economic activity. I show both theoretically and empirically that the US dollar dominates FX volumes because FX market participants are strategic about their trading costs. Hence, they avoid directly transacting in non-dollar currency pairs if the expected trading cost is too large. Instead, market participants exchange non-dollar pairs indirectly by using the US dollar as a vehicle currency. That is, market participants first exchange a non-dollar currency into US dollars, and then trade those US dollars for their target currency. I derive a set of theoretical conditions for currency dominance in FX trading volume. To validate these conditions empirically, I use a granular and globally representative FX trade data set. My empirical findings are consistent with the predictions of my theoretical framework and corroborate the importance of strategic behaviour as a novel determinant of currency dominance. Using a novel identification strategy, I show that up to 36-40% of the daily volume in the most liquid dollar currency pairs are due to vehicle currency trading. The second paper studies the information content of trades in the FX market. Specifically, we analyse a novel, comprehensive order flow data set, distinguishing among different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence that global FX order flows convey superior information heterogeneously across agents, time, and currency pairs. These findings are consistent with theories of asymmetric information and over-the-counter market fragmentation. A trading strategy based on exposure to asymmetric information risk generates high returns even after accounting for risk, transaction cost, and other common risk factors shown in the FX literature. Finally, the third paper analyses the cross-sectional asset pricing implications of liquidity risk in the FX market. Precisely because of its sheer size and despite its decentralised nature, the FX market is commonly known as one of the most liquid and resilient trading venues. However, a clear understanding of whether FX liquidity matters for asset prices is still missing. This paper aims to fill this gap by providing the first systematic study of the pricing implications of FX liquidity risk. We show that, even in this market, exposure to liquidity risk commands a non-trivial risk premium of up to 4% percent per annum. In particular, systematic (marketwide) and idiosyncratic liquidity risk are not subsumed by existing FX risk factors and successfully price the cross-section of currency returns. However, we also find that liquidity and carry trade premia are significantly correlated. The carry trade is a simple trading strategy that aims to profit from the interest rate differential between high- and low-yielding currencies. The correlation between liquidity and carry trade premia lends support to a liquidity-based explanation of the infamous carry trade risk premium. To illustrate this point, we decompose carry trade returns and show that the commonality with liquidity risk stems from periods of high market stress and is confined to the static but not the dynamic carry trade.

Download or read book Essays On International Market Efficiency and Manipulation written by Feng Zhan and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Financial Economics written by Rita Biswas and published by Emerald Group Publishing. This book was released on 2019-10-24 with total page 190 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume, dedicated to John W. Kensinger, explores a variety of topics in financial economics, including firm growth, investment risks, and the profitability of the banking industry. With its global perspective, Essays in Financial Economics is a valuable addition to the bookshelf of any researcher in finance.