Download or read book Essays on Price Discovery in Stock and Option Markets written by Jung Hwang and published by . This book was released on 2008 with total page 278 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Price Discovery in the U S Stock and Stock Options Markets written by Richard Holowczak and published by . This book was released on 2010 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Option prices vary with not only the underlying asset price, but also volatilities and higher moments. In this paper, we use a portfolio of options to seclude the value change of the portfolio from the impact of volatility and higher moments. We apply this portfolio approach to the price discovery analysis in the U.S. stock and stock options markets. We find that the price discovery on the directional movement of the stock price mainly occurs in the stock market, more so now than before as an increasing proportion of options market makers adopt automated quoting algorithms. Nevertheless, the options market becomes more informative during periods of significant options trading activities. The informativeness of the options quotes increases further when the options trading activity generates net sell or buy pressure on the underlying stock price, even more so when the pressure is consistent with deviations between the stock and the options market quotes.

Download or read book Stock Market Volatility and Price Discovery written by Jose Gonzalo Rangel and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Single stock Futures Trading written by Yoshiki Shimizu and published by . This book was released on 2019 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays that study the effects of single-stock futures (SSFs) trading on financial markets during the 2008-2009 financial crisis. In September 2008, the Securities and Exchange Commission (SEC) issued an emergency order to temporarily ban short selling of nearly 1,000 financial stocks. The literature found that the ban deteriorated valuations and market quality for banned stocks in stock and options markets. My first essay uses this short selling ban as an empirical setting to test the effects of SSFs trading on price discovery and market quality of banned stocks. I find that the short selling ban revived the trading activities of the SSFs market: SSFs trading volume increased significantly for banned stocks during the ban period. This result suggests that bearish investors and those with hedging demand migrated to the SSFs market to take short positions in banned stocks. Moreover, I show that SSFs trading contributed to price discovery of underlying banned stocks significantly more during the ban period. Finally, I show that SSFs trading helps improve market quality of banned stocks. While the strand of literature documents the negative effects of the ban on both price discovery and market quality, I find that SSFs trading helps mitigate those negative effects of the ban. In the second essay, I examine the effects of SSFs trading on options market quality during the short selling ban period. I analyze banned stocks with options and/or SSFs listings, and examine how SSFs trading affects options market quality during the ban period. I measure options market quality as the bid-ask spread relative to optionality variable and the likelihood of put-call parity violations. While the literature documents a significant deterioration in these measures during the ban period, I show that SSFs trading helps improve the options spreads and reduce the likelihood of the violations. These findings contribute to the literature by establishing the link between options and SSFs markets and also by documenting that the SSFs market plays an important role in today's financial markets.

Download or read book Essays in Market Microstructure written by and published by . This book was released on 2009 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first essay investigates whether there is an informational linkage between option trading activities and underlying stock depths. I find that option trading activities and underlying stock depths are informative for predicting each other, indicating that a linkage does exist. I further find that underlying stock depths beyond best prices contain more information than same-side depths at best prices for predicting future option trading activities, which is corroborated by my additional finding that institutional investors are more likely to place underlying stock limit orders less aggressively than individual investors. My findings indicate that standing underlying stock limit orders play an important role in price discovery between options and underlying stock markets. The second essay empirically examines whether specialists face adverse selection and evaluates the performance of the six measures of adverse selection or trade informativeness. I find that specialists face adverse selection. I find that the Glosten-Harris (1988) measure is the most reliable, that the Huang-Stoll (1997) measure is the least reliable, and that the ranking among the George-Kaul-Nimalendran (1991), Lin-Sanger-Booth (1995), PIN (1996), and Hasbrouck (1991b) measures is ambiguous.

Download or read book Essays on Price Discovery in Financial Markets written by Xinquan Zhou and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We begin this thesis with developing a theoretical framework and propose a relevant empirical analysis of the soybean complex prices cointegration relationship in a high-frequency setting. We allow for heterogeneous expectations among traders on the multi-asset price dynamics and characterize the resulting market behavior. We demonstrate that the asset prices autoregressive matrix rank and the speed of reversion towards the long-term equilibrium are related to the market liquidity, unlike the cointegrating vector. Our empirical application to the soybean complex, where we control for volatility, supports our theoretical results when the price idleness of the different assets is properly accounted for. Next we switch to price discovery analysis to investigate the lead-lag relationship between equity and CDS markets within a corporate finance framework. Based on investment grade and high yield firms, we establish a panel framework associated to nine corporate financial characteristics factors related to price volatility, default risk, and company capital structures. Contributing to the ongoing debate over the price discovery process between equity and CDS markets, we detect credit-driven price discovery in equity markets. We demonstrate that price discovery process is more credit market driven when a company's credit risk increases, which is significantly more prominent for small-sized firms with highly volatile equity price, and increasing default probability. At last, we turn to study news impact on the trend and the volatility in commodity market. Applying an innovated textual machine learning to business news articles related to corn markets, we extract topics from news. We demonstrate that textual news about financial markets, soybean-biofuel, crop progress and exports significantly contributes in explaining the corn price dynamics. Our volatility analysis demonstrates that soybean and biofuel media coverage contributes also positively to the level of uncertainty regarding corn price. We conclude that news items related to this topic generally provide outlook information leaving scope for interpretation and thus uncertainty after their release.

Download or read book Price Discovery in the U S Stock Options Market written by Yusif Simaan and published by . This book was released on 2010 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Five U.S. exchanges compete to provide quotes and attract order flows on common set of stock options: the American Stock Exchange, the Chicago Board of Options Exchange, the International Securities Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange. In this paper, we investigate the price discovery in the U.S. stock options market. Our analysis shows that the newly founded, fully electronic International Securities Exchange has become the leader in providing options quotes that are the most informative, the most binding, and also the most executable.

Download or read book Essays on Trading Mechanisms and Price Discovery in Financial Markets written by Jian-Xin Wang and published by . This book was released on 1994 with total page 123 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Information Flow in a Fragmented Dealer Market written by Laura A. Tuttle and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The 1990's were a period of rapid change in the trading of Nasdaq stocks. Advances in network technology improved the market's ability to trade efficiently and disseminate real-time information. Concurrently, regulatory changes mandated inclusion of alternate trading venues in the quote montage, and restricted the manner in which customer limit orders are handled by market makers. This dissertation explores the price formation process in the Nasdaq market, examining how fragmentation and imperfect transparency affects price formation. The first essay, "Price Discovery in Nasdaq Issues", investigates price leadership relationships between Nasdaq market makers and Electronic Communications Networks (ECNs). Using the Hasbrouck information share and Gonzalo-Granger common factor methodologies, I show that ECNs provide more than half of the price discovery for approximately one out of three Nasdaq 100 stocks, although ECNs trades account for less than 33% of any Nasdaq 100 issue's trading activity. The second essay, "Hidden Orders, Trading Costs and Information", explores non-displayed (reserve) depth in Nasdaq market-maker quotes in SuperSOES. While the presence of hidden depth at the inside has no effect on effective half-spreads, the information content of a trade (as measured by the midquote adjustment in the 30 minutes post-trade) is lower when reserve size is quoted, suggesting reserve size signals short-term price movements. Displayed depth does not predict daily returns, but the non-displayed orders of investment banks and wirehouses are indicative of daily price changes. In the final essay, "News or Noise: Is the Price Impact of Island Trades Persistent?", I examine the trades on the Island ECN to discover whether their information impact is transient or permanent. I measure price impact at a number of horizons, allowing for the possibility of price reversals from liquidity motivated trades. Using simple regressions, I show Island trades are more informative than other trades only at short time horizons post-trade; at longer horizons, the price impact of an Island trade is not significantly different from trades in other venues. Island trades can be shown to be more informative at longer horizons only when the experimental design controls for the endogeneity of the trading venue decision.

Download or read book Essays on the Impact of Investors Speculation and Disagreements on Security Prices and Trading Volume written by Siu Kai Choy and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effects of Options Markets on the Underlying Markets written by Brenden James Mason and published by . This book was released on 2018 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays in applied financial economics. The unifying theme is the use of financial regulation as quasi-experiments to understand the interrelationship between derivatives and the underlying assets. The first two essays use different quasi-experimental econometric techniques to answer the same research question: how does option listing affect the return volatility of the underlying stock? This question is difficult to answer empirically because being listed on an options exchange is not random. Volatility is one of the dimensions along which the options exchanges make their listing decisions. This selection bias confounds any causal effect that option listing may have. What is more, the options exchanges may list along unobservable dimensions. Such omitted variable bias can also confound any causal effect of option listing. My first essay overcomes these two biases by exploiting the exogenous variation in option listing that is created by the SEC-imposed option listing standards. Specifically, the SEC mandates that a stock must meet certain criteria in the underlying market before it can trade on an options exchange. For example, a stock needs to trade a total of 2.4 million shares over the previous 12 months before it can be listed. Since 2.4 million is an arbitrary number, stocks that are "just above" the 2.4 million threshold will be identical to stocks that are "just below" it, the sole difference being their probability of option listing. Accordingly, I use the 2.4 million threshold as an instrument for option listing in a fuzzy regression discontinuity design. I find that option listing causes a modest decrease in underlying volatility, a result that corroborates many previous empirical studies. My second essay attempts to estimate the effect of option listing for stocks that are "far away from" the 2.4 million threshold. I overcome the aforementioned omitted variable bias by fully exploiting the panel nature of the data. I control for the unobserved heterogeneity across stocks by implementing a two-way fixed effects model. Unlike most previous studies, I control for individual-level fixed effects at the firm level rather than at the industry level. My results show that option listing is associated with a decrease in volatility. Importantly, these results are only statistically significant in a model with firm-level fixed effects; they are insignificant with industry-level fixed effects. My third essay is a policy evaluation of the SEC's Penny Pilot Program, a mandated decrease of the option tick size for various equity options classes. Several financial professionals claimed that this decrease would drive institutional investors out of the exchange-traded options market, channeling them into the opaque, over-the-counter (OTC) options market. I empirically test an implication of this hypothesis: if institutional investors have fled the exchange-traded options market for the OTC market, then it may take longer for information to be impounded into a stock's price. Using the `price delay' measure of Hou and Moskowitz (2005), I test whether stocks become less price efficient as a result of being included in the Penny Pilot Program. I perform this test using firm-level fixed effects on all classes that were included in the program. I confirm these results with synthetic control experiments for the classes included in Phase I of the Penny Pilot Program. Generally, I find no change in price efficiency of the underlying stocks, which suggests that the decrease in option tick size did not materially erode the price discovery that takes place in the exchange-traded equity options market. I also find evidence that the decrease in option tick size caused an increase in short selling for the piloted stocks.

Download or read book Three Essays on Market Transparency written by and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Price Discovery in Futures and Options Markets written by Naomi E. Boyd and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate price discovery in the natural gas futures and futures options markets using a transaction based approach. By sampling market maker prices, we allow for a distinction between buy and sell prices, both directly from the futures market, and implied from the options market. Information shares are compared between futures and options markets as well as within the options market. Given the common architecture of the two markets, we find little price information generated in the options market. Within the options market, the highly levered out-of-the-money options offer less price discovery than other options. We attribute this to the higher transactions costs of out-of-the-money options.

Download or read book Three Essays in Financial Markets The Bright Side of Financial Derivatives Options Trading and Firm Innovation written by Iván Blanco and published by Ed. Universidad de Cantabria. This book was released on 2019-02-15 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.

Download or read book Three essays on empirical finance written by Tse-Chun Lin and published by Rozenberg Publishers. This book was released on 2009 with total page 146 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The World s First Stock Exchange written by Lodewijk Petram and published by Columbia University Press. This book was released on 2014-05-27 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: This account of the sophisticated financial hub that was 17th-century Amsterdam “does a fine job of bringing history to life” (Library Journal). The launch of the Dutch East India Company in 1602 initiated Amsterdam’s transformation from a regional market town into a dominant financial center. The Company introduced easily transferable shares, and within days buyers had begun to trade them. Soon the public was engaging in a variety of complex transactions, including forwards, futures, options, and bear raids, and by 1680 the techniques deployed in the Amsterdam market were as sophisticated as any we practice today. Lodewijk Petram’s award-winning history demystifies financial instruments by linking today’s products to yesterday’s innovations, tying the market’s operation to the behavior of individuals and the workings of the world around them. Traveling back in time, Petram visits the harbor and other places where merchants met to strike deals. He bears witness to the goings-on at a notary’s office and sits in on the consequential proceedings of a courtroom. He describes in detail the main players, investors, shady characters, speculators, and domestic servants and other ordinary folk, who all played a role in the development of the market and its crises. His history clarifies concerns that investors still struggle with today—such as fraud, the value of information, trust and the place of honor, managing diverging expectations, and balancing risk—and does so in a way that is vivid, relatable, and critical to understanding our contemporary world.

Download or read book Behavioral Finance written by Lucy F. Ackert and published by South Western Educational Publishing. This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book begins by building upon the established, conventional principles of finance that you've have already learned in your principles course. The authors then move into psychological principles of behavioral finance, including heuristics and biases, overconfidence, emotion and social forces. You immediately see how human behavior influences the decisions of individual investors and professional finance practitioners, managers, and markets. You also gain a strong understanding of how social forces impact individuals' choices. The book clearly explains what behavioral finance indicates about observed market outcomes as well as how psychological biases potentially impact the behavior of managers. The book's solid academic approach provides opportunities for you to utilize theory and complete applications in every chapter as you learn the implications of behavioral finance on retirement, pensions, education, debiasing, and client management. The book spends a significant amount of time examining how today's practitioners can use behavioral finance to further their professional success.