Read Books Online and Download eBooks, EPub, PDF, Mobi, Kindle, Text Full Free.
The Allocation Of Informed Trading Across Related Markets
Download The Allocation Of Informed Trading Across Related Markets full books in PDF, epub, and Kindle. Read online The Allocation Of Informed Trading Across Related Markets ebook anywhere anytime directly on your device. Fast Download speed and no annoying ads. We cannot guarantee that every ebooks is available!
Book Synopsis The Allocation of Informed Trading Across Related Markets by : Stewart Mayhew
Download or read book The Allocation of Informed Trading Across Related Markets written by Stewart Mayhew and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of changes in equity-option margin requirements on the liquidity of options and underlying stock markets. We find that the decrease in margin was associated with an increase in spreads and trade informativeness, and a decrease in depth for the underlying stocks. In contrast, options spreads decreased indicating a change in the relative allocation of informed traders between the two markets. When the required margin was increased, no significant change was observed in the underlying stocks, but option spreads increased. Overall, our results indicate that uninformed traders are more sensitive to the margin dimension of trading costs.
Book Synopsis An Empirical Examination of Informed Trading in the Option Market by : Thi Thanh Van Le
Download or read book An Empirical Examination of Informed Trading in the Option Market written by Thi Thanh Van Le and published by . This book was released on 2012 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite a growing research interest in option trading and its impact on the pricing of the underlying asset, the role of options as a vehicle for informed trading remains an important economic question which has not yet been fully explored. In fact, even though academics have often argued that informed traders may prefer to trade in the option market rather than the equity market1, the question of whether (and to what extent) such a proposition would hold in practice has not been systematically addressed in the literature. This overarching research problem forms the foundation of this doctoral research project, leading to two important research questions. First, if investors do in fact use options to trade on information about underlying stock prices in practice, what implications does this have for the option (stock) pricing and forecasting? Second, what are the key factors driving traders' decisions to trade on new information in one market over another? These two issues correspond to the two gaps found in the extant literature on option trading, and also in the strand of empirical studies focusing on the role of options as a mechanism for trading on information about the underlying asset. To explore these research questions, three interrelated projects have been undertaken, each with a unique contribution to informing the research topic. These closely related investigations jointly provide consolidated answers to the two research questions raised previously. In response to the first research question, we pursue two strands of empirical investigation to examine the presence of informed trading in the option market. Firstly, we investigate the extent to which the information content extracted from options trading can be used to enhance predictions of the future volatility realised by underlying stocks. Secondly, we examine the price impact of information trading activities within the option market, focusing especially on the way in which the level of trading activities can explain and predict the future dynamics of the option implied volatility smile. Both of these strands yield evidence in support of information trading activities existing in the option market. Regarding the second research question, our collective evidence indicates that the allocation of informed traders between option and stock markets depends on the trade-off of transaction costs and trading opportunities existing in two related markets. This finding has consistently been corroborated by separate evidence emerging from our independent investigations. We found that the degree of information trading in the option market varies across different stocks, corresponding to variations in the level of individual stock liquidity. It has also been found that the degree of information asymmetry of option trades changed in response to changes in trading costs driven by regulatory changes observed during the 2008 short-sale ban. This research makes a valuable contribution to the field of option research. From the theoretical perspective, it addresses significant gaps in the existing literature and extends our understanding of informed trading activities in the option market. In particular, it contributes to the body of knowledge on the economic value of derivatives by investigating the critical role they have played in the process of incorporating new information into the market. From the practical perspective, it proposes a simple-yet-effective technique which employs trading volume to improve forecasts of the underlying stock volatility and of the option implied volatility (price) respectively. Since volatility plays such a central role in the practice of derivatives trading, risk analysis and portfolio management, better forecasts of these quantities are clearly important and highly regarded by practitioners. 1 Mainly due to higher financial leverages, reduced transactions costs and wider trading opportunities (eg speculation on volatility) (Black, 1975).
Book Synopsis Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading by : Tai Ma
Download or read book Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading written by Tai Ma and published by . This book was released on 2004 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we are able to estimate the probability of informed trading on a transactional basis, which makes the hitherto difficult task of examining the transactional dynamics between informed trading, market depth and spread feasible. In addition, we have integrated the determinants of informed trading by a comprehensive analysis.We find that, as informed traders arrive, current volume and spread increase. This supports the clustering of trading hypothesis and provides empirical evidence to Admati and Pfleiderer (1988) viewpoint that both volatility and volume increase with informed trading. The VAR result suggests that uninformed traders avoid trading with the informed, and the decision of the uninformed depends on previous condition. The decision of the informed is based more on current situation and is attracted by price volatility.Overall, it is clear that the ultimate determinants of informed trading lies with the firm's financial quality and ownership structure. The condition of the market influences the timing of the informed trading, rather than the level of informed trading between firms.
Book Synopsis Three Essays on Informed Trading by : Frank Sensenbrenner
Download or read book Three Essays on Informed Trading written by Frank Sensenbrenner and published by . This book was released on 2013 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three essays examining the behavior of informed traders in financial markets and how they affect asset pricing. It examines informed traders' role in shaping securities prices in three ways. It examines whether on a macro and micro basis insider traders move prices to a different degree than non-insiders. In addition, it uses econometric methods to determine what exchange generates permanent price trends in UK shares. Lastly, it looks at another side effect of fragmentation - how a 'best execution' mandate and related market structure changes affect transactions costs in liquid UK, French, and German shares.These studies expand on current literature in various ways - extant insider trading literature has either primarily focused on daily price movement and volume or had consisted of case studies, the conclusions of which may be idiosyncratic and therefore unrepresentative of typical insider behavior. The new phenomenon of multilateral trading facilities (also known as electronic communications networks) and the proliferation of algorithmic or computer-mediated trading had not been examined in price discovery papers, due to their relative novelty. In addition, despite a bevy of literature offering informed insight into the impact of the European Union's Markets in Financial Instruments Directive (MiFID), there has been a dearth of empirical studies assessing its impact on European securities markets. Chapters 2 and 3 examine MiFID and computerized trading from two different perspectives: that of which trades lead to permanent prices, and that of transactions costs.The conclusions drawn in this dissertation will be of interest to regulators, market operators, and traders, as they offer insight into the impact of market structure and how it impacts informed traders who participate in them.
Book Synopsis Informed Trading with Information Sharing by : Yuhchang Hwang
Download or read book Informed Trading with Information Sharing written by Yuhchang Hwang and published by . This book was released on 1987 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Informed Traders and Limit Order Markets by : Ronald L. Goettler
Download or read book Informed Traders and Limit Order Markets written by Ronald L. Goettler and published by . This book was released on 2008 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider informed traders in a limit order market for a single asset. The asset has a common value; in addition, each trader has a private value for it. Traders randomly arrive at the market, after choosing whether to purchase information about the common value. They may either post prices or accept posted prices. If a trader's order has not executed, he randomly reenters the market, and may change his previous order. The model is thus a dynamic stochastic game with asymmetric information. We numerically solve for equilibrium in the model, and simulate market outcomes. Agents' incentives to acquire information and their subsequent equilibrium trading behavior changes systematically with the underlying volatility of the asset. Agents with no intrinsic benefit from trade have the highest value for information and also tend to supply liquidity. However, these agents reduce their liquidity provision when the asset volatility is high. In equilibrium, the limit order market acts as a quot;volatility multiplier'': prices are more volatile than the fundamental value of the asset. This effect increases when the fundamental volatility of the asset is higher or when there is asymmetric information across traders, due to a change in the composition of trader types that choose to provide liquidity. Further, changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value, implying that asset betas estimated from high-frequency data will be incorrect.
Book Synopsis When Do Informed Traders Arrive in Foreign Exchange Markets? by : Ramazan Gencay
Download or read book When Do Informed Traders Arrive in Foreign Exchange Markets? written by Ramazan Gencay and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines the implications of the existence of private information in the spot foreign exchange market. Our framework is a high-frequency version of a structural microstructure trade model that measures the market maker's beliefs directly. We find that the underpinnings for the time-varying pattern of the probability of informed trading are rooted in the strategic arrival of informed traders on a particular hour-of-day, day-of-week, and geographic location (market). Specifically, we document that informed traders not only pick the low activity hours, but also attach the largest market weight to a particular market. The distributions of the estimated arrival rates confirm the commitment of the informed traders to strategic trading activities. In our framework, we acknowledge that an expected loss of informed trading to the market maker is a function of both the probability of informed trading and its likely impact on the price. The impact of the uninformed traders arrival on the daily foreign exchange price volatility is about twice the magnitude of the one for informed traders. These effects are in stark contrast to the findings from the hourly data that indicate dominance of informed traders. Finally, the results relate the informational content of trading to the trade size and suggest that the probability of the informed large trading is significantly higher than the probability of uninformed large trading.
Book Synopsis Market Making and Informed Trading in a Noisy Financial Market by : ZhiMing Zhang
Download or read book Market Making and Informed Trading in a Noisy Financial Market written by ZhiMing Zhang and published by . This book was released on 1992 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis How Important is Informed Trading for the Bid-Ask Spread? Evidence from an Emerging Market by : Jan Hanousek
Download or read book How Important is Informed Trading for the Bid-Ask Spread? Evidence from an Emerging Market written by Jan Hanousek and published by . This book was released on with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The link between informed trading and the bid-ask spread has been the focus of abundant literature and some authors feared that a large amount of informed trading might lead to shutdown of markets. We explore this issue using data from the Czech Republic. Our estimates confirm that the share of informed trading and its variability is indeed high relative to developed markets, however, share of the adverse selection component is only 14% of the spread. Since the Czech Republic has been known in the financial community as being plagued by informed trading, our findings suggest that the relative importance of adverse selection as a determinant of the spread is generally low across markets.
Book Synopsis Informed Trading, Forced Trades and Amplification Mechanisms by : Alper Odabasioglu
Download or read book Informed Trading, Forced Trades and Amplification Mechanisms written by Alper Odabasioglu and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze non-fundamental asset price deviations and their evolutions, and propose a rational, information-based explanation to them when traders are exposed to forced-trades (e.g. fire-sales, fire-purchases). The first objective of this study is to provide a generalized, information-based framework for examining various types of asset price deviations stemming from traders' funding constraints. We do so within an information-setting that allows a second dimension of uncertainty (in the fraction of forced-trades, in addition to the one in the asset value). Second, using this framework, our study explains persistent price deviations (e.g. crashes) following high-leverage periods, by dynamically modeling the mechanism producing the forced-trades via margin trading (a common way for making use of readily available leverage), where margin calls arise due to adverse price changes over time. Our model predicts under-(over-) shooting in the prices when the fraction of unobserved firesales is initially under-(over-) estimated by the market maker. Next, we demonstrate within the dynamic margin trading set-up that, when the constrained traders are the informed traders, rather than the uninformed traders, then due to an informational positive feedback mechanism the mispricing exhibits persistence, as opposed to reversal (correction). Note that, two key elements for better understanding systemic risk, namely the endogenous risk and amplification mechanisms, play together an important role in our study. Finally, we discuss policy issues that could mitigate the destabilizing effects of forced trades.
Book Synopsis Margin Rules, Informed Trading in Derivatives, and Price Dynamics by : Kose John
Download or read book Margin Rules, Informed Trading in Derivatives, and Price Dynamics written by Kose John and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the impact of option trading and margin rules on the behavior of informed traders and on the microstructure of stock and option markets. In the absence of binding margin requirements, the introduction of an options market causes informed traders to exhibit a relative trading bias towards the stock because of its greater information sensitivity. In turn, this widens the stock's bid-ask spread. But when informed traders are subject to margin requirements, their bias towards the stock is enhanced or mitigated depending on the leverage provided by the option relative to the stock, leading to wider or narrower stock bid-ask spreads. The introduction of option trading, with or without margin requirements, unambiguously improves the informational efficiency of stock prices. Margin rules improve market efficiency when stock margins and options margins (relative to stock margins) are sufficiently large or small but not when they are of moderate size.
Book Synopsis Informed Trading and the Price Impact of Block Trades by : Yuxin Sun
Download or read book Informed Trading and the Price Impact of Block Trades written by Yuxin Sun and published by . This book was released on 2016 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using high frequency data from the London Stock Exchange (LSE), we investigate the relationship between informed trading and the price impact of block trades on intraday and inter-day basis. Price impact of block trades is stronger during the first hour of trading; this is consistent with the hypothesis that information accumulates overnight during non-trading hours. Furthermore, private information is gradually incorporated into prices despite heightened trading frequency. Evidence suggests that informed traders exploit superior information across trading days, and stocks with lower transparency exhibit stronger information diffusion effects when traded in blocks, thus informed block trading facilitates price discovery.
Book Synopsis Three Essays on Informed Trading by : Hamed Khadivar
Download or read book Three Essays on Informed Trading written by Hamed Khadivar and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: How pervasive is informed trading around takeover rumors? This dissertation tackles this research question from three different following aspects. First, we examine insider trading surrounding takeover rumors in a sample of publicly traded U.S. firms. We find that insider net-purchases increase within the year prior to the first publication of a takeover rumor, particularly when rumor articles are either accurate (lead to a takeover announcement) or informative (provide substantial justification for the rumor's publication). Moreover, we find abnormal insider trading to be a significant predictor of takeover announcements occurring within the following year. Finally, trading patterns differ between different types of insiders in both the pre- and post-rumor periods. Second, we examine the possibility of informed institutional trading around takeover rumors. We find that pension plan sponsors and money managers are net-buyers in firms which will become subject to takeover speculation within the following seven days. This activity is significant in predicting which rumored firms will eventually receive takeover bids. Furthermore, we find that institutions on average reverse their trades and engage in significant selling on and after the rumor date, even in those firms which will become subject to a takeover announcement. Third, we investigate and quantify the pervasiveness of informed trading in the equity options of rumored takeover targets. We find that the volume of options traded is abnormally high over the 5-day pre-rumor period, primarily due to the number of out-of-the-money call options traded. In addition, the direction of option trades prior to takeover rumors predicts forthcoming takeover announcements and rumor date returns. Identifying suspicious trades, we find evidence of individuals trading on knowledge of takeover rumor candidacy in the options market. Our results further indicate that informed traders prefer the options market to the equity market.
Book Synopsis Cross-Sectional Identification of Informed Trading by : Dion Bongaerts
Download or read book Cross-Sectional Identification of Informed Trading written by Dion Bongaerts and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a new approach to measuring informed trading in individual securities based on a portfolio optimization model for investors facing information and liquidity shocks. These shocks induce speculative and liquidity-motivated order flow, taking into account the price impact of trading. The model allows us to back out the amount of informed trading from a security's aggregate order flow, based on the cross-section of price impact parameters ($ lambda$) and order imbalances (OIB). Furthermore, we obtain a very simple expression for a security's aggregate private information shock: its lambda times OIB, in excess of the same term for a benchmark security that is insulated from informed trading. We validate our private information measure (based on daily data for all S&P 1500 stocks over 2001-2010) by showing that it is strongly related to contemporaneous returns, and that return reversals are significantly weaker following stock-days with high private information estimates.
Book Synopsis The New Stock Market by : Merritt B. Fox
Download or read book The New Stock Market written by Merritt B. Fox and published by Columbia University Press. This book was released on 2019-01-08 with total page 612 pages. Available in PDF, EPUB and Kindle. Book excerpt: The U.S. stock market has been transformed over the last twenty-five years. Once a market in which human beings traded at human speeds, it is now an electronic market pervaded by algorithmic trading, conducted at speeds nearing that of light. High-frequency traders participate in a large portion of all transactions, and a significant minority of all trade occurs on alternative trading systems known as “dark pools.” These developments have been widely criticized, but there is no consensus on the best regulatory response to these dramatic changes. The New Stock Market offers a comprehensive new look at how these markets work, how they fail, and how they should be regulated. Merritt B. Fox, Lawrence R. Glosten, and Gabriel V. Rauterberg describe stock markets’ institutions and regulatory architecture. They draw on the informational paradigm of microstructure economics to highlight the crucial role of information asymmetries and adverse selection in explaining market behavior, while examining a wide variety of developments in market practices and participants. The result is a compelling account of the stock market’s regulatory framework, fundamental institutions, and economic dynamics, combined with an assessment of its various controversies. The New Stock Market covers a wide range of issues including the practices of high-frequency traders, insider trading, manipulation, short selling, broker-dealer practices, and trading venue fees and rebates. The book illuminates both the existing regulatory structure of our equity trading markets and how we can improve it.
Book Synopsis Informed Trading and False Signaling with Open Market Repurchases by : Jesse M. Fried
Download or read book Informed Trading and False Signaling with Open Market Repurchases written by Jesse M. Fried and published by . This book was released on 2004* with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Trading and Electronic Markets: What Investment Professionals Need to Know by : Larry Harris
Download or read book Trading and Electronic Markets: What Investment Professionals Need to Know written by Larry Harris and published by CFA Institute Research Foundation. This book was released on 2015-10-19 with total page 94 pages. Available in PDF, EPUB and Kindle. Book excerpt: The true meaning of investment discipline is to trade only when you rationally expect that you will achieve your desired objective. Accordingly, managers must thoroughly understand why they trade. Because trading is a zero-sum game, good investment discipline also requires that managers understand why their counterparties trade. This book surveys the many reasons why people trade and identifies the implications of the zero-sum game for investment discipline. It also identifies the origins of liquidity and thus of transaction costs, as well as when active investment strategies are profitable. The book then explains how managers must measure and control transaction costs to perform well. Electronic trading systems and electronic trading strategies now dominate trading in exchange markets throughout the world. The book identifies why speed is of such great importance to electronic traders, how they obtain it, and the trading strategies they use to exploit it. Finally, the book analyzes many issues associated with electronic trading that currently concern practitioners and regulators.
