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Author : Andrew Wen-Chuan Lo
Publisher :
ISBN 13 :
Total Pages : 75 pages
Book Rating : 4.:/5 (472 download)
Download or read book Asset Prices and Trading Volume Under Fixed Transaction Costs written by Andrew Wen-Chuan Lo and published by . This book was released on 2001 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Andrew W. Lo
Publisher :
ISBN 13 :
Total Pages : 78 pages
Book Rating : 4.:/5 (129 download)
Download or read book Asset Prices and Trading Volume Under Fixed Transactions Costs written by Andrew W. Lo and published by . This book was released on 2009 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a dynamic equilibrium model of asset prices and trading volume with heterogeneous agents fixed transactions costs. We show that even small fixed costs can give rise to large quot;no-tradequot; regions for each agent's optimal trading policy and a significant illiquidity discount in asset prices. We perform a calibration exercise to illustrate the empirical relevance of our model for aggregate data. Our model also has implications for the dynamics of order flow, bid/ask spreads, market depth, the allocation of trading costs between buyers and sellers, and other aspects of market microstructure, including a square-root power law between trading volume and fixed costs which we confirm using historical US stock market data from 1993 to 1997.
Author : Andrew W. Lo
Publisher :
ISBN 13 :
Total Pages : 75 pages
Book Rating : 4.:/5 (248 download)
Download or read book Asset Prices and Trading Volume Under Fixed Transactions Costs written by Andrew W. Lo and published by . This book was released on 2001 with total page 75 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a dynamic equilibrium model of asset prices and trading volume with heterogeneous agents facing fixed transactions costs. We show that even small fixed costs can give rise to large 'no-trade' regions for each agent's optimal trading policy and a significant illiquidity discount in asset prices. We perform a calibration exercise to illustrate the empirical relevance of our model for aggregate data. Our model also has implications for the dynamics of order flow, bid/ask spreads, market depth, the allocation of trading costs between buyers and sellers, and other aspects of market microstructure, including a square-root power law between trading volume and fixed costs which we confirm using historical US stock market data from 1993 to 1997
Author : Mr.Charles Frederick Kramer
Publisher : International Monetary Fund
ISBN 13 : 1451854870
Total Pages : 36 pages
Book Rating : 4.4/5 (518 download)
Download or read book Noise Trading, Transaction Costs, and the Relationship of Stock Returns and Trading Volume written by Mr.Charles Frederick Kramer and published by International Monetary Fund. This book was released on 1994-10-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relationship of stock returns and trading volume is the focus of much recent interest. I examine an economic model of a rational trader who operates in a market with transactions costs and noise trading. The level of trading affects the rational trader’s marginal cost of transacting; as a result, trading volume is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a simple way to scrutinize this relationship empirically. Empirical evidence supports the implications of the model.
Author : Yakov Amihud
Publisher : Now Publishers Inc
ISBN 13 : 1933019123
Total Pages : 109 pages
Book Rating : 4.9/5 (33 download)
Download or read book Liquidity and Asset Prices written by Yakov Amihud and published by Now Publishers Inc. This book was released on 2006 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Author : Hua Cheng
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (129 download)
Download or read book Trading Volume, Price Autocorrelation and Volatility Under Proportional Transaction Costs written by Hua Cheng and published by . This book was released on 2006 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a dynamic model in which traders have differential information about the true value of the risky asset and trade the risky asset with proportional transaction costs. We show that without additional assumption, trading volume can not totally remove the noise in the pricing equation. However, because trading volume increases in the absolute value of noisy per capita supply change, it provides useful information on the asset fundamental value which cannot be inferred from the equilibrium price.We further investigate the relation between trading volume, price autocorrelation, return volatility and proportional transaction costs. Firstly, trading volume decreases in proportional transaction costs and the influence of proportional transaction costs decreases at the margin. Secondly, price autocorrelation can be generated by proportional transaction costs: under no transaction costs, the equilibrium prices at date 1 and 2 are not correlated; however under proportional transaction costs, they are correlated - the higher (lower) the equilibrium price at date 1, the lower (higher) the equilibrium price at date 2. Thirdly, we show that return volatility may be increasing in proportional transaction costs, which is contrary to Stiglitz 1989, Summers amp; Summers 1989's reasoning but is consistent with Umlauf 1993 and Jones amp; Seguin 1997's empirical results.
Author : Chiaki Hara
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (839 download)
Download or read book Asset Prices, Trading Volumes, and Investor Welfare in Markets with Transaction Costs written by Chiaki Hara and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Hua Cheng
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.:/5 (129 download)
Download or read book Trading Volume, Asset Price and Flexible Transaction Cost written by Hua Cheng and published by . This book was released on 2005 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extend Blume, Easley and O'Hara (1994)'s model to a world with flexible transaction cost. We find out the non-linear equilibrium price and volume and show that trading volume provides to uninformed traders useful information on the asset fundamental which cannot be inferred from the equilibrium price. We further demonstrate how transaction cost influences trading volume and the equilibrium price in very different ways. While transaction cost always reduces trading volume, its influence decreases at the margin. The impact of transaction cost on the equilibrium price is much more complicated since its effects on the demand of informed and uninformed traders are inverse. Whether the equilibrium price with transaction cost is higher or lower than that without transction cost depends upon which effect dominates.
Author : Stefan Gerhold
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Download or read book Transaction Costs, Trading Volume, and the Liquidity Premium written by Stefan Gerhold and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the optimal investment policy, its implied welfare, liquidity premium, and trading volume. At the first order, the liquidity premium equals the spread, times share turnover, times a universal constant. Results are robust to consumption and finite-horizons. We exploit the equivalence of the transaction cost market to another frictionless market, with a shadow risky asset, in which investment opportunities are stochastic. The shadow price is also found explicitly.
Author : Charles Kramer
Publisher :
ISBN 13 :
Total Pages : 36 pages
Book Rating : 4.:/5 (129 download)
Download or read book Noise Trading, Transaction Costs, and the Relationship of Stock Returns and Trading Volume written by Charles Kramer and published by . This book was released on 2006 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relationship of stock returns and trading volume is the focus of much recent interest. I examine an economic model of a rational trader who operates in a market with transactions costs and noise trading. The level of trading affects the rational trader`s marginal cost of transacting; as a result, trading volume is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a simple way to scrutinize this relationship empirically. Empirical evidence supports the implications of the model.
Author : Sudipto Bhattacharya
Publisher : World Scientific
ISBN 13 : 9812701028
Total Pages : 387 pages
Book Rating : 4.8/5 (127 download)
Download or read book Theory of Valuation written by Sudipto Bhattacharya and published by World Scientific. This book was released on 2005 with total page 387 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first edition of Theory of Valuation is a collection of important papers in the field of theoretical financial economics published from 1973 to 1986, and original accompanying essays contributed by eminent researchers including Robert C Merton, Edward C Prescott, Stephen A Ross, and Joseph E Stiglitz. Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition. This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced MasterOCOs and undergraduate courses. In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, OC Recursive Competitive Equilibrium: The Case of Homogeneous Households, OCO originally published in Econometrica in 1980."
Author : Alessandro Citanna
Publisher :
ISBN 13 : 9782854187175
Total Pages : 16 pages
Book Rating : 4.1/5 (871 download)
Download or read book Proportional Transaction Costs on Asset Trades written by Alessandro Citanna and published by . This book was released on 2000 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: In many security markets, market-makers offer offer to trade at a discount relative to their posted bid and ask quotes. In this article we provide an explanation to this phenomenon. We show that market-makers can mitigate informational asymmetries by selectively offering price improvements to their regular clients. We study a specific type of pricing strategy which consists (a) in offering price improvements to investors who have not repeatedly inflicted trading losses to the marker-maker and (b) in temporarily suspending these discounts otherwise. We find that when a market-maker uses this pricing strategy, there are equilibria in which his clients optimally choose not to contact him when they have private information. These equilibria Pareto-dominate those which are obtained when the market-maker does not or can not make his quotes contingent on his clients' trading histories. Our model predicts that (1) market-makers should grant price improvements to their regular clients but that (2) these improvements should be temporarily suspended after sequences of purchases (sales) followed by price increases (decreases).
Author : Michael J. Barclay
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book The Effects of Transaction Costs on Stock Prices and Trading Volume written by Michael J. Barclay and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the effects of changes in bid-ask spreads on the prices and trading volumes of stocks that move from Nasdaq to the NYSE or Amex, and stocks that move from Amex to Nasdaq. When stocks move from Nasdaq to an exchange, their spreads typically decrease, but the reduction in spreads is larger when Nasdaq market makers avoid odd-eighth quotes. When stocks move from Amex to Nasdaq, their spreads typically increase, but again, the increase is larger when Nasdaq market makers avoid odd eighths. We use this data to isolate the effects of transaction costs on trading volume and expected returns. We find that higher transaction costs significantly reduce trading volume, but do not have a significant effect on prices.
Author : Maxime Wavasseur
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (112 download)
Download or read book Asset Pricing and Trading Volume written by Maxime Wavasseur and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This doctoral thesis is organized in three articles. In the first one, we use the Toulouse mills companies data as a suitable testbed for asset pricing theory. More precisely, we provide a proxy for local consumption and perform a relative entropy analysis to extract the stochastic discount factor of this old economy. We found that the model-free pricing kernel correlates with consumption and a standard CRRA-model is not rejected by the data, even for very low risk aversion levels. In the second article, we describe the relationship between trading volume and market composition through a pure theoretical approach. We build a model where the agent preferences depend on his environment and a liquidity shock is collectively experienced by the members of each social group in the economy. We introduce the concept of desirability channel as a necessary condition for a trade to occur and we rely the topology of the network to the expected volume. The third article focus on the role of social status concern in the exchanges dynamic. We propose a setting where two types of goods are available, a positional and a non positional one. By splitting the economy into two social groups, we depict how trades take place over time regarding to these social groups. The model predictions are finally tested on the historical support of the Toulouse mills companies.
Author : Christian T. Lundblad
Publisher :
ISBN 13 :
Total Pages : 69 pages
Book Rating : 4.:/5 (13 download)
Download or read book Informed Trading Volume and Asset Prices written by Christian T. Lundblad and published by . This book was released on 2019 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the trading behavior of particularly intensive traders, those who contribute the most to daily trading volume, and provide new evidence that is consistent with the presence of informational advantages. Using a unique Chinese data set of the most active daily market participants for each stock, we demonstrate that intensive traders' buying (selling) predicts large positive (negative) abnormal returns, both unconditionally and, in particular, around key, value-relevant announcements. An advantage of our data is that we can also directly identify several plausible channels through which such an informational advantage could arise. Specifically, the abnormal returns are largest (in absolute terms) following announcements in the presence of intensive pre-event traders who share the same geographic location as the firms in which they trade, and these effects are the most pronounced for stocks with the lowest analyst coverage or the smallest capitalizations. We also find that particularly active traders located near relevant counterparties in an M&A transaction, a new bank loan facility, or a key political change also exhibit informational advantages. Finally, we provide empirical evidence suggesting that the main component of the informational advantage we document reflects a lower information acquisition cost.
Author : Thierry Foucault
Publisher : Oxford University Press
ISBN 13 : 0197542069
Total Pages : 531 pages
Book Rating : 4.1/5 (975 download)
Download or read book Market Liquidity written by Thierry Foucault and published by Oxford University Press. This book was released on 2023 with total page 531 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Author : Álvaro Cartea
Publisher : Cambridge University Press
ISBN 13 : 1316453650
Total Pages : 360 pages
Book Rating : 4.3/5 (164 download)
Download or read book Algorithmic and High-Frequency Trading written by Álvaro Cartea and published by Cambridge University Press. This book was released on 2015-08-06 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: The design of trading algorithms requires sophisticated mathematical models backed up by reliable data. In this textbook, the authors develop models for algorithmic trading in contexts such as executing large orders, market making, targeting VWAP and other schedules, trading pairs or collection of assets, and executing in dark pools. These models are grounded on how the exchanges work, whether the algorithm is trading with better informed traders (adverse selection), and the type of information available to market participants at both ultra-high and low frequency. Algorithmic and High-Frequency Trading is the first book that combines sophisticated mathematical modelling, empirical facts and financial economics, taking the reader from basic ideas to cutting-edge research and practice. If you need to understand how modern electronic markets operate, what information provides a trading edge, and how other market participants may affect the profitability of the algorithms, then this is the book for you.
