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Informed Traders As Liquidity Providers
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Book Synopsis Informed Traders as Liquidity Providers by : Alexandra Hachmeister
Download or read book Informed Traders as Liquidity Providers written by Alexandra Hachmeister and published by Springer Science & Business Media. This book was released on 2007-11-03 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: Alexandra Hachmeister’s thesis empirically analyzes and positively answers the question whether informed traders provide liquidity in an open limit order book. The analyses include a detailed market description of the German equity market, a new methodological approach for the identification of informed traders as well as the analysis of the individual liquidity providing and demanding behavior of the identified informed traders.
Book Synopsis Informed Traders as Liquidity Providers by : Barbara Rindi
Download or read book Informed Traders as Liquidity Providers written by Barbara Rindi and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The tendency to introduce anonymity into financial markets apparently runs counter to the theory supporting transparency. This paper studies the impact of pre-trade transparency on liquidity in a market where risk-averse traders accommodate the liquidity demand of noise traders. When some risk-averse investors become informed, an adverse selection problem ensues for the others, making them reluctant to supply liquidity. Hence the disclosure of traders' identities improves liquidity by mitigating adverse selection. However, informed investors are effective liquidity suppliers, as their adverse selection and inventory costs are minimized. With endogenous information acquisition, transparency reduces the number of informed investors, thus decreasing liquidity. The type of information that traders hold and the effectiveness of insider trading regulation are crucial to distinguish between equilibria.
Book Synopsis Liquidity Provision and Informed Trading by Individual Investors by : Xiao Tian
Download or read book Liquidity Provision and Informed Trading by Individual Investors written by Xiao Tian and published by . This book was released on 2015 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.
Book Synopsis Strategic Trading, Liquidity and Information Acquisition by : Haim Mendelson
Download or read book Strategic Trading, Liquidity and Information Acquisition written by Haim Mendelson and published by . This book was released on 2003 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the effects of liquidity trading on the dynamics of a financial market under long-lived asymmetric information. Informed traders maximize the expected trading gains they can extract using their superior information, whereas risk-averse liquidity traders with disparate liquidity preferences maximize their expected utility. We describe a multi-period discrete time model and find the equilibrium. We then examine the continuous time analogue of the model, find the corresponding equilibrium for a single informed trader and obtain closed-form expressions and time patterns for the operating characteristics of the market. We find that liquidity traders' reaction to informed trading impedes information dissemination to the market. When information acquisition by the insider is endogenous, we find that in contrast to models with pure noise traders, it is in the insider's best interest to curtail the amount of information he acquires. Further, the acquisition of some information by the insider makes liquidity traders better off, although at zero cost the insider acquires more information than is necessary to maximize liquidity traders' welfare. For a wide range of parameter values, the informed trader chooses to voluntarily release information to the market if he is allowed to do so. Moreover, voluntary information disclosure helps solve the problem of reduced incentives for information acquisition by inducing the informed trader to acquire full information.
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.
Book Synopsis Market Liquidity by : Thierry Foucault
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"--
Book Synopsis Liquidity, Trading Rules, and Electronic Trading Systems by : Lawrence E. Harris
Download or read book Liquidity, Trading Rules, and Electronic Trading Systems written by Lawrence E. Harris and published by . This book was released on 1991 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 Trading in the Presence of Short-Lived Private Information by : Ohad Kadan
Download or read book Trading in the Presence of Short-Lived Private Information written by Ohad Kadan and published by . This book was released on 2017 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a proprietary dataset to test the implications of several asymmetric information models on how short-lived private information affects trading strategies and liquidity provision. Our identification rests on information acquisition before analyst recommendations are publically announced. We provide the first empirical evidence supporting theoretical predictions that early-informed traders “sell the news” after “buying the rumor.” Further, we find distinct profit-taking patterns across different classes of institutions. Uninformed institutions, but not individuals, emerge as de-facto liquidity providers to better-informed institutions. Placebo tests confirm that these trading patterns are unique to situations in which some investors have a short-lived informational advantage.
Book Synopsis When Do Informed Traders Provide Liquidity? by : Tālis J. Putniņš
Download or read book When Do Informed Traders Provide Liquidity? written by Tālis J. Putniņš and published by . This book was released on 2019 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the demise of traditional market makers and proliferation of trade execution algorithms that mix market and limit orders, it is no longer clear who provides liquidity in limit order book markets and what determines their liquidity provision decisions. To examine these issues, we develop and validate two empirical measures of informed traders' order choice. We find that informed traders tend to provide liquidity with limit orders during periods of high uncertainty about the fundamental value (high volatility, wide spreads). At such times, mispricing persists for longer so the informed trade more patiently to obtain better execution prices. Price discovery is slower when informed traders use limit orders and consequently their order choice acts as an uncertainty multiplier.
Book Synopsis Trades, Quotes and Prices by : Jean-Philippe Bouchaud
Download or read book Trades, Quotes and Prices written by Jean-Philippe Bouchaud and published by Cambridge University Press. This book was released on 2018-03-22 with total page 464 pages. Available in PDF, EPUB and Kindle. Book excerpt: The widespread availability of high-quality, high-frequency data has revolutionised the study of financial markets. By describing not only asset prices, but also market participants' actions and interactions, this wealth of information offers a new window into the inner workings of the financial ecosystem. In this original text, the authors discuss empirical facts of financial markets and introduce a wide range of models, from the micro-scale mechanics of individual order arrivals to the emergent, macro-scale issues of market stability. Throughout this journey, data is king. All discussions are firmly rooted in the empirical behaviour of real stocks, and all models are calibrated and evaluated using recent data from Nasdaq. By confronting theory with empirical facts, this book for practitioners, researchers and advanced students provides a fresh, new, and often surprising perspective on topics as diverse as optimal trading, price impact, the fragile nature of liquidity, and even the reasons why people trade at all.
Book Synopsis Liquidity, Overpricing, and the Tactics of Informed Traders by : Richard Borghesi
Download or read book Liquidity, Overpricing, and the Tactics of Informed Traders written by Richard Borghesi and published by . This book was released on 2017 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we explore the profit-taking tactics employed by informed traders when there are informational asymmetries across investors. Our laboratory is Tradesports, which until 2015 operated a double auction exchange where participants traded binary options contracts. This venue is a close analog to stock markets and, because each contract's value is unambiguously revealed, the joint hypothesis problem is mitigated. We demonstrate that when the ratio of noise traders to sophisticated traders is highest, shares are most overpriced. Data show that informed traders heavily target noise traders when liquidity is high, and in conducting profit-taking operations they prefer to short sell via small transactions and round lots. Results suggest that, even in the absence of liquidity constraints and certain costs and risks related to short selling, the relative complexity of short selling can itself lead to overpricing.
Book Synopsis Trading and Exchanges by : Larry Harris
Download or read book Trading and Exchanges written by Larry Harris and published by OUP USA. This book was released on 2003 with total page 664 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on market microstructure, Harris (chief economist, U.S. Securities and Exchange Commission) introduces the practices and regulations governing stock trading markets. Writing to be understandable to the lay reader, he examines the structure of trading, puts forward an economic theory of trading, discusses speculative trading strategies, explores liquidity and volatility, and considers the evaluation of trader performance. Annotation (c)2003 Book News, Inc., Portland, OR (booknews.com).
Book Synopsis Market Liquidity by : Thierry Foucault
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"--
Book Synopsis Liquidity and Information in Limit Order Markets by : Ioanid Rosu
Download or read book Liquidity and Information in Limit Order Markets written by Ioanid Rosu and published by . This book was released on 2019 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: How does informed trading affect liquidity in limit order markets, where traders can choose between market orders (demanding liquidity) and limit orders (providing liquidity)? In a dynamic model, informed trading overall helps liquidity: A higher share of informed traders (i) improves liquidity as proxied by the bid-ask spread and market resiliency, and (ii) has no effect on the price impact of orders. The model generates other testable implications, and suggests new measures of informed trading.
Book Synopsis Measuring and Explaining the Asymmetry of Liquidity by : Rajat Tayal
Download or read book Measuring and Explaining the Asymmetry of Liquidity written by Rajat Tayal and published by . This book was released on 2013 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most measures of liquidity assume that the cost of buying and selling is symmetric. This paper analyses liquidity in an open electronic limit order book exchange without market makers, where it is possible to directly measure the impact cost of a market order to buy and to sell. There is clear evidence of liquidity asymmetry on the spot market: large market orders to sell have higher costs compared with buy orders. In an identical microstructure setting, but with no short sales constraints, single stock futures markets show little evidence of liquidity asymmetry. This evidence is consistent with the response of liquidity providers to asymmetric information vis-a-vis informed traders, and implies that short sales constraints are an important source of asymmetry in liquidity.
Book Synopsis Profitability and Market Quality of High Frequency Market-makers by : Gabriel Yergeau
Download or read book Profitability and Market Quality of High Frequency Market-makers written by Gabriel Yergeau and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
