Two Essays on the Probability of Informed Trading
Author | : Marius Popescu |
Publisher | : |
Total Pages | : 76 |
Release | : 2009 |
Genre | : Stock exchanges |
ISBN | : |
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Author | : Marius Popescu |
Publisher | : |
Total Pages | : 76 |
Release | : 2009 |
Genre | : Stock exchanges |
ISBN | : |
Author | : Ziwei Xu |
Publisher | : |
Total Pages | : |
Release | : 2010 |
Genre | : |
ISBN | : |
ABSTRACT: Defining ambiguity as investor's uncertainty about the precision of the observed information, Chapter One constructs an empirical measure of ambiguity based on analysts' earnings forecast information, and finds that the market tends to react more negatively to highly ambiguous bad news, while it tends to be less responsive to highly ambiguous good news. This result supports the theoretical argument of Epstein and Schneider (2003, 2008) that ambiguity-averse investors take a worst-case assessment of the information precision, when they are uncertain about the information precision. In addition, Chapter One shows that returns on stocks exposed to highly ambiguous and intangible information are more negatively skewed. Chapter Two finds that certain traders are informed about either the forthcoming analysts' forecasts or long-term value of the stock, and informed traders prefer to use medium-size trades to exploit their private information advantage. Specifically, medium-size trade imbalance prior to the forecast announcements is positively correlated with the nature of forecast revisions, while in the days immediately after the forecasts medium-size trade imbalance is positively correlated with future stock returns for up to four months. Small-size trade imbalance is also positively correlated with future returns but only following downward revisions. In contrast, it is also shown that large trades placed right after the forecasts are unprofitable and generate slightly negative profits in the long run. Overall, our results are consistent with the "stealth trading hypothesis" proposed by Barclay and Warner (1993).
Author | : Frank J. Sensenbrenner |
Publisher | : |
Total Pages | : 460 |
Release | : 2011 |
Genre | : Floor traders (Finance) |
ISBN | : |
Author | : Jung Chul Park |
Publisher | : |
Total Pages | : 107 |
Release | : 2007 |
Genre | : |
ISBN | : 9781109978742 |
I examine the informational efficiency of stock markets by testing the relation between idiosyncratic volatility and equity mispricing. I find that the level of mispricing declines with idiosyncratic volatility consistent with the notion that greater levels of firm-specific risk reflect greater participation of informed traders in the market for the stock. However, I also find that mispricing increases with idiosyncratic volatility for highly volatile stocks, and this is attributed to both noise trading and arbitrage risk. In addition, I investigate the link between agency costs and equity mispricing, and whether it exists due to information asymmetry or the degree of conflict of interests between managers and shareholders. I provide evidence that the level of agency costs is positively related with mispricing. In contrast to previous studies' claim that the information asymmetry level is a key determinant in the equity mispricing, I find that the conflict of interests is more important than information asymmetry in explaining equity mispricing. Furthermore, the evidence suggests that stock option grants, originally intended to resolve conflicts of interests, actually exaggerate this problem.
Author | : Cheng Few Lee |
Publisher | : World Scientific |
Total Pages | : 269 |
Release | : 2006-04-18 |
Genre | : Business & Economics |
ISBN | : 9814478830 |
News Professor Cheng-Few Lee ranks #1 based on his publications in the 26 core finance journals, and #163 based on publications in the 7 leading finance journals (Source: Most Prolific Authors in the Finance Literature: 1959-2008 by Jean L Heck and Philip L Cooley (Saint Joseph's University and Trinity University). Market microstructure is the study of how markets operate and how transaction dynamics can affect security price formation and behavior. The impact of microstructure on all areas of finance has been increasingly apparent. Empirical microstructure has opened the door for improved transaction cost measurement, volatility dynamics and even asymmetric information measures, among others. Thus, this field is an important building block towards understanding today's financial markets. One of the pioneers in the field of market microstructure is David K Whitcomb, who retired from Rutgers University in 1999 after 25 years of service. David generously funded the David K Whitcomb Center for Research in Financial Services, located at Rutgers University. The Center organized a conference at Rutgers in his honor. This conference showcased papers and research conducted by the leading luminaries in the field of microstructure and drew a broad and illustrious audience of academicians, practitioners and former students, all who came to pay tribute to David K Whitcomb. Most of the papers in this volume were presented at that conference and the contributions to this volume are a lasting bookmark in microstructure. The coverage of topics on this volume is broad, ranging from the theoretical to empirical, and covering various issues from market architecture to liquidity and volatility.
Author | : Markus Gsell |
Publisher | : Columbia University Press |
Total Pages | : 228 |
Release | : 2010-07-09 |
Genre | : Business & Economics |
ISBN | : 3838201140 |
Technological innovations are altering the traditional value chain in securities trading. Hitherto the order handling, i.e. the appropriate implementation of a general trading decision into particular orders, has been a core competence of brokers. Labeled as Algorithmic Trading, the automation of this task recently found its way both into the brokers' portfolio of service offerings as well as to their customers' trading desks. The software performing the order handling thereby constantly monitors the market(s) in real-time and further evaluates historical data to dynamically determine appropriate points in time for trading. Within only a few years, this technology propagated itself among market participants along the entire value chain and has nowadays gained a significant market share on securities markets worldwide. Surprisingly, there has been only little research analyzing the impact of this special type of trading on markets. Markus Gsell's book aims at closing this gap by analyzing the drivers for adoption of this technology, the impact the application of this technology has on markets on a macro level, i.e. how the market outcome is affected, as well as on a micro level, i.e. how the exhibited trading behavior of these automated traders differs from normal traders' behavior.