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The price effect of temporary short-selling bans: Theory and evidence Journal of Financial Markets (IF 3.095) Pub Date : 2024-03-11 Haoshu Tian, Xuemin (Sterling) Yan, Lingling Zheng
We develop a model of temporary short-selling bans by extending the infinite-horizon model of Scheinkman and Xiong (2003). Our model predicts that a temporary short-selling ban leads to a speculative bubble that is the highest at the beginning of the ban and gradually converges to zero. Examining the 2008 short-selling ban in the U.S., we find evidence consistent with the model’s predictions. The innovation
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Stabilizing the financial markets through communication and informed trading Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-26 Qi Guo, Shao’an Huang, Gaowang Wang
We develop a model of government intervention with information disclosure in which a government with two private signals trades directly in financial markets to stabilize asset prices. Government intervention through informed trading stabilizes financial markets and affects market quality through a noise channel and an information channel. Information disclosure negatively affects financial stability
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Intraday variation in cross-sectional stock comovement and impact of index-based strategies Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-20 Yiwen Shen, Meiqi Shi
We investigate how comovement of S&P 500 stocks changes during a day using a large high-frequency dataset and estimators that are robust under microstructure noise and asynchronicity. We find that, in 2011 to 2021, the stock correlation increases substantially throughout the trading session, while the cross-sectional beta dispersion decreases concurrently. Thus, S&P 500 stocks exhibit stronger comovement
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Extreme illiquidity and cross-sectional corporate bond returns Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-16 Xi Chen, Junbo Wang, Chunchi Wu, Di Wu
Corporate bonds carry an extreme illiquidity (EIL) premium. This premium permeates all rating categories and heightens during financial crises and periods of high uncertainty. EIL has predictive power in the cross-section for future returns up to at least one year. Active investors like mutual funds prefer low EIL bonds that can be easily liquidated during times of stress, whereas passive institutional
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Financial news media and volatility: Is there more to newspapers than news? Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-15 Julian Ashwin
Does media coverage of a firm have a causal effect on the volatility of its stock price and, if so, is this of aggregate importance? I identify a robust link between coverage in the and a firm’s intraday stock price volatility. This effect is not driven by persistence in volatility or anticipation of future newsworthy events, but is explained by an increase in trading volume, supporting a salience
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Are fund managers rewarded for taking cyclical risks? Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-14 Ellen Ryan
The investment fund sector has expanded dramatically since 2008, increasing the capacity for its risk-taking to generate negative spillovers. This paper provides empirical evidence for the existence of wide-spread risk-taking incentives in the investment fund sector, with a particular focus on incentives for synchronized, cyclical risk-taking which could have systemic risk implications. Incentives
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The impact of margin requirements on voluntary clearing decisions Journal of Financial Markets (IF 3.095) Pub Date : 2024-02-07 Esen Onur, David Reiffen, Rajiv Sharma
This paper examines the incentives to voluntarily centrally-clear swaps. It exploits changes resulting from a regulation mandating collateral on uncleared swaps to analyze determinants of traders’ clearing decisions. The rule promoted voluntary clearing by decreasing the relative cost of clearing swaps. Using unique regulatory data, the paper finds that clearing more than quadrupled for exchange rate
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Institutional herding and investor sentiment Journal of Financial Markets (IF 3.095) Pub Date : 2024-01-30 Xu Guo, Chen Gu, Chengping Zhang, Shenru Li
We investigate the role of investor sentiment in institutional herding behavior and its impact on stock prices. We find that institutional investors exhibit more herding behavior during periods of high sentiment, which has a significant impact on stock prices. Our results show that herding has a stabilizing effect on the stock market when investor sentiment is low, while it causes price distortions
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2024-01-13
Abstract not available
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Price formation in field prediction markets: The wisdom in the crowd Journal of Financial Markets (IF 3.095) Pub Date : 2024-01-05 Frederik Bossaerts, Nitin Yadav, Peter Bossaerts, Chad Nash, Torquil Todd, Torsten Rudolf, Rowena Hutchins, Anne-Louise Ponsonby, Karl Mattingly
Prediction markets are a successful information aggregation structure, however the exact mechanism by which private information is incorporated into the price remains poorly understood. We introduce a novel method based on the “Kyle model” to identify traders who contribute valuable information to the market price. Applied to a large field prediction market dataset, we identify traders whose trades
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Understanding the impacts of dark pools on price discovery Journal of Financial Markets (IF 3.095) Pub Date : 2024-01-04 Linlin Ye
I study how crossing networks, a type of dark pool, affect price discovery and market liquidity in the presence of noisy and heterogeneous trader signals. I identify a buffer function of crossing networks that helps mitigate traders’ losses from false signals. Additionally, I uncover an amplification effect. That is, when signal precision is high, crossing networks enhance price discovery. By contrast
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Corporate bond price reversals Journal of Financial Markets (IF 3.095) Pub Date : 2023-12-23 Alexey Ivashchenko
I demonstrate empirically that corporate bond dealers mitigate adverse selection risk by passing potentially informed transactions to institutional investors. I contrast price reversals following days with abnormal trading volume across bonds with different information asymmetry. In informed trading, the part of reversal specific to high-volume days should increase with information asymmetry. In uninformed
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2023-11-23
Abstract not available
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Disentangling the supply and announcement effects of open market operations Journal of Financial Markets (IF 3.095) Pub Date : 2023-11-17 Narayan Bulusu
Central banks use open market operations (OMOs) to adjust the liquidity available to the financial system to maintain the short-term borrowing rate within the desired target range. Using the conditional event study methodology to decompose the impact of OMOs into supply and announcement effects, this paper finds that when OMO announcements are unexpected, the decrease in the lending rate as a result
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Does better liquidity for large orders attract institutional investors and analysts? Evidence from the Tick Size Pilot Program Journal of Financial Markets (IF 3.095) Pub Date : 2023-11-09 Mengdie Deng, Tse-Chun Lin, Jiayu Zhou
Based on the SEC's Tick Size Pilot Program, we adopt a difference-in-differences design and find that the improved liquidity for large orders increases their ownership of the treatment firms with a larger tick size during the program. The effect is concentrated among firms with lower liquidity for large orders ex ante and mainly comes from dedicated investors and quasi-indexers. We also find that analyst
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Business seasonality and stock liquidity Journal of Financial Markets (IF 3.095) Pub Date : 2023-10-30 Joseph M. Marks, Chenguang Shang
We investigate the relation between firms' business seasonality and their stock market liquidity and find robust evidence that firms with seasonal business tend to have less liquid equity. The effect of seasonality on stock liquidity is amplified for firms facing greater information asymmetry. Furthermore, firms with seasonal business patterns are associated with a higher probability of informed trading
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Abnormal stock returns and shorting around securities class action lawsuits: The role of pre-filing news releases Journal of Financial Markets (IF 3.095) Pub Date : 2023-10-28 Chris Stivers, Licheng Sun, Sounak Saha
Studying 1,473 U.S. securities class action (SCA) lawsuits over 2009–2019, we find that the pre-filing abnormal negative returns and shorting are largely linked to public investigation news that precedes the SCA lawsuit filing. Across all the lawsuits, 73% of the total abnormal negative returns over the ten-day pre-filing period are attributed to the 31.6% of the cases that had investigation news over
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Private information disclosure in the secondary loan market and its impact on equity market trading costs Journal of Financial Markets (IF 3.095) Pub Date : 2023-10-22 Anthony Saunders, Pei Shao, Yuchao Xiao
When a firm's loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so-called qualified institutional buyers (QIBs). We document a significant information effect that benefits these buyers in the firm's market for equity, in particular, a significant impact on equity market investors and the firm's stock bid-ask spreads
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2023-09-04
Abstract not available
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Mood, attention, and household trading: Evidence from terrorist attacks Journal of Financial Markets (IF 3.095) Pub Date : 2023-08-07 Albert Y. Wang, Michael Young
In response to terrorism, households reduce their trading activity and equity ownership. While the decline in the net value of trades is consistent with increasing risk aversion, reduced Google search volumes, lower aggregate attention indices, and fewer purchases of newsworthy stocks suggest that investors pay less attention to the financial markets after attacks. Additional tests indicate that investor
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The disappearing profitability of volatility-managed equity factors Journal of Financial Markets (IF 3.095) Pub Date : 2023-07-27 Timotheos Angelidis, Nikolaos Tessaromatis
Our evidence suggests that the profitability of volatility timing strategies applied to equity factor portfolios disappeared when changes in the trading and information environment in the U.S. in the early 2000s made arbitrage less costly. The reduction of volatility timing alphas is greater for factor portfolios based on small-capitalization stocks, which are less liquid, more costly to trade, and
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Do analysts distribute negative opinions earlier? Journal of Financial Markets (IF 3.095) Pub Date : 2023-07-24 Yanhua Sunny Yang, Chris Yung
We examine analysts’ forecast timing when issuing negative opinions. When management withholds bad news, good news become more abundant but relatively uninformative. We theoretically predict and empirically document that analysts treat observed bad news as having higher precision and respond to it by issuing forecasts more quickly and accurately than for good news forecasts. These results hold to various
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Informed trading prior to financial misconduct: Evidence from option markets Journal of Financial Markets (IF 3.095) Pub Date : 2023-07-11 Keming Li
This paper shows an abnormal level of option trading activities in the ten days before the revelation of financial misconduct in a sample of the SEC and/or DOJ enforcement actions. These abnormal option trading volumes are negatively associated with the subsequent stock returns to the announcements, and are positively linked to firm penalty, the number of violations, prison sentences, fraud charge
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Climate risks and state-level stock market realized volatility Journal of Financial Markets (IF 3.095) Pub Date : 2023-07-10 Matteo Bonato, Oguzhan Cepni, Rangan Gupta, Christian Pierdzioch
We analyze the predictive value of climate risks for state-level realized stock market volatility, computed, along with other realized moments, based on high-frequency intra-day U.S. data (September, 2011 to October, 2021). A model-based bagging algorithm recovers that climate risks have predictive value for realized volatility at intermediate and long (one and two months) forecast horizons. This finding
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The market quality implications of speed in cross-platform trading: Evidence from Frankfurt-London microwave Journal of Financial Markets (IF 3.095) Pub Date : 2023-07-08 Khaladdin Rzayev, Gbenga Ibikunle, Tom Steffen
Exploiting information transmission latency between stock exchanges in Frankfurt and London, and speed-inducing technological upgrades, we show that when cross-market latency arbitrage opportunities are linked to the arrival of information, high-frequency traders' (HFTs’) activities impair liquidity and enhance price discovery by facilitating the incorporation of public information into prices. Conversely
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Who trades at the close? Implications for price discovery and liquidity Journal of Financial Markets (IF 3.095) Pub Date : 2023-06-23 Vincent Bogousslavsky, Dmitriy Muravyev
Closing auctions set daily closing prices for U.S. stocks and account for a striking 7.5% of daily volume in 2018, up from 3.1% in 2010. We study closing auctions in the new regime of record volume. Closing auctions appear to match volumes at low cost: closing prices typically match pre-close bid or ask prices, and price impact is lower than during continuous trading. Auction price deviations revert
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The lead–lag relation between VIX futures and SPX futures Journal of Financial Markets (IF 3.095) Pub Date : 2023-06-21 Christine Bangsgaard, Thomas Kokholm
We analyze the lead–lag relation between VIX futures and SPX futures. The two futures markets are weakly connected when market volatility is low. By contrast, when volatility is high, their prices are highly negatively correlated, with VIX futures leading SPX futures. However, the tightness of the lead–lag relation prevents the formation of profitable trading strategies in a setup that includes transaction
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Newspapers tone and the overnight-intraday stock return anomaly Journal of Financial Markets (IF 3.095) Pub Date : 2023-06-20 Yossi Saadon, Ben Z. Schreiber
We examine the associations between newspapers tone and stock market indices by translating newspapers coverage into human sentiment gauge. Our tone has positive effects on overnight stock returns and negative effects on both intraday returns and conditional volatility. The positive effect of the tone is highly significant on days of sharp price declines and when the tone is calculated using general
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Order splitting and interacting with a counterparty Journal of Financial Markets (IF 3.095) Pub Date : 2023-06-06 Vincent van Kervel, Amy Kwan, P. Joakim Westerholm
Institutional investors have a strong incentive to find natural counterparties to be able to trade larger amounts at lower costs. We show theoretically that order splitting allows institutional investors to gradually detect each other’s trading intentions, such that they can coordinate their trading to maximize gains from trade. Empirically, we confirm that investors detect counterparties in real-time
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Surprise in short interest Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-29 Matthias X. Hanauer, Pavel Lesnevski, Esad Smajlbegovic
We extract the news component of short-selling activity by accounting for important cross-sectional, distributional differences in short interest data. The resulting measure of surprise in short interest negatively predicts the cross section of both U.S. and international equity returns. Our results also indicate that this predictability originates from short sellers’ informed trading on mispricing
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Retail trading and analyst coverage Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-29 Charles Martineau, Marius Zoican
How does retail trading impact information supply in financial markets? We build a trading model with endogenous information supply where analysts maximize trading volume by institutional investors. In equilibrium, sell-side analysts provide higher quality signals in stocks with large retail interest, as institutional investors can trade more aggressively without revealing information. We provide empirical
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-27
Abstract not available
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Price bands and their effects on equity markets: Evidence from a natural experiment Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-27 Vladimir A. Gatchev, Rama Seth, Ajai Singh, S.R. Vishwanatha
We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability
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Insider trading regulation and trader migration Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-18 Robert Merl, Stefan Palan, Dominik Schmidt, Thomas Stöckl
Discussions about insider trading regulation veer between the poles of forbidding insider trading to protect market integrity and allowing insider trading to foster informational efficiency. We study traders’ preferences for regulation by offering them concurrent markets with different regulatory regimes in an experimental setting. We find that informed traders’ preference for the unregulated market
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Dissecting the listing gap: Mergers, private equity, or regulation? Journal of Financial Markets (IF 3.095) Pub Date : 2023-05-05 Gabriele Lattanzio, William L. Megginson, Ali Sanati
The abnormal decline in the number of U.S. public firms is often blamed on merger activity, private equity investments, and stock market regulations. We compare the effects of these channels in a unified framework. In the U.S., an extra 100 mergers is associated with 22.01 additional missing public firms, whereas an extra 100 PE deals is associated with 3.62 fewer missing public firms. Regulatory changes
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Information flow and credit rating announcements Journal of Financial Markets (IF 3.095) Pub Date : 2023-04-27 Mehdi Khorram, Haitao Mo, Gary C. Sanger
We employ the implied volatility spread (IVS) and the short lending fee as measures of private information conveyed by their respective markets. Using issuer credit rating announcements as an informational event, we find that both IVS and the short fee have significantly higher predictive power for returns on event days versus non-event days. Both also predict the direction and magnitude of credit
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Options-based systemic risk, financial distress, and macroeconomic downturns Journal of Financial Markets (IF 3.095) Pub Date : 2023-04-19 Mattia Bevilacqua, Radu Tunaru, Davide Vioto
We extract an option-implied measure for systemic risk, the Systemic Options Value-at-Risk (SOVaR), from put option prices that can capture the buildup stage of systemic risk in the financial sector earlier than the standard systemic risk measures (SRMs). Our measure exhibits more timely early warning signals of main events around the global financial crisis than the main SRMs. SOVaR shows significant
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Quarterly investment spikes, stock returns, and the investment factor Journal of Financial Markets (IF 3.095) Pub Date : 2023-04-04 Michela Altieri, Jan Schnitzler
We find that abnormal fourth-quarter capital expenditures are negatively correlated with future stock returns. While this evidence is linked to the asset growth factor, it cannot be entirely attributed to it. The fact that the relationship reverts with contemporaneous returns suggests that ad hoc investments may reflect changing discount rates. However, additional tests indicate that the reported effect
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Common short selling and excess comovement: Evidence from a sample of LSE stocks Journal of Financial Markets (IF 3.095) Pub Date : 2023-03-31 Marco Valerio Geraci, Jean-Yves Gnabo, David Veredas
For a sample of 356 LSE stocks from the period 2013–2019, we find that common short sold capital is positively and significantly associated with one-month ahead four-factor residual return correlation, controlling for many pair characteristics, including similarities in size, book-to-market, and momentum. The relation weakens with stock illiquidity, whereas it strengthens when short positions originate
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Banning dark pools: Venue selection and investor trading costs Journal of Financial Markets (IF 3.095) Pub Date : 2023-03-30 Christian Neumeier, Arie Gozluklu, Peter Hoffmann, Peter O’Neill, Felix Suntheim
We analyze the relation between transaction costs and venue choice using proprietary transaction-level data from institutional trade executions in the U.K. equity market. We show that, for a given investor, a higher share of dark trading (midpoint dark pools) is associated with lower execution costs. In the context of a recent ban on dark trading, we provide evidence consistent with migration towards
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Daily short selling around reverse stock splits Journal of Financial Markets (IF 3.095) Pub Date : 2023-03-24 Benjamin M. Blau, Justin S. Cox, Todd G. Griffith, Ryan Voges
We examine prices and daily short selling activity around reverse stock splits using a difference-in-difference identification strategy. The results show negative returns for treatment stocks, relative to control stocks, around reverse splits. Additionally, short selling increases for treatment stocks vis-à-vis control stocks in the days after the reverse split announcements, but not before. Moreover
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2023-03-07
Abstract not available
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The role of idiosyncratic jumps in stock markets Journal of Financial Markets (IF 3.095) Pub Date : 2023-03-01 Suzanne S. Lee
I study how realized idiosyncratic jumps play a role in pricing individual stocks. I find that stocks with high variances associated with positive idiosyncratic jumps tend to have low subsequent returns. To explain the negative premium, I show that positive idiosyncratic jump variances are important predictors for future skewness. Thus, my finding is consistent with investors’ preference for unusually
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The exit choices of European private firms: A dynamic empirical analysis Journal of Financial Markets (IF 3.095) Pub Date : 2023-02-20 Thomas J. Chemmanur, Andrea Signori, Silvio Vismara
Using a European private firm sample, we conduct a dynamic empirical analysis of private firm exit choice, previously modeled as a one-time IPO versus acquisition decision. Going public may yield firms a valuation premium (over a direct acquisition) through a post-IPO acquisition, but may also involve possible delisting at a valuation discount. We explicitly account for these dynamic considerations
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On the choice of central counterparties in the EU Journal of Financial Markets (IF 3.095) Pub Date : 2023-02-17 Gabrielle Demange, Thibaut Piquard
We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP
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Sequential entry in illiquid markets Journal of Financial Markets (IF 3.095) Pub Date : 2023-02-03 Vincent Fardeau
I study the sequential entry of intermediaries into an illiquid market. As intermediaries trade with rational counterparts, market depth affects and is affected by the possibility of entry. This feedback loop between entry and depth gives incumbent intermediaries more incentives to deter entrants, creating endogenous barriers to entry. Further, whether entry occurs or not in equilibrium has distinct
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Arbitrage in the market for cryptocurrencies Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-24 Tommy Crépellière, Matthias Pelster, Stefan Zeisberger
Arbitrage opportunities in markets for cryptocurrencies are well-documented. In this paper, we confirm that they exist; however, their magnitude decreased greatly from April 2018 onward. Analyzing various trading strategies, we show that it is barely possible to exploit existing price differences since then. We discuss and test several mechanisms that may be responsible for the increased market efficiency
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Spoilt for choice: Determinants of market shares in fragmented equity markets Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-23 Peter Gomber, Satchit Sagade, Erik Theissen, Moritz Christian Weber, Christian Westheide
We analyze the determinants of the trading volumes of different trading mechanisms in equity markets using an extensive panel data set from European markets comprising public limit order books, call auctions, dark pools, internalization platforms, and the over-the-counter market. Market shares, resulting from investors’ order routing decisions, are driven by the degree of immediacy and anonymity offered
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Modern OTC market structure and liquidity: The tale of three tiers Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-20 Ryan Davis, Todd Griffith, Bonnie Van Ness, Robert Van Ness
OTC Markets Group organizes stocks that trade over-the-counter (OTC) into three marketplaces (OTCQX, OTCQB, and Pink) based on firm quality and disclosure practices. We examine trading within these tiers and find that stocks in higher tiers are more liquid than stocks in lower tiers. After a series of difference-in-differences tests comparing a matched sample of stocks that change tiers, we find that
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Spillover effects between liquidity risks through endogenous debt maturity Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-19 Xu Wei, Xiao Xiao, Yi Zhou, Yimin Zhou
We construct a model of debt maturity structure and show how a firm trades off between the costs of market liquidity risk and rollover risk. We show that an exogenous shock that directly increases one type of liquidity risk would induce the firm to alter its debt maturity structure and partially offset the impact of the shock by raising its exposure to the other type of risk (i.e., spillover effects
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Job postings and aggregate stock returns Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-18 Pratik Kothari, Michael S. O’Doherty
The job openings-to-employment ratio (JOE), defined as the number of job postings divided by the employment level, is among the strongest known predictors of the equity premium. We find that JOE outperforms a broad set of over two dozen popular predictor variables in both in-sample and out-of-sample forecasting tests. Forecasts based on JOE also produce gains of 2.91% in annualized certainty equivalent
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Benchmarking the effects of the Fed's Secondary Market Corporate Credit Facility using Yankee bonds Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-09 Hui Xu, George G. Pennacchi
We use foreign issuers' “Yankee” bonds to benchmark how the Federal Reserve's Secondary Market Corporate Credit Facility (SMCCF) impacted U.S. issuers' bonds of the same credit rating and maturity. The SMCCF reduced the relative yield spreads of short-maturity U.S. investment-grade bonds, which were targeted by the facility. Yet it also decreased the relative yield spreads of U.S. long-maturity AA-
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COVID-19 pandemic and the stock market: Liquidity, price efficiency, and trading Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-09 Kee H. Chung, Chairat Chuwonganant
This paper shows that the COVID-19 pandemic is associated with a decrease in liquidity and increases in price efficiency and informed trading before the NYSE closed its trading floor. The closure of the trading floor led to reductions in liquidity, price efficiency, and informed trading on the NYSE, and its subsequent reopening led to increases in these variables. The effects of the pandemic and the
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-07
Abstract not available
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Strategic trading by insiders in the presence of institutional investors Journal of Financial Markets (IF 3.095) Pub Date : 2023-01-02 Lai T. Hoang, Marvin Wee, Joey Wenling Yang
We examine how competition to trade on information with institutional traders affects insider trading. We find insiders complete their trades quicker when trading on the same side as institutions, and this effect is more pronounced when insiders are more informed. These findings support information-based models, suggesting that insiders accelerate their trading as institutional traders are likely to
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Equity premium prediction: The role of information from the options market Journal of Financial Markets (IF 3.095) Pub Date : 2022-12-29 Antonios K. Alexandridis, Iraklis Apergis, Ekaterini Panopoulou, Nikolaos Voukelatos
We examine the role of information from the options market in forecasting the equity premium. We provide evidence that the equity premium is predictable out-of-sample using a set of CBOE strategy benchmark indices as predictors. We use a range of econometric approaches to generate point, quantile, and density forecasts of the equity premium. We find that models based on option variables consistently
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Optimism, divergence of investors’ opinions, and the long-run underperformance of IPOs Journal of Financial Markets (IF 3.095) Pub Date : 2022-12-17 Naoshi Ikeda
The long-run underperformance of initial public offerings (IPOs) suggests that aftermarket prices are overvalued. According to the theory of heterogeneous beliefs and short-sale constraints, the aftermarket price of IPOs is overvalued; in addition, their performance deteriorates when the mean level of optimism and degree of divergence of investors’ opinions increase. I examine this phenomenon by estimating
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Editorial Board Journal of Financial Markets (IF 3.095) Pub Date : 2022-11-20
Abstract not available
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Options market ambiguity and its information content Journal of Financial Markets (IF 3.095) Pub Date : 2022-10-21 Qiang Chen, Yu Han
We enrich the literature by extracting ambiguity from the options market. Our results show that options market ambiguity contains information regarding future market excess returns, both in the U.S. market and international markets, and the predictive power of options market ambiguity is adjusted by the level of market fear indicated by the implied variance. The findings also show that the discount
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Risk disclosure in IPO advertisement and the quality of the firm Journal of Financial Markets (IF 3.095) Pub Date : 2022-10-14 Supriya Katti, Edward R. Lawrence, Mehul Raithatha
We compare the IPO issuing firms in India that disclose risk in their advertisements with the firms that do not disclose such risks and find 31% higher underpricing in firms that disclose risk. For the risk disclosing firms, we find a significantly higher subscription from institutional investors. The difference in the subscription from retail investors for the two groups of firms is insignificant