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Trading System Upgrades And Short-Sale Bans: Uncoupling The Effects Of Technology And Regulation, Bidisha Chakrabarty, Pamela Moulton, Roberto Pascual 2017 Saint Louis University

Trading System Upgrades And Short-Sale Bans: Uncoupling The Effects Of Technology And Regulation, Bidisha Chakrabarty, Pamela Moulton, Roberto Pascual

Pamela C. Moulton

We examine the market quality effects of technology upgrades juxtaposed with short-sale bans. Between 2011 and 2013, the Spanish Stock Exchange introduced a smart trading platform (SIBE-Smart) and colocation to facilitate high-speed trading, and they also imposed two short-sale bans. We find that the SIBE-Smart introduction, which occurs between the two short-sale bans, leads to reduced market quality. The introduction of colocation, which occurs during the second short-sale ban, improves market liquidity although it does not attract additional high-speed trading. Our results highlight how the effects of latency-reducing infrastructure improvements depend on, and differ across, different regulatory regimes.


Gambling With Momentum: How Gambling Cultures Shape Financial Markets, Daniel Mosman 2017 Utah State University

Gambling With Momentum: How Gambling Cultures Shape Financial Markets, Daniel Mosman

All Graduate Plan B and other Reports

Do people who gamble carry such preferences into their investments? This study looks at various factors which are used to identify countries with a significant gambling population, and seeks to find a relationship with those gambling tendencies and premiums associated with momentum. From historical market data from financial markets in 45 different countries I found stronger evidence of a momentum premium in those countries which have those identifying factors for gambling, than those that do not. Results of the regression analysis suggest weak evidence that it is possible that the momentum premium could be associated with gambling preferences and culture ...


Fundamental Drivers Of Dependence In Reit Returns, Jamie Alcock, Eva Steiner 2017 University of Sydney

Fundamental Drivers Of Dependence In Reit Returns, Jamie Alcock, Eva Steiner

Eva Steiner

We analyse the empirical relationships between firm fundamentals and the dependence structure between individual REIT and stock market returns. In contrast to previous studies, we distinguish between the average systematic risk of REITs and their asymmetric risk in the sense of a disproportionate likelihood of joint negative return clusters between REITs and the stock market. We find that REITs with low systematic risk are typically small, with low short-term momentum, low turnover, high growth opportunities and strong long-term momentum. Holding systematic risk constant, the main driving forces of asymmetric risk are leverage and, to some extent, short-term momentum. Specifically, we ...


Twin Momentum, Dashan HUANG, Huacheng ZHANG, Guofu ZHOU 2017 Singapore Management University

Twin Momentum, Dashan Huang, Huacheng Zhang, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

Using both the levels and the time-series trends of a collection of firms' major fundamentals, we find that fundamentals matter after all: they can also generate strong return momentum. A fundamental momentum strategy that goes long stocks with fundamental in the top quintile and short stocks with fundamental in the bottom quintile earns a monthly average return of 88 bps, and is comparable with the popular price momentum but has little correlation. Combining price momentum and fundamental momentum yields a twin momentum, which has an average return more than the sum of both price momentum and fundamental momentum. Twin momentum ...


Debt/Equity Ratio And Asset Pricing Analysis, Nicholas Lyle 2017 Utah State University

Debt/Equity Ratio And Asset Pricing Analysis, Nicholas Lyle

All Graduate Plan B and other Reports

A firm’s value can be manipulated by altering how much debt a firm takes on relative to its equity called the Debt/Equity ratio. The positive aspects of debt are tax shields and the perception that the firm is trying to expand their current operations while the negative effects are increased bankruptcy risk. The optimal ratio is where the negative aspects begin to outweigh the positive. Since bankruptcy risk is hard to value there are many opinions on what the optimal Debt/Equity ratio for a specific firm is.

This study looks to historic data to determine how the ...


The Stochastic Behavior Of Commodity Prices With Heteroscedasticity In The Convenience Yield, Peng Liu, Ke Tang 2017 Cornell University School of Hotel Administration

The Stochastic Behavior Of Commodity Prices With Heteroscedasticity In The Convenience Yield, Peng Liu, Ke Tang

Peng Liu

We document a new stylized fact regarding the dynamics of the commodity convenience yield: the volatility of the convenience yield is heteroskedastic for industrial commodities; specifically, the volatility (variance) of the convenience yield depends on the convenience yield level. To explore the economic and statistical significance of the improved specification of the convenience yield process, we propose an affine model with three state variables (log spot price, interest rate, and the convenience yield). Our model captures three important features of commodity futures—the heteroskedasticity of the convenience yield, the positive relationship between spot-price volatility and the convenience yield and the ...


The Economics Of Commercial Real Estate Preleasing, Robert H. Edelstein, Peng Liu 2017 University of California at Berkeley

The Economics Of Commercial Real Estate Preleasing, Robert H. Edelstein, Peng Liu

Peng Liu

Preleasing of to-be-built commercial real estate space is a pervasive worldwide practice. Although such preleasing is an extensive and significant activity, it has not received adequate attention in the real estate economics and finance literature. Using an equilibrium micro-economic agency model, this paper examines the economics of commercial real estate preleasing. The equilibrium prelease contract rent is a function of several variables, including the expected spot market rent, financing benefits from preleasing, developer-lessor and tenant-lessee risk-hedging behavior, the interplay between lessor and lessee default options, and the market capitalization rate. Our paper demonstrates how the distribution of risk preferences for ...


No-Arbitrage Conditions For Storable Commodities And The Models Of Futures Term Structures, Peng Liu, Ke Tang 2017 Cornell University School of Hotel Administration

No-Arbitrage Conditions For Storable Commodities And The Models Of Futures Term Structures, Peng Liu, Ke Tang

Peng Liu

One distinguishable feature of storable commodities is that they relate to two markets: cash market and storage market. This paper proves that, if no arbitrage exists in the storage-cash dual markets, the commodity convenience yield has to be non-negative. However, classical reduced-form models for futures term structures could allow serious arbitrages due to the high volatility of the convenience yield. To avoid negative convenience yield, this paper proposes a semi-affine arbitrage-free model, which prices futures analytically and fits futures term structures reasonably well. Importantly, our model prices commodity-related contingent claims (such as calendar spread options) quite differently with classical models.


Mortgage Prepayment And Default Behavior With Embedded Forward Contract Risks In China’S Housing Market, Yongheng Deng, Peng Liu 2017 University of Southern California

Mortgage Prepayment And Default Behavior With Embedded Forward Contract Risks In China’S Housing Market, Yongheng Deng, Peng Liu

Peng Liu

Most condominiums in China are sold forward on a pre-sale market, where purchasers and developers transact on an underlying property that is not yet completed. During the pre-sale period home buyers face a significant forward contract risk. However, home buyers can borrow mortgages from banks so that they can effectively share the forward contract risk with banks. This explains the phenomenon of irregularly high early-stage default and prepayment rates observed in residential mortgage lending in China, where there are few, if any, financial incentives for mortgage borrowers to exercise either put or call options. Mortgages collateralized by forward housing assets ...


Maximal Gaussian Affine Models For Multiple Commodities: A Note, Jaime Casassus, Peng Liu, Ke Tang 2017 Pontificia Universidad Catolica

Maximal Gaussian Affine Models For Multiple Commodities: A Note, Jaime Casassus, Peng Liu, Ke Tang

Peng Liu

This study extends the maximal affine models of single assets to a multi-commodity setup. We show that the correlated version of maximal affine models for a single commodity is no longer maximal for multiple commodities. In the maximal model, the convenience yield of a certain commodity could depend on the prices of other commodities, which is consistent with the structural model in our companion study Casassus, Liu, and Tang [Review of Financial Studies, 26, 1324–1362, 2013]. This cross-commodity relationship is a feedback effect that may generate substantial co-movement among long-run commodity prices, a fact that is consistent with many ...


Foreclosure Of Securitized Commercial Mortgages - A Model Of The Special Servicer, Peng Liu, Daniel Quan 2017 Cornell University School of Hotel Administration

Foreclosure Of Securitized Commercial Mortgages - A Model Of The Special Servicer, Peng Liu, Daniel Quan

Peng Liu

The decision to foreclose on a CMBS mortgage is made by the special servicer. A mortgage loan is in special servicing when it is either delinquent or in a state of imminent default. A special servicer should represent the interests of the underlying CMBS bondholders by returning the highest possible value to the investors. In this paper, we show that a special servicer's compensation structure results in an incentive for her to extend a loan beyond the time desired by its bondholders. We develop a model and demonstrate how compensation incentives interact and influence a special servicer's foreclosure ...


The Effect Of Corporate Acquisitions On Stockholder Returns In The Lodging Industry, Linda Canina 2017 Cornell University School of Hotel Administration

The Effect Of Corporate Acquisitions On Stockholder Returns In The Lodging Industry, Linda Canina

Linda Canina

We examine the stock market’s reaction to merger announcements in the lodging industry over the 1982-2000 period. Unlike the results for the overall market, we find that both the stockholders of the acquiring and target firms gain at the time of the merger announcement. In the lodging industry, mergers are positive net present value investments for bidders. Whereas for the overall market, merger bids are at the best zero net present value investments. In addition, we found that shareholders benefit from mergers in the short- (one year), medium (three year) and long-term (five-year). Lastly, the wealth gains to tender ...


The Efficiency Of Liquidity Resiliency, Nathan Burton 2017 Utah State University

The Efficiency Of Liquidity Resiliency, Nathan Burton

All Graduate Plan B and other Reports

Using a VECM to estimate the dynamics of liquidity, in this case bid-ask spread, I run simulations for stocks of varying market capitalizations and find that lower market cap stocks require more orders to return to equilibrium spread following a shock, suggesting less efficiency of price discovery in lower cap stocks. Despite the greater number of order necessary for lower cap stocks, the return to equilibrium spread is still very fast, suggesting a relatively efficient market for NYSE and NASDAQ stocks in the upper three market cap quartiles.


Information In Stock Prices: Buy The Rumor, Sell The News?, Pamela Moulton 2017 Cornell University School of Hotel Administration

Information In Stock Prices: Buy The Rumor, Sell The News?, Pamela Moulton

Pamela C. Moulton

The popular adage, “buy the rumor and sell the news,” can apply to only half of stock trades, because someone must be on the other side of every trade, a party who is “buying the news.” The “news” in this study comes from changes in analyst recommendations, which cause measurable changes in stock prices. On average, analyst upgrades are accompanied by one-day abnormal returns of 1.96 percent, while analyst downgrades lead to one-day abnormal returns of -1.83 percent. Examining the trading patterns of four types of traders, the study finds that active institutional traders are best at buying ...


Physiological Arousal During Couple Financial Discussions As A Precursor To Seeking Financial Planning Help, Megan R. Ford, John Grable, Michelle Kruger, Alycia DeGraff 2017 University of Georgia

Physiological Arousal During Couple Financial Discussions As A Precursor To Seeking Financial Planning Help, Megan R. Ford, John Grable, Michelle Kruger, Alycia Degraff

Journal of Financial Therapy

There continues to be a great need for financial guidance within American households, yet the utilization of professional financial help, despite its growing accessibility, is low. It has been suggested that physiological arousal is an important factor that influences help-seeking behaviors. This paper tests the hypothesis that help-seeking intentions at the couple level are shaped in part by physiological arousal within the couple. Although exploratory, findings suggest the greater the joint level of arousal, the more likely a couple will be to report an intention to meet with a financial planner. Couples who experience a higher level of arousal during ...


Return Comovement, David C. Parsley, Helen Popper 2017 Santa Clara University

Return Comovement, David C. Parsley, Helen Popper

David C. Parsley

We examine intra-market return comovement within each of 33 economies’ stock exchanges from 1995 through 2013 using a model-free comovement gauge. We find that the stability of international macroeconomic trilemma policies, the number of crises, and the extent of turnover overshadow the empirical relevance of many variables previously thought to be important for intra-market comovement, including country risk, corruption, and investor protections. We also use a much longer historical sample of U.S. firms to examine compositional explanations of the well-known U.S. comovement decline and to decompose the comovement into trend and cycle. Our findings challenge the compositional explanations ...


Information In Stock Prices: Buy The Rumor, Sell The News?, Pamela Moulton 2017 Cornell University School of Hotel Administration

Information In Stock Prices: Buy The Rumor, Sell The News?, Pamela Moulton

Center for Hospitality Research Publications

The popular adage, “buy the rumor and sell the news,” can apply to only half of stock trades, because someone must be on the other side of every trade, a party who is “buying the news.” The “news” in this study comes from changes in analyst recommendations, which cause measurable changes in stock prices. On average, analyst upgrades are accompanied by one-day abnormal returns of 1.96 percent, while analyst downgrades lead to one-day abnormal returns of -1.83 percent. Examining the trading patterns of four types of traders, the study finds that active institutional traders are best at buying ...


Regulating Robo Advisors: Old Policy Goals, New Challenges, Tom Baker, Benedict Dellaert 2017 University of Pennsylvania Law School

Regulating Robo Advisors: Old Policy Goals, New Challenges, Tom Baker, Benedict Dellaert

Penn Wharton Public Policy Initiative

Financial “robo advice”—an automated service that ranks or matches consumers to financial products—has gained significant attention in the investment industry and on the Hill, but there has not yet been a consensus on how to regulate these new services. Robo advisors often are on par with and can exceed the standards of human advices, but they don’t fit into the category of fiduciary, and therefore won’t be held to the same regulatory standard that humans advisors are. Nonetheless, they are subject to systemic risks and the potential for abuses that can hurt consumers. Professors Tom Baker ...


Factor Based Statistical Arbitrage In The U.S. Equity Market With A Model Breakdown Detection Process, Seoungbyung park 2017 Marquette University

Factor Based Statistical Arbitrage In The U.S. Equity Market With A Model Breakdown Detection Process, Seoungbyung Park

Master's Theses (2009 -)

Many researchers have studied different strategies of statistical arbitrage to provide a steady stream of returns that are unrelated to the market condition. Among different strategies, factor-based mean reverting strategies have been popular and covered by many. This thesis aims to add value by evaluating the generalized pairs trading strategy and suggest enhancements to improve out-of-sample performance. The enhanced strategy generated the daily Sharpe ratio of 6.07% in the out-of-sample period from January 2013 through October 2016 with the correlation of -.03 versus S&P 500. During the same period, S&P 500 generated the Sharpe ratio of 6 ...


Option Implied Volatility, Skewness, And Kurtosis And The Cross-Section Of Expected Stock Returns, Turan BALI, Jianfeng HU, Murray SCOTT 2017 Singapore Management University

Option Implied Volatility, Skewness, And Kurtosis And The Cross-Section Of Expected Stock Returns, Turan Bali, Jianfeng Hu, Murray Scott

Research Collection Lee Kong Chian School Of Business

We demonstrate that an ex-ante measure of expected returns based on analyst price targets is highly related to the market's required rate of return. We then show that ex-ante measures of volatility, skewness, and kurtosis derived from option prices are positively related to ex-ante expected returns. While expected returns are related to both systematic and unsystematic variance risk, only the unsystematic components of skewness and kurtosis are important for explaining the cross-section of expected stock returns. The results are consistent using different measures of ex-ante risk and robust to controls for other variables related to stock returns and analyst ...


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