Open Access. Powered by Scholars. Published by Universities.®
Finance and Financial Management Commons™
Open Access. Powered by Scholars. Published by Universities.®
- Discipline
Articles 1 - 6 of 6
Full-Text Articles in Finance and Financial Management
Dissecting Arbitrage Costs, F. Y. Eric Lam, Chishen Wei, K. C John Wei
Dissecting Arbitrage Costs, F. Y. Eric Lam, Chishen Wei, K. C John Wei
Research Collection Lee Kong Chian School Of Business
This paper systematically examines the impact of nine popular arbitrage costs measures on cross-sectional mispricing based on ten well-known and robust anomalies. We show that binding arbitrage barriers slowly change over time. In early years with few publications documenting return anomalies, arbitrage costs have tiny impact even though mispricing is present. As anomalies become more widely known, arbitrage costs impact mispricing substantially. Arbitrage risk, ambiguity of fundamental value, round-trip broker’s commission plus bid-ask spreads, and stock loan supply are binding on arbitrageurs. Only arbitrage risk is binding if larger cap stocks are emphasized. In recent years when market quality improves …
Mutual Fund Trading Costs And Diseconomies Of Scale, Jeffrey Busse, Tarun Chordia, Lei Jiang, Yuehua Tang
Mutual Fund Trading Costs And Diseconomies Of Scale, Jeffrey Busse, Tarun Chordia, Lei Jiang, Yuehua Tang
Research Collection Lee Kong Chian School Of Business
Larger mutual funds underperform smaller funds even though they have lower percentage transaction costs. Larger funds hold and trade a larger fraction of bigger, more liquid stocks, which leads to lower percentage transaction costs than smaller funds. Smaller funds outperform larger funds primarily when small cap stocks outperform large cap stocks. Overall, we find that it is not trading costs but fund holding characteristics, especially the market capitalization of stock holdings, that drive diseconomies of scale in the mutual fund industry.
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Research Collection Lee Kong Chian School Of Business
We propose and empirically examine a comprehensive measure of institutional trading frictions to include the dimensions of price impact, quantity of execution, return dynamics, speed of execution or order splitting, and trading commissions. Our empirical analysis reveals that various hidden components of institutional trading frictions such as adverse selection and clean-up costs are persistent and could add significantly to previously measured directly observable components of transaction costs. Our simultaneous system of equations accounts for the endogeniety in institutional order aggressiveness based on potentially superior information as well as order splitting strategies in the implementation stage to reduce transaction costs. Order …
Firm Strategy And The Internet In U.S. Commercial Banking, K. H. Goh, Robert J. Kauffman
Firm Strategy And The Internet In U.S. Commercial Banking, K. H. Goh, Robert J. Kauffman
Research Collection School Of Computing and Information Systems
As information technology (IT) becomes more accessible, sustaining any competitive advantage from it becomes challenging. This has caused some critics to dismiss IT as a less valuable resource. We argue that, in addition to being able to generate strategic advantage, IT should also be viewed as a strategic necessity that prevents competitive disadvantage in rapidly changing business environments. We test a set of hypotheses on strategic advantage and strategic necessity in the context of Internet banking investments among the entire population of the United States Federal Deposit Insurance Corporation (FDIC) banks from 2003 to 2005. We seek to understand whether …
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Institutional Trading Frictions, Chiraphol New Chiyachantana, Pankaj K. Jain
Research Collection Lee Kong Chian School Of Business
We propose and empirically examine a comprehensive measure of institutional trading frictions to include the dimensions of price impact, quantity of execution, return dynamics, speed of execution or order splitting, and trading commissions. Our empirical analysis reveals that various hidden components of institutional trading frictions such as adverse selection and clean-up costs are persistent and could add significantly to previously measured directly observable components of transaction costs. Our simultaneous system of equations accounts for the endogeniety in institutional order aggressiveness based on potentially superior information as well as order splitting strategies in the implementation stage to reduce transaction costs. Order …
Optimal Liquidation Strategies And Their Implications, Christopher Ting, Mitch Warachka, Yonggan Zhao
Optimal Liquidation Strategies And Their Implications, Christopher Ting, Mitch Warachka, Yonggan Zhao
Research Collection Lee Kong Chian School Of Business
This paper studies optimal liquidation when the selling price depends on the rate of liquidation, transaction time, volume, and the asset's intrinsic value. A generic closed-form solution for maximizing the discounted liquidation proceeds is derived. To obtain financial insights, three parametric specifications that proxy for increasingly realistic market conditions are examined. In our framework, maximizing liquidation proceeds and minimizing liquidity costs are equivalent. The optimal strategies imply more rapid liquidations in less liquid markets. We also show that volatility is stochastic when market liquidity is unpredictable.