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Articles 1 - 21 of 21
Full-Text Articles in Portfolio and Security Analysis
Assessing Tracking Error Of The Municipal Bond Etfs, Maksym Chikin
Assessing Tracking Error Of The Municipal Bond Etfs, Maksym Chikin
Honors Theses
Municipal bond exchange-traded funds (ETFs) provide diversified exposure to state and local government bonds through a single tradable security. They also provide interest that is usually exempt from federal income tax. This thesis examines 31 investment-grade and 3 high-yield municipal bond ETFs from April 2015 to February 2025 and compares them with three passively managed broad-market bond ETFs: BND (investment-grade bonds), SCHR (Treasury bonds), and JNK (high-yield corporate bonds). Using tracking error, volatility, and returns across the pre-COVID, COVID, and post-COVID periods, the results show that municipal bond ETFs—especially high-yield funds—have higher tracking errors, greater volatility, and more variable returns …
Option Market Maker Hedging And Stock Market Liquidity, James O′Donovan, Gloria Yang Yu, Jinyuan Zhang
Option Market Maker Hedging And Stock Market Liquidity, James O′Donovan, Gloria Yang Yu, Jinyuan Zhang
Research Collection Lee Kong Chian School Of Business
This paper demonstrates that option market maker hedging impacts the liquidity of underlying stocks. Options contracts have zero net supply, and option market makers engage in delta hedging to manage the risk of their net imbalances, unlike option end-users. Consequently, when option market makers hold a net short (long) position, their dynamic hedging demands liquidity from (or supplies liquidity to) the underlying stock, leading to market destabilization (or stabilization). Leveraging proprietary option exchange data that categorizes option trading by trader type, we document this effect and show that it is stronger for stocks where liquidity supply is expected to be …
Hfts And Dealer Banks: Liquidity And Price Discovery In Fx Trading, Wenqian Huang, Peter O'Neill, Angelo Ranaldo, Shihao Yu
Hfts And Dealer Banks: Liquidity And Price Discovery In Fx Trading, Wenqian Huang, Peter O'Neill, Angelo Ranaldo, Shihao Yu
Research Collection Lee Kong Chian School Of Business
In this paper, we characterise the liquidity provision and price discovery roles of dealers and HFTs in the FX spot market during the sample period between 2012 and 2015. We find that they have different responses to adverse market conditions: HFT liquidity provision is less sensitive to spikes in market-wide volatility, while dealer bank liquidity is more robust ahead of scheduled macroeconomic news announcements when adverse selection risk is high. In periods of extreme levels of volatility, such as the `Swiss De-peg' event in our sample, HFTs appear to withdraw almost all liquidity while dealers remain. In normal times, we …
Can Shorts Predict Returns? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Zhang, Xinran Zhang
Can Shorts Predict Returns? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Zhang, Xinran Zhang
Research Collection Lee Kong Chian School Of Business
Using multiple short-sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short-sale measures. The predictive power of shorts is stronger in countries with nonprohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.
The Relative Industry Specific Effects Of Covid-19 On Market Volatility And Liquidity, Callin Christensen
The Relative Industry Specific Effects Of Covid-19 On Market Volatility And Liquidity, Callin Christensen
All Graduate Plan B and other Reports, Spring 1920 to Spring 2023
Understanding how historical events affect market volatility and liquidity can provide crucial information to financial analysts, investment professionals, and managers in the event that similar circumstances resurface. In this study, I look at how a global pandemic (COVID-19) can introduce frictions into the market and cause disrupt the generation or flow of available information, this could cause prices to deviate significantly from their equilibrium values. I also hypothesize that these inefficiencies may have a greater effect on some industries than others. My analysis seems to confirm this hypothesis. I observe that the global COVID-19 pandemic leads to statistically significant increases …
Chasing Private Information, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Chasing Private Information, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Research Collection Lee Kong Chian School Of Business
Using over 5,000 trades unequivocally based on nonpublic information about firm fundamentals, we find that asymmetric information proxies display abnormal values on days with informed trading. Volatility and volume are abnormally high, whereas illiquidity is low, in equity and option markets. Daily returns reflect the sign of private signals, but bid-ask spreads are lower when informed investors trade. Market makers' learning under event uncertainty and limit orders help explain these findings. The cross-section of information duration indicates that traders select days with high uninformed volume. Evidence from the U.S. SEC Whistleblower Reward Program and the FINRA involvement addresses selection concerns.
Competing On Speed, Emiliano Sebastian Pagnotta, Thomas Philippon
Competing On Speed, Emiliano Sebastian Pagnotta, Thomas Philippon
Research Collection Lee Kong Chian School Of Business
We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation …
Should I Invest In Art?, Alexandra Eldridge
Should I Invest In Art?, Alexandra Eldridge
MA Projects
One of the more interesting ways to consider the perennial is art a good investment? question is by looking at the various ways that the art market does or does not behave like other markets. When comparing art as an asset class to more traditional assets, we first need to ask ourselves – are the two even comparable? This article explores the idiosyncrasies of the art world, compares the claims people make regarding art's investment potential to the available research studies, discusses some non-monetary motives for buying, and may even have an answer for the nagging art-as-investment question.
Market Pricing Of Banks’ Fair Value Assets Reported Under Sfas 157 Since The 2008 Financial Crisis, Beng Wee Goh, Dan Li, Jeffrey Ng, Keng Kevin Ow Yong
Market Pricing Of Banks’ Fair Value Assets Reported Under Sfas 157 Since The 2008 Financial Crisis, Beng Wee Goh, Dan Li, Jeffrey Ng, Keng Kevin Ow Yong
Research Collection School Of Accountancy
We investigate how investors price the fair value estimates of assets as required by Statement of Financial Accounting Standards No. 157 (SFAS 157) since the financial crisis in 2008. We observe that Level 3 fair value estimates are typically priced lower than Level 1 and Level 2 fair value estimates between 2008 and 2011. However, the difference between the pricing of the different estimates reduces over time, suggesting that as market conditions stabilize in the aftermath of the 2008 financial crisis, reliability concerns about Level 3 estimates dissipated to some extent. Next, we examine whether Level 3 gains affect the …
Market Microstructure And Abnormal Returns: An Analysis Of Nyse And Sgx Securities, Alex Ng
Market Microstructure And Abnormal Returns: An Analysis Of Nyse And Sgx Securities, Alex Ng
Honors Theses
This paper investigates the differences in the abnormal returns of securities in the context of the earnings announcement in both the United States (NYSE) and Singapore (SGX) markets[1]. Despite the similarities between both exchanges, there exist two key market microstructure differences: the free float factor (i.e. the portion of listed share capital that is freely traded on the market) and lot size (i.e. the minimum number of shares that an investor can trade in a single transaction). While the difference in the lot size can be attributed to the intrinsic institutional differences between both exchanges, the involvement of …
Institutional Presence, Johan Sulaeman, Chi Shen Wei
Institutional Presence, Johan Sulaeman, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
We propose an Institutional Presence (IP) measure to capture the latent role of non-owner institutional investors who nevertheless may be observing a firm. We employ this measure to examine whether the ‘presence’ of institutional investors reduces information asymmetry in the market. Firms in areas with high institutional presence experience higher liquidity, faster information incorporation, lower costs of equity capital, and less financing frictions relative to firms in low IP areas. The results hold after controlling for firm and geographical characteristics including institutional ownership and urban locality. Our findings indicate that being in the presence of institutional investors brings tangible benefits.
Shackling Short Sellers: The 2008 Shorting Ban, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang
Shackling Short Sellers: The 2008 Shorting Ban, Ekkehart Boehmer, Charles M. Jones, Xiaoyan Zhang
Research Collection Lee Kong Chian School Of Business
In September 2008, the U.S. Securities and Exchange Commission (SEC) temporarily banned most short sales in nearly 1,000 financial stocks. We examine the ban's effect on market quality, shorting activity, the aggressiveness of short sellers, and stock prices. The ban's effects are concentrated in larger stocks; there is little effect on firms in the lower half of the size distribution. Although shorting activity drops by about 77% in large-cap stocks, stock prices appear unaffected by the ban. All but the smallest quartile of firms subject to the ban suffer a severe degradation in market quality.
Do Foreign Institutions Improve Stock Liquity?, Chi Shen Wei
Do Foreign Institutions Improve Stock Liquity?, Chi Shen Wei
Research Collection Lee Kong Chian School Of Business
This paper examines whether capital flows by foreign institutions improve liquidity in domestic markets. I find that stocks with increased foreign institutional ownership subsequently experience higher liquidity. However, it is difficult to interpret this evidence as a causal relation because institutions tend to self-select into more liquid stocks. To solve this problem, I exploit the 2003 US dividend tax cut as a natural experiment. The results from a 2SLS (IV) regression confirm that liquidity improved more in dividend-paying stocks located in US tax-treaty countries compared to similar stocks located in non-treaty countries. These patterns are consistent with the notion that …
Pricing Options In An Extended Black Scholes Economy With Illiquidity: Theory And Empirical Evidence, Umut Cetin, Robert Jarrow, Mitchell Protter, Mitchell Warachka
Pricing Options In An Extended Black Scholes Economy With Illiquidity: Theory And Empirical Evidence, Umut Cetin, Robert Jarrow, Mitchell Protter, Mitchell Warachka
Research Collection Lee Kong Chian School Of Business
This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market microstructure literature, the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices. Optimal discrete time hedging strategies are then derived. Empirical evidence reveals a significant liquidity cost intrinsic to every option. [PUBLICATION ABSTRACT]
Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia
Market Segmentation, Liquidity Spillover, And Closed-End Country Fund Discounts, Sai Pang (Justin) Chan, Ravi Jain, Yihong Xia
Research Collection Lee Kong Chian School Of Business
In a segmented international capital market, the illiquidity of a country fund in the market in which its shares are traded affects only the share price of the fund (S), while the illiquidity of its underlying assets in the market in which these are traded affects only the fund net asset value (NAV). In an integrated market, illiquidity in one market can easily spill over to another and affect both the fund share price and its underlying asset value. It follows that the closed-end country fund premium, P[reverse not equivalent]ln(S)-ln(NAV), is negatively (positively) affected by the fund (underlying asset) illiquidity …
Momentum And Informed Trading, A. Hameed, Dong Hong, Mitchell Craig Warachka
Momentum And Informed Trading, A. Hameed, Dong Hong, Mitchell Craig Warachka
Research Collection Lee Kong Chian School Of Business
Consistent with the predictions of Wang (1994), we document that firm-specific informed trading is an important determinant of price momentum. The stronger return continuation in stocks with more informed trading cannot be explained by cross-sectional differences in uncertainty proxies such as analyst forecast dispersion, analyst coverage, idiosyncratic return volatility, and size. The relationship between informed trading and return continuation is also not attributable to cross-sectional differences in liquidity. Instead, our evidence emphasizes the role of price discovery in generating short-term price momentum.
A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
A Tale Of Two Prices: Liquidity And Asset Prices In Multiple Markets, Justin Sai Pang Chan, Dong Hong, Marti G. Subrahmanyam
Research Collection Lee Kong Chian School Of Business
This paper investigates the liquidity effect in asset pricing by studying the liquidity-premium relationship of an American depositary receipt (ADR) and its underlying share. Using the [Amihud, Yakov, 2002. Illiquidity and stock returns: cross-section and time series effects. Journal of Financial Markets 5, 31-56] measure, the turnover ratio and trading infrequency as proxies for liquidity, we show that a higher ADR premium is associated with higher ADR liquidity and lower home share liquidity, in terms of changes in these variables. We find that the liquidity effects remain strong after we control for firm size and a number of country characteristics, …
Liquidity Distribution In The Limit Order Book On The Stock Exchange Of Thailand, Nuttawat Visaltanachoti, Charlie Charoenwong, David K. Ding
Liquidity Distribution In The Limit Order Book On The Stock Exchange Of Thailand, Nuttawat Visaltanachoti, Charlie Charoenwong, David K. Ding
Research Collection Lee Kong Chian School Of Business
The liquidity distribution, or the shape of the limit order book, influences trading behavior and choice of order submission by public liquidity suppliers. The present study seeks to discover whether liquidity providers are concerned about being picked off by informed traders, and whether they are less willing to supply liquidity at the market or demand higher price spreads. The results show that liquidity at the market is a small portion of total liquidity, and that firm size, minimum tick size, volatility, and trading volume play significant roles in determining the liquidity distribution within an order book.
What Explains Credit Default Swaps Bid-Ask Spread?, Yaru Chen
What Explains Credit Default Swaps Bid-Ask Spread?, Yaru Chen
Dissertations and Theses Collection (Open Access)
The pace at which the Credit default swaps (CDS) has been growing since its inception topped all projections. Despite the rapid growth, there is still room for enhancement of liquidity in the CDS market. Asymmetric information is another concern of investors in CDS market, however, some literature addressed that it may not be as serious as regarded. Bid-ask spreads is commonly used as a proxy of both liquidity and asymmetric information. Our empirical study confirms that CDS bid-ask spread has explanatory power to CDS premium. We then investigate the liquidity component in CDS bid-ask spreads. We use the bond age, …
The Impact Of Regulation Fair Disclosure On Information Asymmetry And Trading: An Intraday Analysis, Chiraphol N. Chiyachantana, Christine X. Jiang, Nareerat Taechapiroontong, Robert A. Wood
The Impact Of Regulation Fair Disclosure On Information Asymmetry And Trading: An Intraday Analysis, Chiraphol N. Chiyachantana, Christine X. Jiang, Nareerat Taechapiroontong, Robert A. Wood
Research Collection Lee Kong Chian School Of Business
This study examines the impact of Regulation Fair Disclosure (FD) on liquidity, information asymmetry, and institutional and retail investors trading behavior. Our main findings suggest three conclusions. First, Regulation FD has been effective in improving liquidity and in decreasing the level of information asymmetry. Second, retail trading activity increases dramatically after earnings announcements but there is a significant decline in institutional trading surrounding earnings announcements, particularly in the pre‐announcement period. Last, the decline in information asymmetry around earnings announcements is closely associated with a lower participation rate in the pre‐announcement period and more active trading of retail investors after earnings …
The Determinants Of Bid-Ask Spreads In The Foreign Exchange Futures Markets: A Microstructure Analysis, David K. Ding
The Determinants Of Bid-Ask Spreads In The Foreign Exchange Futures Markets: A Microstructure Analysis, David K. Ding
Research Collection Lee Kong Chian School Of Business
This paper investigates and analyzes the intraday and daily determinants of bid-ask spreads in the foreign exchange futures market. It is found that the number of transactions is negatively related to the BAS, whereas volatility in general is positively related to it. The study also finds that there are economies of scale in trading FXF contracts. The intraday BAS follows a U-shaped pattern, and they tend to be higher on Mondays and Tuesdays than on other days of the week. Higher spreads at the beginning and end of a trading day are consistent with the presence of adverse selection and …