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How does the Introduction of an ETF Market with Liquidity Providers Impact the Liquidity of the Underlying Stocks?.

Platten, Isabelle; Gresse, Carole; De Winne, Rudy - Université Paris-Dauphine

This article examines how the inception of an ETF market impacts several dimensions of the liquidity of the ETF-underlying-index stocks. In contrast with previous research, our evidence is based on an ETF market where liquidity providers (LPs) act as market makers. We find that: (1) the market...

Persistent link: https://www.econbiz.de/10009370244

Impact of information cost and switching of trading strategies in an artificial stock market.

Liu, Yi-Fang; Zhang, Wei; Xu, Chao; Andersen, Jørgen … - Centre d'Économie de la Sorbonne, Université Paris 1 … - 2014

This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay for information before they trade. By paying for the...

Persistent link: https://www.econbiz.de/10010762660

Portfolio choice beyond the traditional approach

Penaranda, Francisco - London School of Economics (LSE) - 2007

This paper surveys asset allocation methods that extend the traditional approach. An important feature of the traditional approach is that measures the risk and return tradeoff in terms of mean and variance of final wealth. However, there are also other important features that are not always...

Persistent link: https://www.econbiz.de/10010745189

The international diversification puzzle is not worse than you think

Julliard, Christian - London School of Economics (LSE) - 2002

This paper offers two main contributions. First, it shows how the Baxter and Jermann (1997) claim that, once we consider human capital risk, the international diversification puzzle is worse than we think, is based on an econometric misspecification rejected by the data. Second, it outlines how,...

Persistent link: https://www.econbiz.de/10010746135

Rational asset pricing implications from realistic trading frictions

Zigrand, Jean-Pierre - London School of Economics (LSE) - 2002

it is shown that arbitrage opportunities occur which could not have occured in a standard model. A certain and precise … degree of informativeness of prices to the traders is lost because the decision making process becomes endogenously segmented … and decentralized within the same decision making entity (distinct "trading desks"). It is shown that, compared to the …

Persistent link: https://www.econbiz.de/10010746573

Optimal expectations

Brunnermeier, Markus K.; Parker, Jonathan A. - London School of Economics (LSE) - 2002

the other hand, expectations that are biased towards optimism worsen decision making, leading to poorer realized outcomes …

Persistent link: https://www.econbiz.de/10010746723

The Whys of the LOIS: Credit Skew and Funding Spread Volatility.

Crépey, Stéphane; Douady, Raphaël - Centre d'Économie de la Sorbonne, Université Paris 1 … - 2014

The 2007 subprime crisis has induced a persistent disconnection between the Libor derivative markets of different tenors and the OIS market. Commonly proposed explanations for the corresponding spreads are a combination of credit risk and liquidity risk. However in the literature the meaning of...

Persistent link: https://www.econbiz.de/10011123706

Dynamic equilibrium with rare events and heterogeneous Epstein-Zin investors

Chabakauri, Georgy - London School of Economics (LSE) - 2015

We consider a general equilibrium Lucas (1978) economy with one consumption good and two heterogeneous Epstein-Zin investors. The output is subject to rare large drops or, more generally, can have non-lognormal distribution with higher cumulants. The heterogeneity in preferences generates excess...

Persistent link: https://www.econbiz.de/10011126596

Understanding portfolio efficiency with conditioning information

Peñaranda, Francisco - London School of Economics (LSE) - 2009

Contrary to the classic framework of passive strategies, if investors exploit return predictability through active strategies then there is a tension between the mean-variance frontiers that drive empirical work and the mean-variance preferences that are used in finance theory. We show that...

Persistent link: https://www.econbiz.de/10011071262

Stock prices under pressure: how tax and interest rates drive returns at the turn of the tax year

Kang, Johnny; Pekkala, Tapio; Polk, Christopher; … - London School of Economics (LSE) - 2011

We show that the level of interest rates determines the magnitude of mispricing at the turn of the tax year, as investors face the trade-o¤ between selling a temporarily depressed stock this year and selling next year, but delaying tax implications by one year. Interest rates do explain the...

Persistent link: https://www.econbiz.de/10011071421