Essays on Market Microstructure: Price Discovery and Informed Trading

Market microstructure is “the study of the trading mechanisms used for financial securities” (Hasbrouck (2007)). It seeks to understand the sources of value and reasons for trade, in a setting with different types of traders, and different private and public information sets. The actual mechanisms of trade are a continually changing object of study. These include continuous markets, auctions, limit order books, dealer markets, or combinations of these operating as a hybrid market. Microstructure also has to allow for the possibility of multiple prices. At any given time an investor may be faced with a multitude of different prices, depending on whether he or she is buying or selling, the quantity he or she wishes to trade, and the required speed for the trade. The price may also depend on the relationship that the trader has with potential counterparties. In this research, I touch upon all of the above issues. I do this by studying three specific areas, all of which have both practical and policy implications. First, I study the role of information in trading and pricing securities in markets with a heterogeneous population of traders, some of whom are informed and some not, and who trade for different private or public reasons. Second, I study the price discovery of stocks in a setting where they are simultaneously traded in more than one market. Third, I make a contribution to the ongoing discussion about market design, i.e. the question of which trading systems and ways of organizing trading are most efficient. A common characteristic throughout my thesis is the use of high frequency datasets, i.e. tick data. These datasets include all trades and quotes in a given security, rather than just the daily closing prices, as in traditional asset pricing literature. This thesis consists of four separate essays. In the first essay I study price discovery for European companies cross-listed in the United States. I also study explanatory variables for differences in price discovery. In my second essay I contribute to earlier research on two issues of broad interest in market microstructure: market transparency and informed trading. I examine the effects of a change to an anonymous market at the OMX Helsinki Stock Exchange. I broaden my focus slightly in the third essay, to include releases of macroeconomic data in the United States. I analyze the effect of these releases on European cross-listed stocks. The fourth and last essay examines the uses of standard methodologies of price discovery analysis in a novel way. Specifically, I study price discovery within one market, between local and foreign traders.

Executive Stock Options: Exercise Policy and Market Reaction

In this paper I investigate the exercise policy, and the market reaction to that, of the executive stock option holders in Finland. The empirical tests are conducted with aggregated firm level data from 34 firms and 41 stock option programs. I find some evidence of an inverse relation between the exercise intensity of the options holders and the future abnormal return of the company share price. This finding is supported by the view that information about future company prospect seems to be the only theoretical attribute that could delay the exercise of the options. Moreover, a high concentration of exercises in the beginning of the exercise window is predicted and the market is expected to react to deviations from this. The empirical findings however show that the market does not react homogenously to the information revealed by the late exercises.

Posttraumatic stress symptoms among school personnel after the Jokela school shooting : A longitudial study of exposure, interventions, and symptom changes

Objectives. School personnel who are exposed to school violence are at risk in developing post traumatic stress disorder (PTSD). In Finland there have been two such events in recent years, Jokela school shooting on 7.11.2007 and Kauhajoki school shooting about a year later. The aim of the present study was to examine the presence and change in PTSD symptoms during the first year after the Jokela school shooting. A second aim was to study how the initial exposure and treatment affects the symptom levels of PTSD. There were four hypotheses: 1) The PTSD symptoms are higher for the people who were exposed to the school shooting than for the people who did not face the stressor. 2) The PTSD symptoms increase in the follow up for the people at the school which was not attacked because of the second incident brought up the memories from the Jokela school shooting. 3) Those who have greater exposure to the shooting will have higher level of PTSD symptoms at both 4 and 11 months after the shooting than those who were not directly exposed to the shooting. 4) The PTSD symptoms are reduced more in the group that starts treatment right after the traumatic event than in other groups. Methods. A sample of 24 members of Jokela school personnel were examined four months after the incident and 16 were reassessed 11 month after the incident. To study the change and level of symptoms in other schools during the same period, a group with no exposure to the shooting was used as a control group (n=22). The assessment included Post Traumatic Stress Disorder Checklist Specific (PCL-S) and a social and professional support questionnaire. In addition questions about timing of support and experiences of psychological debriefing were asked. Results and conclusions. Most participants in the study group experienced some symptoms of PTSD at both 4 and 11 months. In both measures three participants from the study group fulfilled the diagnostic criteria for PTSD. The study group and control group differed significantly in overall symptom levels. The study group had more PTSD symptoms in the first measure but in the follow-up the study group’s PTSD symptoms decreased and the control group’s increased. There was a significant change in the study groups PTSD symptom level for those who started treatment right after the traumatic event. The results from this study showed that an exposure to school shooting has long-term effects on school personnel. The findings suggest that it is crucial to plan a comprehensive and long-term treatment for school personnel in the aftermath of school shooting.

Integrated semantic processing of complex pictures and spoken sentences - Evidence from event-related potentials

It has been suggested that semantic information processing is modularized according to the input form (e.g., visual, verbal, non-verbal sound). A great deal of research has concentrated on detecting a separate verbal module. Also, it has traditionally been assumed in linguistics that the meaning of a single clause is computed before integration to a wider context. Recent research has called these views into question. The present study explored whether it is reasonable to assume separate verbal and nonverbal semantic systems in the light of the evidence from event-related potentials (ERPs). The study also provided information on whether the context influences processing of a single clause before the local meaning is computed. The focus was on an ERP called N400. Its amplitude is assumed to reflect the effort required to integrate an item to the preceding context. For instance, if a word is anomalous in its context, it will elicit a larger N400. N400 has been observed in experiments using both verbal and nonverbal stimuli. Contents of a single sentence were not hypothesized to influence the N400 amplitude. Only the combined contents of the sentence and the picture were hypothesized to influence the N400. The subjects (n = 17) viewed pictures on a computer screen while hearing sentences through headphones. Their task was to judge the congruency of the picture and the sentence. There were four conditions: 1) the picture and the sentence were congruent and sensible, 2) the sentence and the picture were congruent, but the sentence ended anomalously, 3) the picture and the sentence were incongruent but sensible, 4) the picture and the sentence were incongruent and anomalous. Stimuli from the four conditions were presented in a semi-randomized sequence. Their electroencephalography was simultaneously recorded. ERPs were computed for the four conditions. The amplitude of the N400 effect was largest in the incongruent sentence-picture -pairs. The anomalously ending sentences did not elicit a larger N400 than the sensible sentences. The results suggest that there is no separate verbal semantic system, and that the meaning of a single clause is not processed independent of the context.

Paleomagnetic and rock magnetic study with emphasis on the Precambrian intrusions and impact structures in Fennoscandia and South Africa

The importance of supercontinents in our understanding of the geological evolution of the planet Earth has been recently emphasized. The role of paleomagnetism in reconstructing lithospheric blocks in their ancient paleopositions is vital. Paleomagnetism is the only quantitative tool for providing ancient latitudes and azimuthal orientations of continents. It also yields information of content of the geomagnetic field in the past. In order to obtain a continuous record on the positions of continents, dated intrusive rocks are required in temporal progression. This is not always possible due to pulse-like occurrences of dykes. In this work we demonstrate that studies of meteorite impact-related rocks may fill some gaps in the paleomagnetic record. This dissertation is based on paleomagnetic and rock magnetic data obtained from samples of the Jänisjärvi impact structure (Russian Karelia, most recent 40Ar-39Ar age of 682 Ma), the Salla diabase dyke (North Finland, U-Pb 1122 Ma), the Valaam monzodioritic sill (Russian Karelia, U-Pb 1458 Ma), and the Vredefort impact structure (South Africa, 2023 Ma). The paleomagnetic study of Jänisjärvi samples was made in order to obtain a pole for Baltica, which lacks paleomagnetic data from 750 to ca. 600 Ma. The position of Baltica at ca. 700 Ma is relevant in order to verify whether the supercontinent Rodinia was already fragmented. The paleomagnetic study of the Salla dyke was conducted to examine the position of Baltica at the onset of supercontinent Rodinia's formation. The virtual geomagnetic pole (VGP) from Salla dyke provides hints that the Mesoproterozoic Baltica - Laurentia unity in the Hudsonland (Columbia, Nuna) supercontinent assembly may have lasted until 1.12 Ga. Moreover, the new VGP of Salla dyke provides new constraint on the timing of the rotation of Baltica relative to Laurentia (e.g. Gower et al., 1990). A paleomagnetic study of the Valaam sill was carried out in order to shed light into the question of existence of Baltica-Laurentia unity in the supercontinent Hudsonland. Combined with results from dyke complex of the Lake Ladoga region (Schehrbakova et al., 2008) a new robust paleomagnetic pole for Baltica is obtained. This pole places Baltica on a latitude of 10°. This low latitude location is supported also by Mesoproterozoic 1.5 1.3 Ga red-bed sedimentation (for example the Satakunta sandstone). The Vredefort impactite samples provide a well dated (2.02 Ga) pole for the Kaapvaal Craton. Rock magnetic data reveal unusually high Koenigsberger ratios (Q values) in all studied lithologies of the Vredefort dome. The high Q values are now first time also seen in samples from the Johannesburg Dome (ca. 120 km away) where there is no impact evidence. Thus, a direct causative link of high Q values to the Vredefort impact event can be ruled out.

Study of multi-muon events produced in p\bar{p} interactions at \sqrt{s}=1.96 TeV

We report the results of a study of multi-muon events produced at the Fermilab Tevatron collider and acquired with the CDF II detector using a dedicated dimuon trigger. The production cross section and kinematics of events in which both muon candidates are produced inside the beam pipe of radius 1.5 cm are successfully modeled by known processes which include heavy flavor production. In contrast, we are presently unable to fully account for the number and properties of the remaining events, in which at least one muon candidate is produced outside of the beam pipe, in terms of the same understanding of the CDF II detector, trigger, and event reconstruction.

Brain oscillatory responses, working memory and cognitive developmental stages in 11- and 14-year-old children: an ERD/ERS study

Aim: So far, most of the cognitive neuroscience studies investigating the development of brain activity in childhood have made comparisons between different age groups and ignored the individual stage of cognitive development. Given the wide variation in the rate of cognitive development, this study argues that chronological age alone cannot explain the developmental changes in brain activity. This study demonstrates how Piaget s theory and information on child s individual stage of development can complement the age-related evaluations of brain oscillatory activity. In addition, the relationship between cognitive development and working memory is investigated. Method: A total of 33 children (17 11-year-olds, 16 14-year-olds) participated in this study. The study consisted of behavioural tests and an EEG experiment. Behavioral tests included two Piagetian tasks (the Volume and Density task, the Pendulum task) and Raven s Standard Progressive Matrices task. During EEG experiment, subjects performed a modified version of the Sternberg s memory search paradigm which consisted of an auditorily presented memory set of 4 words and a probe word following these. The EEG data was analyzed using the event-related desynchronization / synchronization (ERD/ERS) method. The Pendulum task was used to assess the cognitive developmental stage of each subject and to form four groups based on age (11- or 14-year-olds) and cognitive developmental stage (concrete or formal operational stage). Group comparisons between these four groups were performed for the EEG data. Results and conclusions: Both age- and cognitive stage-related differences in brain oscillatory activity were found between the four groups. Importantly, age-related changes similar to those reported by previous studies were found also in this study, but these changes were modified by developmental stage. In addition, the results support a strong link between working memory and cognitive development by demonstrating differences in memory task related brain activity and cognitive developmental stages. Based on these findings it is suggested that in the future, comparisons of development of brain activity should not be based only on age but also on the individual cognitive developmental stage.