The microstructure of the foreign exchange market:the determinants of bid-ask spreads in the foreign exchange market

The purpose of this thesis is to shed more light in the FX market microstructure by examining the determinants of bid-ask spread for three currencies pairs, the US dollar/Japanese yen, the British pound/US dollar and the Euro/US dollar in different time zones. I examine the commonality in liquidity with the elaboration of FX market microstructure variables in financial centres across the world (New York, London, Tokyo) based on the quotes of three exchange rate currency pairs over a ten-year period. I use GARCH (1,1) specifications, ICSS algorithm, and vector autoregression analysis to examine the effect of trading activity, exchange rate volatility and inventory holding costs on both quoted and relative spreads. ICSS algorithm results show that intraday spread series are much less volatile compared to the intraday exchange rate series as the number of change points obtained from ICSS algorithm is considerably lower. GARCH (1,1) estimation results of daily and intraday bid-ask spreads, show that the explanatory variables work better when I use higher frequency data (intraday results) however, their explanatory power is significantly lower compared to the results based on the daily sample. This suggests that although daily spreads and intraday spreads have some common determinants there are other factors that determine the behaviour of spreads at high frequencies. VAR results show that there are some differences in the behaviour of the variables at high frequencies compared to the results from the daily sample. A shock in the number of quote revisions has more effect on the spread when short term trading intervals are considered (intra-day) compared to its own shocks. When longer trading intervals are considered (daily) then the shocks in the spread have more effect on the future spread. In other words, trading activity is more informative about the future spread when intra-day trading is considered while past spread is more informative about the future spread when daily trading is considered

Stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysian KLCI

We examine the stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), over the time period of 2005–2012. We find evidence to support the price pressure hypothesis for both additions to and deletions from the KLCI. This is because significant stock price and trading volume effects in the pre index revision period are entirely reversed after the announcement of the news. Our empirical findings can be explained by the market microstructure literature. Significant changes in liquidity cause trading volume and stock prices to reverse back to their original level before the index revisions took place.

Dynamics in systematic liquidity

We develop a principal component approach to systematic liquidity measurement by introducing moving and expanding estimation windows. We evaluate these methods along with traditional estimation techniques (full sample PCA and market average) in terms of ability to explain (1) cross sectional stock liquidity and cross sectional stock returns. For several traditional liquidity measures our results suggest an expanding window specification for systematic liquidity estimation. The market average proxy of systematic liquidity produces the same degree of commonality, but does not have the same ability to explain stock returns as the PCA-estimates.

The role of pre-existing liquidity in determining pricing efficiency and liquidity gains following the introduction of SETSmm

In this paper we examine the impact that the new trading system SETSmm had on market quality measures such as firm value, liquidity and pricing efficiency. This system was introduced for mid-cap securities on the London Stock Exchange in 2003. We show that there is a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. We find that migration to SETSmm also improves liquidity and pricing efficiency and these changes are related to the return premium. We also find that these gains are stronger for firms with high pre SETSmm liquidity and weaker for firms with low SETSmm liquidity.

The role of pre-existing liquidity in determining price efficiency and liquidity gains following the introduction of SETSmm

In this paper we examine the impact that the new trading system SETSmm had on market quality measures such as firm value, liquidity and pricing efficiency. This system was introduced for mid-cap securities on the London Stock Exchange in 2003. We show that there is a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. We find that migration to SETSmm also improves liquidity and pricing efficiency and these changes are related to the return premium. We also find that these gains are stronger for firms with high pre SETSmm liquidity and weaker for firms with low SETSmm liquidity. © 2013 John Wiley & Sons Ltd.

Stock repurchases and treasury share sales: Do they stabilize price and enhance liquidity?

The article studies the impact of a firm’s trading in its own shares on the volatility and market liquidity of the firm’s stock in the Italian stock market. In the study, both stock repurchases and treasury share sales executed on the open market are defined as trading in own shares. The study finds that Italian firms can reduce the volatility of their stock and boost market liquidity by trading their own shares.

Liquidity and portfolio optimisation

This thesis presents research within empirical financial economics with focus on liquidity and portfolio optimisation in the stock market. The discussion on liquidity is focused on measurement issues, including TAQ data processing and measurement of systematic liquidity factors (FSO). Furthermore, a framework for treatment of the two topics in combination is provided. The liquidity part of the thesis gives a conceptual background to liquidity and discusses several different approaches to liquidity measurement. It contributes to liquidity measurement by providing detailed guidelines on the data processing needed for applying TAQ data to liquidity research. The main focus, however, is the derivation of systematic liquidity factors. The principal component approach to systematic liquidity measurement is refined by the introduction of moving and expanding estimation windows, allowing for time-varying liquidity co-variances between stocks. Under several liability specifications, this improves the ability to explain stock liquidity and returns, as compared to static window PCA and market average approximations of systematic liquidity. The highest ability to explain stock returns is obtained when using inventory cost as a liquidity measure and a moving window PCA as the systematic liquidity derivation technique. Systematic factors of this setting also have a strong ability in explaining a cross-sectional liquidity variation. Portfolio optimisation in the FSO framework is tested in two empirical studies. These contribute to the assessment of FSO by expanding the applicability to stock indexes and individual stocks, by considering a wide selection of utility function specifications, and by showing explicitly how the full-scale optimum can be identified using either grid search or the heuristic search algorithm of differential evolution. The studies show that relative to mean-variance portfolios, FSO performs well in these settings and that the computational expense can be mitigated dramatically by application of differential evolution.

Empirical research into white racialized identities in Britain

The intellectual project of using whiteness as an explicit tool of analysis is not one that has taken root in Britain. However, there are a number of empirical studies that investigate the racialization of white identities. In this article, I look at some empirical sociological fieldwork carried out on white identities in Britain since the early 1990s and identify the key themes arising. These themes are (in)visibility, norms and values, cultural capital and integration, contingent hierarchies and Empire in the present. In Britain, a pertinent distinction is between rural and urban settings for the enactment of white identities vis-a`-vis those of minorities, and there is an exploration of some of the contingency that draws the boundary between ‘white’ and ‘Other’ in different places. Areas of commonality and distinctiveness are noted in terms of the American work. In the last section, I argue that there are a number of issues to resolve around continuing such studies, including linking the micro-level to the macro-level analysis, and expanding to international comparative work.

Knowledge-based development in leading regions across the globe:an exploratory analysis of the co-evolution of resources, capabilities, and outputs

It is widely observed that the global geography of innovation is rapidly evolving. This paper presents evidence concerning the contemporary evolution of the globe's most productive regions. The paper uncovers the underlying structure and co-evolution of knowledge-based resources, capabilities and outputs across these regions. The analysis identifies two key trends by which the economic evolution and growth patterns of these regions are differentiated-namely, knowledge-based growth and labour market growth. The knowledge-based growth factor represents the underlying commonality found between the growth of economic output, earnings and a range of knowledge-based resources. The labour market growth factor represents the capability of regions to draw on their human capital. Overall, spectacular knowledge-based growth of leading Chinese regions is evident, highlighting a continued shift of knowledge-based resources to Asia. It is concluded that regional growth in knowledge production investment and the capacity to draw on regional human capital reserves are neither necessarily traded-off nor complementary to each other. © 2012 Urban Studies Journal Limited.

Stock repurchases and treasury share sales:do they stabilize price and enhance liquidity?

Can companies reduce the volatility and increase the liquidity of their stocks by trading them? In the context of the Italian stock market, where companies have far more leeway to sell as well as buy their own stocks than in the U.S., the answer is yes. We examine the effects of trading (open-market share repurchases and treasury shares sales) on liquidity (bid–ask spread) and volatility (return variance). Further, we examine the impact of shareholder approvals of repurchase programs on liquidity and volatility. We find clear evidence that trading increases liquidity and reduces volatility. These results are consistent with our analysis of the motives Italian companies give for making share repurchases.

Price discovery for Chinese shares cross-listed in multiple markets

In this article we study the relationship between security returns cross-listed on the A share market of China and the H share market at the Stock Exchange of Hong Kong (SEHK). Most of these securities are also cross-listed on other markets. An important feature of this article is that we focus on the multilateral relationships between all cross-listed markets rather than concentrating only on the bi-lateral relationship between A and Hong Kong H shares. Using the impulse response functions and the variance decompositions from a Vector Autoregressive (VAR) process we show that the returns to the A share market are almost exclusively determined by domestic factors. In contrast, we find that the H share market is influenced by both the A share market within China and foreign stock markets elsewhere in the world. Impulse response functions suggest that innovations to the A share market and the Hong Kong H share market are partly transmitted to each other and to stock markets outside China. We show that liquidity has an important role to play in determining the impact that the home market has on cross-listed variance decompositions. © 2012 Copyright Taylor and Francis Group, LLC.

Corporate governance disclosure in the Gulf countries

Corporate governance disclosure is important for countries aiming to attract international investors and reduce companies’ cost of capital. The relationship between corporate governance disclosure (CGD) and its determinants is the main objective of the current research. Accordingly, the research aimed to: (i) assess CGD level in the Gulf countries; (ii) investigate the impact of ownership structure (proportion of institutional, governmental, managerial and family ownership) on CGD; (iii) explore the effect of board characteristics (proportion of independent board members, proportion of family members on board, CEO/chairman duality and board size) on CGD; (iv) examine the relationship between diversity (proportion of foreign and female members on a board and in the senior management team) and CGD; and (v) test the association between firm characteristics (company size, age, liquidity, profitability, leverage, industry and auditor types) and CGD. Gulf countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) were selected for the study since they share similar characteristics and represent a relatively homogeneous category in the Middle East and North African region. A CGD index of 232 items was developed and divided into six categories: ownership structure and investor rights; financial transparency and information disclosure; information on auditors; board and senior management structure and process; board committees; and finally corporate behaviour and responsibility. Annual reports available for listed non-financial companies of the Gulf countries were 270 for the year 2009. The maximum CGD level was 63%, whereas the minimum was 5%, with an average disclosure level of 32%. Several regression models were conducted to enhance the robustness of the results and conclusions of the study. The results indicated that five variables had a significant positive relationship with CGD: proportion of independent members on a board, proportion of foreign members on a board, proportion of foreign members in the senior management team, auditor type and profitability. The research contributes to the literature on corporate governance voluntary disclosure in developing countries. Practical contributions consist of several recommendations to policy makers, regulators, and professional institutions in the Gulf countries.