Exchange-traded funds and information asymmetry

This thesis focuses on three main questions. The first uses ExchangeTraded Funds (ETFs) to evaluate estimated adverse selection costs obtained spread decomposition models. The second compares the Probability of Informed Trading (PIN) in Exchange-Traded Funds to control securities. The third examines the intra-day ETF trading patterns. These spread decomposition models evaluated are Glosten and Harris (1988); George, Kaul, and Nimalendran (1991); Lin, Sanger, and Booth (1995); Madhavan, Richardson, and Roomans (1997); Huang and Stoll (1997). Using the characteristics of ETFs it is shown that only the Glosten and Harris (1988) and Madhavan, et al (1997) models provide theoretically consistent results. When the PIN measure is employed ETFs are shown to have greater PINs than control securities. The investigation of the intra-day trading patterns shows that return volatility and trading volume have a U-shaped intra-day pattern. A study of trading systems shows that ETFs on the American Stock Exchange (AMEX) have a U-shaped intra-day pattern of bid-ask spreads, while ETFs on NASDAQ do not. Specifically, ETFs on NASDAQ have higher bid-ask spreads at the market opening, then the lowest bid-ask spread in the middle of the day. At the close of the market, the bid-ask spread of ETFs on NASDAQ slightly elevated when compared to mid-day.

Impact of derivatives trading on emerging stock markets:some evidence from India

It is generally accepted that the introduction of financial derivatives that facilitate hedging is an important step in the development of stock markets. However, financial derivatives can potentially increase volatility in the underlying cash market, which might be detrimental to the development of the stock market itself. Using data from India, we examine one possible route through which derivatives trading can increase cash market volatility: expiration day effect. Our results indicate that expiration of equity derivatives contracts does not have any effect on the intra-day volatility of the market index, and it reduces the volatility of inter-day returns to the index.

Joint purchasers and the presumption of joint beneficial ownership:a matter of informed choice?

This paper examines the ruling of Jones v Kernott and shows the results of an empirical survey of conveyancing solicitors and their practices where so affected by the ruling. In particular the paper considers how conveyancing practitioners deal with the issue of organising trusts of land and giving advice to clients in relation to the co-purchase of land.

The effects of non-trading on the illiquidity ratio

Using a simulation analysis we show that non-trading can cause an overstatement of the observed illiquidity ratio. Our paper shows how this overstatement can be eliminated with a very simple adjustment to the Amihud illiquidity ratio. We find that the adjustment improves the relationship between the illiquidity ratio and measures of illiquidity calculated from transaction data. Asset pricing tests show that without the adjustment, illiquidity premia estimates can be understated by more than 17% for NYSE securities and by more than 24% for NASDAQ securities.

Charting new territory for organizational ethnography:insights from a team-based video ethnography of reinsurance trading in Lloyd’s of London

An increasing interest in “bringing actors back in” and gaining a nuanced understanding of their actions and interactions across a variety of strands in the management literature, has recently helped ethnography to unknown prominence in the field of organizational studies. Yet, calls remain that ethnography should “play a much more central role in the organization and management studies repertoire than it currently does” (Watson, 2011: 202). Ironically, those organizational realities that ethnographers are called to examine have at the same time become less and less amenable to ethnographic study. In this paper, we respond to these calls for innovative ethnographic methods in two ways. First, we report on the practices and ethnographic experiences of conducting a year-long team-based video ethnography of reinsurance trading in Lloyd’s of London. Second, drawing on these experiences, we propose an initial framework for systematizing new approaches to organizational ethnography and visualizing the ways in which they are ‘expanding’ ethnography as it was traditionally practiced.

Reinsurance trading in Lloyd’s of London:balancing conflicting-yet-complementary logics in practice

Drawing on a year-long ethnographic study of reinsurance trading in Lloyd’s of London, this paper makes three contributions to current discussions of institutional complexity. First, we shift focus from purposeful organizational responses to institutional complexity to the everyday practices by which individuals collectively address competing demands on their work. Based on our findings, we develop a model of how individuals can balance conflicting institutional demands through a set of four interrelated practices, labeled segmenting, switching, bridging, and demarcating. Second, moving beyond the dominant focus on contradiction between logics, we show how these practices comprise a system of conflicting-yet-complementary logics, through which actors are able to both work within contradictions, whilst also exploiting the benefits of interdependent logics. Third, in contrast to most studies of newly formed hybrids and/or novel complexity, our focus on a long-standing context of institutional complexity, shows how balancing logics can become a matter of settled complexity, enacted routinely within everyday practice.

Intraday trading patterns in London listed exchange traded funds

In this paper we examine the intraday trading patterns of Exchange Traded Funds (ETFs) listed on the London Stock Exchange. ETFs have been shown to be characterised by much lower bid–ask spread costs and by lower levels of information asymmetry than individual securities. One possible explanation for intraday trading patterns is that concentration of trading arises at the start of the trading day because informed traders have private information that quickly diminishes in value as trading progresses. Since ETFs have lower trading costs and lower levels of information asymmetry we would expect these securities to display less pronounced intraday patterns than individual securities. We fail to find that ETFs are characterised by concentrated trading bouts during the day and therefore find support for the argument that information asymmetry is the cause of intraday volume patterns in stock markets. We find that ETF bid–ask spreads and volatility are elevated at the open but not at the close. This lends support to the “accumulation of information” explanation that sees high spreads and volatility at the open as a consequence of information accumulating during a market closure and impacting on the market when it next opens.

Reinsurance trading in Lloyd's of London:balancing conflicting-yet-complementary logics in practice

Drawing on a year-long ethnographic study of reinsurance trading in Lloyd’s of London, this paper makes three contributions to current discussions of institutional complexity. First, we shift focus away from structural and relatively static organizational responses to institutional complexity and identify three balancing mechanisms - segmenting, bridging, and demarcating - which allow individuals to manage competing logics and their shifting salience within their everyday work. Second, we integrate these mechanisms in a theoretical model that explains how individuals can continually keep coexisting logics, and their tendencies to either blend or disconnect, in a state of dynamic tension which makes them conflicting-yet-complementary logics. Our model shows how actors are able to dynamically balance coexisting logics, maintaining the distinction between them, whilst also exploiting the benefits of their interdependence. Third, in contrast to most studies of newly formed hybrids and/or novel complexity our focus on a long-standing context of institutional complexity shows how institutional complexity can itself become institutionalized and routinely enacted within everyday practice.

Portfolio size, non-trading frequency and portfolio return autocorrelation

In this paper we re-examine the relationship between non-trading frequency and portfolio return autocorrelation. We show that in portfolios where security specific effects have not been completely diversified, portfolio autocorrelation will not increase monotonically with increasing non-trading, as indicated in Lo and MacKinlay (1990). We show that at high levels of non-trading, portfolio autocorrelation will become a decreasing function of non-trading probability and may take negative values. We find that heterogeneity among the means, variances and betas of the component securities in a portfolio can act to increase the induced autocorrelation, particularly in portfolios containing fewer stocks. Security specific effects remain even when the number of securities in the portfolio is far in excess of that considered necessary to diversify security risk. © 2014 Elsevier B.V.