Three essays on the microstructure of exchange traded funds

Exchange traded funds (ETFs) have increased significantly in popularity since they were first introduced in 1993. However, there is still much that is unknown about ETFs in the extant literature. This dissertation attempts to fill gaps in the ETF literature by using three related essays. In these three essays, we compare ETFs to closed ended mutual funds (CEFs) by decomposing the bid-ask spread into its three components; we look at the intraday shape of ETFs and compare it to the intraday shape of equities as well as examine the co-integration factor between ETFs on the London Stock Exchange and the New York Stock Exchange; we also examine the differences between leveraged ETFs and unleveraged ETFs by analyzing the impact of liquidity and volatility. These three essays are presented in Chapters 1, 2, and 3, respectively. ^ Chapter one uses the Huang and Stoll (1997) model to decompose the bid-ask spread in CEFs and ETFs for two distinct periods—a normal and a volatile period. We show a higher adverse selection component for CEFs than for ETFs without regard to volatility. However, both ETFs and CEFs increased in magnitude of the adverse selection component in the period of high volatility. Chapter two uses a mix of the Werner and Kleidon (1993) and the Hupperets and Menkveld (2002) methods to get the intraday shape of ETFs and analyze co-integration between London and New York trading. We find two different shapes for New York and London ETFs. There also appears to be evidence of co-integration in the overlapping two-hour trading period but not over the entire trading day for the two locations. The third chapter discusses the new class of ETFs called leveraged ETFs. We examine the liquidity and depth differences between unleveraged and leveraged ETFs at the aggregate level and when the leveraged ETFs are classified by the leveraged multiples of -3, -2, -1, 2, and 3, both for a normal and a volatile period. We find distinct differences between leveraged and unleveraged ETFs at the aggregate level, with leveraged ETFs having larger spreads than unleveraged ETFs. Furthermore, while both leveraged and unleveraged ETFs have larger spreads in high volatility, for the leveraged ETFs the change in magnitude is significantly larger than for the unleveraged ETFs. Among the multiples, the -2 leveraged ETF is the most pronounced in its liquidity characteristics, more so in volatile times. ^

Lan American Coups: Have They Vanished or Taken New Shapes?

In the following pages, three well-known Latinoamericanists share their views on the current prospects for coups in Latin America. They are: Rut Diamint of the University Torcuatto de Tella in Buenos Aires, Argentina; Pablo Policzer of the University of Calgary in Canada; and Michael Shifter of the Inter-American Dialogue in Washington, DC. Each looks at the potential for coups from different perspectives but, all three come to similar conclusions. That is, that despite substantial gains in democracy, the threat of coups in Latin America remains latent. The authors agree that democracy is growing in the region. Opinion surveys such as the Americas Barometer consistently show that citizens in Latin America have gradually incorporated democracy as part of their core value system. Yet, the authors argue convincingly that Latin America faces new types of interruptions to its democratic process that should be considered coups, even if not following the traditional style of military coup that predominated in the past. Situations that have taken place in Peru, Ecuador, Nicaragua, Honduras and other countries serve to illustrate the new trends. More specifically, Professor Diamint argues that in Latin America a culture of intolerance, demonization of the opposition, and the utilization of any method to achieve power prevails. In a region with a very high threshold of violence, governments fail to set an example of establishing a culture of debate, consensus, and transparency. This culture is inclined to uncontrollable political expressions, preferring confrontational means to resolve conflict. Within this scenario, “messianic” solutions are promoted and coups cannot be discarded as an option that would never transpire. Professor Policzer looks more closely to the constitutional loopholes that allow for a transformation of limited into absolute power. He argues that coups can be constitutional or unconstitutional, and that a constitutional coup can occur when violations to democracy actually stem from the constitutions themselves. In Honduras, for example specific provisions in the Constitution itself created conditions for a constitutional crisis; similar provisions have also led to constitutional authoritarianism in Venezuela and other countries. Dr. Policzer stresses that when a head of state or the military take absolute power, even temporarily, based on provisions in their constitutions; they are in essence staging a constitutional coup. These blind spots in constitutions, he argues, may be more serious threat to democracy than that of traditional coups. Lastly, Dr. Shifter argues that some kind of coup should be expected in Latin America in coming years, not only because fundamental institutions remain weak in some countries, but because the regional political environment is less prepared to respond effectively to transgressions than it was a few years ago. The good news, however, is that only a handful of countries, show no interest in governing. The bad news is that in those few countries where situations are indeed shaky, they are also in some cases aggravated by rising food and fuel prices, and spreading criminality, which pose serious risks to the rule of law and democratic governance.