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.

Essays on Financial Analyst Forecasts and Recommendations

The trade of the financial analyst is currently a much-debated issue in today’s media. As a large part of the investment analysis is conducted under the broker firms’ regime, the incentives of the financial analyst and the investor do not always align. The broker firm’s commercial incentives may be to maximise its commission from securities trading and underwriting fees. The purpose of this thesis is to extend our understanding of the work of a financial analyst, the incentives he faces and how these affect his actions. The first essay investigates how the economic significance of the coverage of a particular firm impacts the analysts’ accuracy of estimation. The hypothesis is that analysts put more effort in analysing firms with a relatively higher trading volume, as these firms usually yield higher commissions. The second essay investigates how analysts interpret new financial statement information. The essay shows that analysts underreact or overreact to prior reported earnings, depending on the short-term pattern in reported earnings. The third essay investigates the possible investment value in Finnish stock recommendations, issued by sell side analysts. It is established that consensus recommendations issued on Finnish stocks contain investment value. Further, the investment value in consensus recommendations improves significantly through the exclusion of recommendations issued by banks. The fourth essay investigates investors’ behaviour prior to financial analysts’ earnings forecast revisions. Lately, the financial press have reported cases were financial analysts warn their preferred clients of possible earnings forecast revisions. However, in the light of the empirical results, it appears that the problem of analysts leaking information to some selected customers does not appear systematically on the Finnish stock market.

The Relationship Between Liquidity, Trading Activity and Return - Studies of the Finnish and Swedish Stock Markets

Liquidity, or how easy an investment is to buy or sell, is becoming increasingly important for financial market participants. The objective of this dissertation is to contribute to the understanding of how liquidity affects financial markets. The first essays analyze the actions taken by underwriters immediately after listing to improve liquidity of IPO stock. To estimate the impact of underwriter activity on the pricing of the IPOs, the order book during the first weeks of trading in the IPO stock is studied. Evidence of stabilization and liquidity enhancing activities by underwriters is found. The second half of the dissertation is concerned with the daily trading of stocks where liquidity may be impacted by policy issues such as changes in taxes or exchange fees and by opening the access to the markets for foreign investors. The desirability of a transaction tax on securities trading is addressed. An increase in transaction tax is found to cause lower prices and higher volatility. In the last essay the objective is to determine if the liquidity of a security has an impact on the return investors require. The results support the notion that returns are negatively correlated to liquidity.

(Z)-2-(2-Isopropyl-5-methylphenoxy)-N`-(2-oxoindolin-3-ylidene)acetohydrazide

In the title Mannich base, C20H21N3O3, an isatin derivative of thymol the O-CH2-C(=O)-N(H)-N fragment connecting the aromatic and fused-ring systems is approximately planar, with the N-N single bond in a Zmconfiguration. The amino H atom of this N-N fragment is intramolecularly hydrogen bonded to the carbonyl O atom of the indolinone fused ring as well as to the phenoxy O atom of the aromat ring. The amino H atom of the indoline fused ring forms a hydrogen bond with the double-bond O atom of an adjacent molecule, this hydrogen bond giving rise to a linear chain motif.

Four-dimensional current algebra from Chern-Simons theory

We study an abelian Chern-Simons theory on a five-dimensional manifold with boundary. We find it to be equivalent to a higher-derivative generalization of the abelian Wess-Zumino-Witten model on the boundary. It contains a U(1) current algebra with an operational extension.

Synthesis based on cyclohexadienes. Part 34. A tandem cationic rearrangement-ene cyclisation route to 2-pupukeanone

A new strategy for the construction of the isotwistane skeleton is reported from easily available cyclohexadienes, which involves a one-pot cationic skeletal rearrangement and ene cyclisation of a bicyclo[2.2.2]octenone derivative and a cationic rearrangement of a tricyclo[5.3.0.0(4,8)]decane to a [4.3.1.0(3,7)]decane skeleton as the key steps in the synthesis of 2-pupukeanone.

Role of the environment in the interaction of nonintercalators with Z-DNA

Interaction of the DNA binding nonintercalators Netropsin, Distamycin and the mPD derivative with Z-DNA has been studied. It has been found that environmental factors like the solvent and added cations significantly modulate the interaction of these ligands with Z-DNA. However no definite Z to B transition in presence of these ligands was found in any case, in contrast to previously reported results (Ch. Zimmer, C. Marck and W. Guschlbauer, FEBS Lett. 154, 156-160 (1983)).

Plasticity in the primary binding site of galactose/N-acetylgalactosamine-specific lectins - Implication of the C-H center dot center dot center dot O hydrogen bond at the specificity-determining C-4 locus of the saccharide in 4-methoxygalactose recognition by jacalin and winged bean (basic) agglutinin I

It is currently believed that an unsubstituted axial hydroxyl at the specificity-determining C-4 locus of galactose is indispensable for recognition by galactose/N-acetylgalactosamine-specific lectins. Titration calorimetry demonstrates that 4-methoxygalactose retains binding allegiance to the Moraceae lectin jacalin and the Leguminosae lectin, winged bean (basic) agglutinin (WBA I). The binding reactions were driven by dominant favorable enthalpic contributions and exhibited significant enthalpy-entropy compensation. Proton NMR titration of C-methoxygalactose with jacalin and WBA I resulted in broadening of the sugar resonances without any change in chemical shift. The alpha-and beta-anomers of 4-methoxygalactose were found to be in slow exchange with free and lectin-bound states. Both the anomers experience magnetically equivalent environments at the respective binding sites. The binding constants derived from the dependence of NMR line widths on 4-methoxygalactose concentration agreed well with those obtained from titration calorimetry. The results unequivocally demonstrate that the loci corresponding to the axially oriented C-4 hydroxyl group of galactose within the primary binding site of these lectins exhibit plasticity. These analyses suggest, for the first time, the existence of C-H ... O-type hydrogen-bond(s) in protein-carbohydrate interactions in general and between the C-4 locus of galactose derivative and the lectins jacalin and WBA I in particular.

A formal synthesis of the perhydrogephyrotoxin

A short but uneventful formal synthesis of perhydrogephyrotoxin 3 from readily available tricyclo[5.2.1.0(2,6)]decane derivative 8 via the intermediacy of the cis-hydroindanone 13 is reported. This work constitutes further demonstration of the carbocycle-heterocycle equivalency theme in the synthesis of alkaloids.

The first D-pi-A octupolar cryptand molecule to exhibit bulk non-linearity

The cryptand derivative has H-bond mediated trigonal network structure that leads to octupolar bulk nonlinearity.

Polymer–filler interactions in hydroxy-terminated polybutadiene–ammonium perchlorate system in the presence of a bonding agent

Bonding between ammonium perchlorate (AP) and hydroxy-terminated polybutadiene (HTPB), constituting a nonreinforcing filler system, has been studied in the presence of a unique bonding agent (BA)–a switter ion molecule, 2,4-dinitrophenylhydrazone derivative of 1,1′-bisacetylferrocene (DNPHD AF). Extensive conjugation and a permanent ionic character makes the DNPHD AF to bond strongly with the ionic oxidizer AP. Through its terminal OH group, HTPH bonds with the NO2 groups of DNPHD AF. Bonding sites in the molecules have been located from IR studies and from the first-order rate constant measurements of the bonding of DNPHD AF and other model BAs with HTPB and AP. The bonding ability of DNPHD AF is further evidenced from SEM micrographs.

Learning dynamic prices in multiseller electronic retail markets with price sensitive customers, stochastic demands, and inventory replenishments

In this paper, we use reinforcement learning (RL) as a tool to study price dynamics in an electronic retail market consisting of two competing sellers, and price sensitive and lead time sensitive customers. Sellers, offering identical products, compete on price to satisfy stochastically arriving demands (customers), and follow standard inventory control and replenishment policies to manage their inventories. In such a generalized setting, RL techniques have not previously been applied. We consider two representative cases: 1) no information case, were none of the sellers has any information about customer queue levels, inventory levels, or prices at the competitors; and 2) partial information case, where every seller has information about the customer queue levels and inventory levels of the competitors. Sellers employ automated pricing agents, or pricebots, which use RL-based pricing algorithms to reset the prices at random intervals based on factors such as number of back orders, inventory levels, and replenishment lead times, with the objective of maximizing discounted cumulative profit. In the no information case, we show that a seller who uses Q-learning outperforms a seller who uses derivative following (DF). In the partial information case, we model the problem as a Markovian game and use actor-critic based RL to learn dynamic prices. We believe our approach to solving these problems is a new and promising way of setting dynamic prices in multiseller environments with stochastic demands, price sensitive customers, and inventory replenishments.

Bentsodiatsepiinien ja amfetamiinijohdannaisten seulonta virtsasta mikropilarisähkösumutusmassaspektrometrian avulla

Väärinkäytettyjen aineiden seulontaan käytetyn menetelmän tulee olla herkkä, selektiivinen, yksinkertainen, nopea ja toistettava. Työn tavoitteena oli kehittää yksinkertainen, mutta herkkä, esikäsittelymenetelmä bentsodiatsepiinien ja amfetamiinijohdannaisten kvalitatiiviseen seulomiseen virtsasta mikropilarisähkösumutussirun (μPESI) avulla, mikä tarjoaisi vaihtoehdon seulonnassa käytetyille immunologisille menetelmille, joiden herkkyys ja selektiivisyys ovat puutteellisia. Tavoitteena oli samalla tarkastella mikropilarisähkösumutussirun toimivuutta biologisten näytteiden analyysissa. Esikäsittely optimoitiin erikseen bentsodiatsepiineille ja amfetamiinijohdannaisille. Käytettyjä esikäsittelymenetelmiä olivat neste-nesteuutto, kiinteäfaasiuutto Oasis HLB-patruunalla ja ZipTip®-pipetinkärjellä sekä laimennus ja suodatus ilman uuttoa. Mittausten perusteella keskityttiin optimoimaan ZipTip®-uuttoa. Optimoinnissa tutkittavia yhdisteitä spiikattiin 0-virtsaan niiden ennaltamääritetyn raja-arvon verran, bentsodiatsepiineja 200 ng/ml ja amfetamiinijohdannaisia 300 ng/ml. Bentsodiatsepiinien kohdalla optimoitiin kutakin uuton vaihetta ja optimoinnin tuloksena näytteen pH säädettiin arvoon 5, faasi kunnostettiin asetonitriililla, tasapainotettiin ja pestiin veden (pH 5) ja asetonitriilin (10 % v/v) seoksella ja eluoitiin asetonitriilin, muurahaishapon ja veden (95:1:4 v/v/v) seoksella. Amfetamiinijohdannaisten uutossa optimoitiin näytteen ja liuottimien pH-arvoja ja tuloksena näytteen pH säädettiin arvoon 10, faasi kunnostettiin veden ja ammoniumvetykarbonaatin(pH 10, 1:1 v/v) seoksella, tasapainotettiin ja pestiin asetonitriilin ja veden (1:5 v/v) seoksella ja eluoitiin metanolilla. Optimoituja uuttoja testattiin Yhtyneet Medix Laboratorioista toimitetuilla autenttisilla virtsanäytteillä ja saatuja tuloksia verrattiin kvantitatiivisen GC/MS-analyysin tuloksiin. Bentsodiatsepiininäytteet hydrolysoitiin ennen uuttoa herkkyyden parantamiseksi. Autenttiset näytteet analysoitiin Q-TOF-laitteella Viikissä. Lisäksi hydrolysoidut bentsodiatsepiininäytteet mitattiin Yhtyneet Medix Laboratorioiden TOF-laitteella. Kehitetty menetelmä vaatii tulosten perusteella lisää optimointia toimiakseen. Ongelmana oli etenkin toistoissa ilmennyt tulosten hajonta. Manuaalista näytteensyöttöä tulisi kehittää toistettavammaksi. Autenttisten bentsodiatsepiininäytteiden analyysissa ongelmana olivat virheelliset negatiiviset tulokset ja amfetamiinijohdannaisten analyysissa virheelliset positiiviset tulokset. Virheellisiä negatiivisia tuloksia selittää menetelmän herkkyyden puute ja virheellisiä positiivisia tuloksia mittalaitteen, sirujen tai liuottimien likaantuminen.

FTIR-spektroskopia kasviuutteiden analysoinnissa

FTIR-spektroskopia (Fourier-muunnosinfrapunaspektroskopia) on nopea analyysimenetelmä. Fourier-laitteissa interferometrin käyttäminen mahdollistaa koko infrapunataajuusalueen mittaamisen muutamassa sekunnissa. ATR-liitännäisellä varustetun FTIR-spektrometrin käyttö ei edellytä juuri näytteen valmistusta ja siksi menetelmä on käytössä myös helppo. ATR-liitännäinen mahdollistaa myös monien erilaisten näytteiden analysoinnin. Infrapunaspektrin mittaaminen onnistuu myös sellaisista näytteistä, joille perinteisiä näytteenvalmistusmenetelmiä ei voida käyttää. FTIR-spektroskopian avulla saatu tieto yhdistetään usein tilastollisiin monimuuttuja-analyyseihin. Klusterianalyysin avulla voidaan spektreistä saatu tieto ryhmitellä samanlaisuuteen perustuen. Hierarkkisessa klusterianalyysissa objektien välinen samanlaisuus määritetään laskemalla niiden välinen etäisyys. Pääkomponenttianalyysin avulla vähennetään datan ulotteisuutta ja luodaan uusia korreloimattomia pääkomponentteja. Pääkomponenttien tulee säilyttää mahdollisimman suuri määrä alkuperäisen datan variaatiosta. FTIR-spektroskopian ja monimuuttujamenetelmien sovellusmahdollisuuksia on tutkittu paljon. Elintarviketeollisuudessa sen soveltuvuutta esimerkiksi laadun valvontaan on tutkittu. Menetelmää on käytetty myös haihtuvien öljyjen kemiallisten koostumusten tunnistukseen sekä öljykasvien kemotyyppien havaitsemiseen. Tässä tutkimuksessa arvioitiin menetelmän käyttöä suoputken uutenäytteiden luokittelussa. Tutkimuksessa suoputken eri kasvinosien uutenäytteiden FTIR-spektrejä vertailtiin valikoiduista puhdasaineista mitattuihin FTIR-spektreihin. Puhdasaineiden FTIR-spektreistä tunnistettiin niiden tyypilliset absorptiovyöhykkeet. Furanokumariinien spektrien intensiivisten vyöhykkeiden aaltolukualueet valittiin monimuuttuja-analyyseihin. Monimuuttuja-analyysit tehtiin myös IR-spektrin sormenjälkialueelta aaltolukualueelta 1785-725 cm-1. Uutenäytteitä pyrittiin luokittelemaan niiden keräyspaikan ja kumariinipitoisuuden mukaan. Keräyspaikan mukaan ryhmittymistä oli havaittavissa, mikä selittyi vyöhykkeiden aaltolukualueiden mukaan tehdyissä analyyseissa pääosin kumariinipitoisuuksilla. Näissä analyyseissa uutenäytteet pääosin ryhmittyivät ja erottuivat kokonaiskumariinipitoisuuksien mukaan. Myös aaltolukualueen 1785-725 cm-1 analyyseissa havaittiin keräyspaikan mukaan ryhmittymistä, mitä kumariinipitoisuudet eivät kuitenkaan selittäneet. Näihin ryhmittymisiin vaikuttivat mahdollisesti muiden yhdisteiden samanlaiset pitoisuudet näytteissä. Analyyseissa käytettiin myös muita aaltolukualueita, mutta tulokset eivät juuri poikenneet aiemmista. 2. kertaluvun derivaattaspektrien monimuuttuja-analyysit sormenjälkialueelta eivät myöskään muuttaneet tuloksia havaittavasti. Jatkotutkimuksissa nyt käytettyä menetelmää on mahdollista edelleen kehittää esimerkiksi tutkimalla monimuuttuja-analyyseissa 2. kertaluvun derivaattaspektreistä suppeampia, tarkkaan valittuja aaltolukualueita.

Interaction of synthetic analogs of distamycin and netropsin with nucleic acids. Does curvature of ligand play a role in distamycin-DNA interactions?

Distamycin and netropsin, a class of minor groove binding nonintercalating agents, are characterized by their B-DNA and A-T basespecific interactions. To understand the CQI I ~OIT~ ~ I ~ ~aOnMd ~c hemical basis of the above specificities, the DNA-binding characteristics of a novel synthetic analogue of distamycin have been studied. The analogue, mPD derivative, has the requisite charged end groups and a number of potential hydrogen-bonding loci equal to those of distamycin. The difference in the backbone curvatures of the ligands, distamycin, the mPD derivative, and NSC 101327 (another structurally analogous compound),is a major difference between these ligands. UV and CD spectrosoopic studies reported here show the following salient features: The mPD derivative recognizes only B-DNA, to which it binds via the minor groove. On the other hand, unlike distamycin, it binds with comparable affinities to A-T and G-C base pairs in a natural DNA. These DNA-binding properties are compared with those reported earlier for distamycin and NSC 101327 [Zimmer, Ch., & Wahnert, U. (1986) Prog. Biophys. Mol. Biol. 47, 31-1121. The backbone structures of these three ligands were compared to show the progressive decrease in curvatures in the order distamycin, mPD derivative, and NSC 101327. The plausible significance of the backbone curvature vis-&vis the characteristic B-DNA and AT-specific binding of distamycin is discussed. To our knowledge, this is the first attempt (with a model synthetic analogue) to probe the possible influence of backbone curvature upon the specificity of interactions of the distamycin class of groove-binding ligands with DNA.