Noise and the trading mechanism:the case of SETS

On 20 October 1997 the London Stock Exchange introduced a new trading system called SETS. This system was to replace the dealer system SEAQ, which had been in operation since 1986. Using the iterative sum of squares test introduced by Inclan and Tiao (1994), we investigate whether there was a change in the unconditional variance of opening and closing returns, at the time SETS was introduced. We show that for the FTSE-100 stocks traded on SETS, on the days following its introduction, there was a widespread increase in the volatility of both opening and closing returns. However, no synchronous volatility changes were found to be associated with the FTSE-100 index or FTSE-250 stocks. We conclude therefore that the introduction of the SETS trading mechanism caused an increase in noise at the time the system was introduced.

Efficiency and the trading system:The case of SETSmm

This paper studies the impact that a change from a dealer system to a market-maker supported auction system has on market quality. We study the impact that the introduction of SETSmm at the London Stock Exchange had on firm value, price efficiency and liquidity. We discover a small SETSmm return premium associated with the announcement that securities are to migrate to the new trading system. Moreover, securities that migrate to SETSmm are characterized by improvements to liquidity and pricing efficiency. We find that these changes are related to the return premium.

Three Essays in Empirical Asset Pricing

The financial crisis of 2007-2008 led to extraordinary government intervention in firms and markets. The scope and depth of government action rivaled that of the Great Depression. Many traded markets experienced dramatic declines in liquidity leading to the existence of conditions normally assumed to be promptly removed via the actions of profit seeking arbitrageurs. These extreme events motivate the three essays in this work. The first essay seeks and fails to find evidence of investor behavior consistent with the broad 'Too Big To Fail' policies enacted during the crisis by government agents. Only in limited circumstances, where government guarantees such as deposit insurance or U.S. Treasury lending lines already existed, did investors impart a premium to the debt security prices of firms under stress. The second essay introduces the Inflation Indexed Swap Basis (IIS Basis) in examining the large differences between cash and derivative markets based upon future U.S. inflation as measured by the Consumer Price Index (CPI). It reports the consistent positive value of this measure as well as the very large positive values it reached in the fourth quarter of 2008 after Lehman Brothers went bankrupt. It concludes that the IIS Basis continues to exist due to limitations in market liquidity and hedging alternatives. The third essay explores the methodology of performing debt based event studies utilizing credit default swaps (CDS). It provides practical implementation advice to researchers to address limited source data and/or small target firm sample size.

Language-based Techniques for Practical and Trustworthy Secure Multi-party Computations

Secure Multi-party Computation (MPC) enables a set of parties to collaboratively compute, using cryptographic protocols, a function over their private data in a way that the participants do not see each other's data, they only see the final output. Typical MPC examples include statistical computations over joint private data, private set intersection, and auctions. While these applications are examples of monolithic MPC, richer MPC applications move between "normal" (i.e., per-party local) and "secure" (i.e., joint, multi-party secure) modes repeatedly, resulting overall in mixed-mode computations. For example, we might use MPC to implement the role of the dealer in a game of mental poker -- the game will be divided into rounds of local decision-making (e.g. bidding) and joint interaction (e.g. dealing). Mixed-mode computations are also used to improve performance over monolithic secure computations. Starting with the Fairplay project, several MPC frameworks have been proposed in the last decade to help programmers write MPC applications in a high-level language, while the toolchain manages the low-level details. However, these frameworks are either not expressive enough to allow writing mixed-mode applications or lack formal specification, and reasoning capabilities, thereby diminishing the parties' trust in such tools, and the programs written using them. Furthermore, none of the frameworks provides a verified toolchain to run the MPC programs, leaving the potential of security holes that can compromise the privacy of parties' data. This dissertation presents language-based techniques to make MPC more practical and trustworthy. First, it presents the design and implementation of a new MPC Domain Specific Language, called Wysteria, for writing rich mixed-mode MPC applications. Wysteria provides several benefits over previous languages, including a conceptual single thread of control, generic support for more than two parties, high-level abstractions for secret shares, and a fully formalized type system and operational semantics. Using Wysteria, we have implemented several MPC applications, including, for the first time, a card dealing application. The dissertation next presents Wys*, an embedding of Wysteria in F*, a full-featured verification oriented programming language. Wys* improves on Wysteria along three lines: (a) It enables programmers to formally verify the correctness and security properties of their programs. As far as we know, Wys* is the first language to provide verification capabilities for MPC programs. (b) It provides a partially verified toolchain to run MPC programs, and finally (c) It enables the MPC programs to use, with no extra effort, standard language constructs from the host language F*, thereby making it more usable and scalable. Finally, the dissertation develops static analyses that help optimize monolithic MPC programs into mixed-mode MPC programs, while providing similar privacy guarantees as the monolithic versions.

Three essays on liquidity

Doutoramento em Gestão.