Who makes market

We explore the role of dealers to determine whether they are liquidity-providing market makers or liquidity-taking information traders. Standard models of market making, such as Kyle (1985) and Grossman and Miller (1988), imply a negative contemporaneous correlation between market maker order flow and stock returns. We test this relation with a unique dataset containing trades of all dealers in a well-developed, liquid market. The correlation is strongly positive, implying that dealers take liquidity. We also develop a unique profit decomposition to compare intraweek information and market making profits. Dealers earn significant excess returns, in aggregate driven by information rather than market making. Subgroup analysis reveals that information profits are positive and increasing in stock capitalization, and market making returns are positive and significant for all but the largest stocksDealer, Liquidity Provision

Trading strategy and behavior of various investor types between spot and futures market: evidence from Thailand

In rational, efficient market, returns on derivative and underlying securities should be perfectly contemporaneously correlated. Due to market imperfections, one of these two markets may reflect information faster. The thesis analyzes the lead-lag relationship between the spot market and futures market, SET50 index and its futures contract, for the Thailand market. Various econometric tools like unit root tests and the Error-Correction Model (ECM) were employed in the study. The Augmented Dickey Fuller tests employed in the study proved that both the selected markets were stationary series after first difference and the Granger Causality test proved unidirectional relationships between these markets. On the daily observations basis, the results show that there is a price discovery for the futures index. In other words, the lagged of changes in spot price has a leading effect to the changes in the futures price. Alternatively, the TDEX is used instead of the SET50 index to see any changes in the lead-lag relationship. The result proves that there is a leading effect between TDEX and SET50 index futures. The ECM, which utilizes the traditional linear model, is considered to be the best forecasting model. The trading strategy based on this model can outperform the market even after allowing for transaction costs. Moreover, this thesis studies the trading patterns of each investor type, which are foreign investors, institutional investors, and individual investors by using detailed records of trading activity, trading volume, and trading value by employing a unique data set of daily aggregated purchases and sales on the Stock Exchange of Thailand (SET) and the Thailand’s derivative market. The results show that the buying and selling investment flows of these three investor groups are ranked as follows; the majority trader in the Stock Exchange of Thailand (SET) is the individual investor, followed by the foreign investor, and the institutional investor. The corresponding ranking in the Thailand’s Derivative Market is the individual investor, then the institutional investor, and the foreign investor is the minority trader. The results provide empirical evidence that foreign investors were net buyers whereas institutional investors and individual investors were net sellers of equities in both the spot and the futures market of Thailand. For the feedback-trading pattern, the results show that in both the spot and the futures market; foreign investors are positive feedback or momentum traders. While, individual investors tend to be contrarian investors, or negative feedback traders. Institutional investors’ trading pattern in both spot and futures market is rather mixed results. Furthermore, the results show that foreign investors’ herding is positively correlated with institutional traders in spot market, while negatively correlated with institutional investors in futures market. Foreign investors’ herding is negatively correlated with individual investors in both spot and futures market. Institutional investors’ trade flow is positively correlated with individual investor in futures market whereas it is negatively correlated with individual investors in spot market. In addition, this thesis studies trading performance of various investor types, which are foreign investors, institutional investors, and individual investors on the Stock Exchange of Thailand (SET) and Thailand’s derivative market. The results reveal that different investor types can have different performance. Foreign investors who are more likely to have information advantage over other type make minor overall net trading gains in the futures market, their gains arise from the good market timing but likely to incur large losses in the spot market from negative price spreads between sell and buy prices. Individual investors in the spot market experience positive return, they have success in performance from price spread whereas they experience poor market timing return. Moreover, the results exhibit that individuals make losses on their trade in the futures market. Specifically, the results show that institutional investors make overall net trading gains from positive price spreads between sell and buy prices in both spot and futures market. The different performance might be due to mixed effect of the trading gains and losses arise from trades between investor types that have different backgrounds

Information Transparency, Corporate Governance, And Convertible Bonds

Information transparency is a popular topic in capital markets. A firm’s corporate governance policy, which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors. In this paper, we numerically analyze: (a) the effect of the composition of the board structure on corporate information transparency under the code law system, and (b) the effect of information transparency on the initial return rate of convertible bonds. The results of our study revealed that the board structure affects corporate information disclosure policies under the code law system. Specifically, CEO duality tends to bring about lower information transparency, whereas better information transparency emanates from a higher proportion of independent directors. However, there is a lack of conclusive evidence to support the view that the shareholdings of directors and large shareholders are correlated with information transparency. We also show numerically that greater information transparency combined with lesser information asymmetry (between insiders and outsiders) leads to a lower initial return rate of convertible bonds

Investor Sentiment and Fund Market Anomalies: Evidence from Closed-end Fund, Exchange-traded Fund and Real Estate Investment Trust

The investor sentiment hypothesis has become a promising avenue by way of a behavioural approach to complementing conventional explanations of financial market anomalies. In response to the problems exhibited in the existing theories, the investor sentiment hypothesis has been widely tested and the results of which turn out to be able to successfully explain the market anomalies to a great extent. The thesis applies the investor sentiment theory to analysing the fund anomalies in both the UK and US markets. The test results and their interpretations may help promote a better understanding of the investor sentiment and its impacts including their geographical differences. We contribute to the literature by focusing on the sentiment measures, among others. Since the investor sentiment reflects the investors’ behaviour and psychology, it is hard to be properly captured. We have constructed the proxies for the sentiment factor in both direct and indirect forms. The first fund anomaly we analysed is the “closed-end fund puzzle”. The puzzle is so-called because at IPO, the fund is issued at a premium to the net asset value (NAV); however, thispremium disappears in the next few months. The fund then trades at a discount. This discount is not fixed, varying substantially during the closure period. When the closed-end fund is either converted into an open-end fund or liquidated, the discount shrinks and the share price will rise. We construct an out-of-sample test by using the two-factor and five-factor models. The results show that the investor sentiment can contribute to explaining closed-end fund discounts in the UK market and it is more prevalent in smaller size portfolios. We also find the evidence to support investor sentiment as an important factor to represent systematic risk in the return generating process. Next, we examine the price deviations of Exchange Traded Funds (ETFs). Unlike closed end funds whose prices also deviate from the NAV, ETFs, through a mechanism known as redemption in-kind, allow institutional investors to potentially earn a profit by arbitraging away these price deviations through creating and deleting outstanding shares of the ETF. Hence, we are motivated to identify the factors that may impact on the determination of these premiums and discounts to the NAV. We first construct a sentiment proxy from the derivative market variables such as the option put–call trading volume ratio and the open interest ratio. Then we develop a sentiment proxy based on the consumer confidence index, obtained from the mainstream consumer surveys and this proxy is taken to the individual fund level. The results provide evidence that this sentiment proxy has explanatory power for most individual ETF mispricing. We take the whole industry into account and find that the sentiment factor has incremental explanatory power and is positively related to the fund premium. The evidence also shows that more sentiment-sensitive ETFs are those that have smaller, younger and volatile stocks with low dividend yields. Finally, the thesis considers the fund anomaly in the form of the REIT price momentum. In order to investigate the momentum profitability, we classify the formation period into two sentiment states, i.e. the optimistic and pessimistic periods. Evidence indicates that when sentiment is high, the REIT momentum profitability is substantial and significant; however, when the sentiment is low, the profits from the REIT momentum are much lower and not significant. We also examine the interplay between REIT liquidity and momentum profitability. We find that high REIT liquidity portfolios generate higher momentum returns, but this is only significant when the sentiment is optimistic. Furthermore, consistent with our previous findings, our evidence that momentum is generally larger for smaller companies confirms that the size effect is still available in the REIT industry. This is because the smaller companies are often difficult to value, as they are more prone to subjective evaluations. The sentiment thus could be more significant in small size companies

Essays on Momentum, Autoregressive Returns, and Conditional Volatility: Evidence From the Saudi Stock Market

The objective of this dissertation is to examine different aspects of return behavior and provide an out of sample evidence from the Saudi stock market (SSM). It consists of three essays. The first essay is organized into two parts. In the first part, I investigate the relationship between momentum profitability and trading volume in the SSM. The objective of this part is to find out whether momentum strategies exist in the SSM and whether trading volume affects momentum profitability. In the second part, I investigate whether a 52-week high price momentum profitability exists in the SSM. The empirical results document the existence of price momentum strategy in the SSM. In addition, the momentum strategy is more profitable when it is conditioned on high volume stocks than when it is conditioned on low volume stocks. High volume winner portfolio drives the momentum profit in the SSM. However, the results on the 52 week-high price indicate a reversal in portfolio returns which contradicts the results of earlier study conducted in the U.S and Australian markets. The second essay examines the relationship between abnormal changes in trading volume of both firms and portfolio levels, and the short-term price autoregressive behavior in the SSM. The objective is to investigate the informational role that trading volume plays in predicting the direction of short-term returns. I evaluate whether the abnormal change in lagged, contemporaneous, and lead turnover affects serial correlation in returns. Consistent with the prediction of Campbell, Grossman, and Wang (1993) model, the result of this essay indicates that lagged abnormal change in trading volume lead to reversal in consecutive weekly returns. Contemporaneous and lead changes in volume provide mixing results. The third essay tests the effect of trading volume on the persistence of the time varying conditional volatility in the SSM. I utilize GARCH models to test the persistence of return volatility without volume, with contemporaneous volume, with lagged volume, and with two other alternative proxies of volume. This approach is applied to the market index, five industry indices, and 15 individual companies. In addition, this essay investigates the volatility spillover between size-based portfolios in the SSM using a two-stage GARCH approach. The results indicate that the SSM exhibit strong volatility persistence; however, when I include contemporaneous volume, the persistence vanishes, indicating that the rate of information arrival measured by the volume series can be a significant source of the conditional heteroskedasticity in SSM. The results show that the spillover effect is larger and statistically significant from large to small firm portfolios

Reexamining the profitability of technical analysis with data snooping checks

In this article we reexamine the profitability of technical analysis using White's reality check and Hansen's SPA test that correct the data snooping bias. Compared to previous studies, we study a more complete "universes" of trading techniques, including not only simple rules but also complex trading strategies, and we test the profitability of these rules and strategies with four main indices. It is found that significantly profitable simple rules and complex trading strategies do exist in the data from relatively "young" markets (NASDAQ Composite and Russell 2000) but not in the data from relatively "mature" markets [Dow Jones Industrial Average (DJIA) and S&P 500]. Moreover, after taking transaction costs into account, we find that the best rules for NASDAQ Composite and Russell 2000 outperform the buy-and-hold strategy in most in- and out-of-sample periods. It is also found that complex trading strategies are able to improve on the profits of simple rules and may even generate significant profits from unprofitable simple rules. © The Author 2005. Published by Oxford University Press. All rights reserved.preprin

SAUDI EQUITIES HERDING: THE ROLE OF REGIONAL AND GLOBAL FACTORS

Herding is an important stock market behaviour for investors and policymakers, it may affect market volatility, which investors need to understand to properly assess risks. Financial instability may deter risk-averse investors while benefitting investors seeking profit from market inefficiencies. Policymakers who understand herding impacts are better placed to improve the information available to investors. Herding behaviour in the Saudi equity market was examined between 2006 and 2016 using the method suggested by Change et al. (2000), from three related perspectives. Firstly, through its influence on oil market volatility, including during OPEC conference meetings. Results showed significant herding behaviour in most sub-periods. However, cascading was independent of oil market volatility, except during OPEC meetings in the global financial crisis period, 2008 - 2010. Secondly, through the impacts of social attitudes coinciding with Islamic festivals of Ramadan, Eid-ul-Fitr, Ashoura and Eid-ul-Adha. Up- and down-days for both markets and liquidity were considered in domestic and the influential US and oil markets, using appropriate vectors. Movements pre and post the 2008 Global Financial Crisis and the Arab Spring in 2010 were separately assessed. Results showed significant herding during Eid-ul-Fitar, Ashoura and Eid-ul-Adha, but, contrary to some studies, none during Ramadan. Thirdly, through its effects on regionally and culturally adjacent equity markets, particularly in GCC countries, with information spill-over from the US a factor. Results showed pronounced herding in all GCC equity markets affected by significant herding spilled-over from the Saudi market and insignificant spill-over from the US; indicating regional integration of markets with Saudi pre-eminent. Several findings are novel, including the impacts of Islamic festivals, other than Ramadan and oil price volatility during OPEC meetings, on herding behaviour: both have been largely ignored in most previous studies. Our results provide valuable insights, showing that herding and excess volatility recently observed in the Saudi equity market is not related to risk or information spill-over from oil markets.STUDENTSHIP FROM THE SAUDI GOVERNMEN

DETERMINANTS OF LOAN AGREEMENT IN ASIA-PACIFIC

This study aims to investigates and analyze the interdependencies of three main variables of loan agreement. The three main variables are: collateral, maturity, and loan spread. This research is applied in Asia-Pacific corporate area between 2006 and 2010. This study used two stage least square regression analysis. This research used 6 models to describe the interdependencies of collateral, maturity, and loan spread to determine the loan agreement. This study used secondary data in the Dealscan database with 548 samples of Asia-Pacific corporates in 2006-2010. This study shows interdependencies of collateral, maturity, and loan spread. This research reveals that the main variable which affects the loan agreement consideration is collateral