One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes

What do stock splits really signal?

We observe significant post-split excess returns of 7.93 percent in the first year and 12.15 percent in the first three years for a sample of 1,275 two-for-one stock splits. These excess returns follow an announcement return of 3.38 percent, indicating that the market under-reacts to split announcements. The evidence suggests that splits realign prices to a lower trading range, but managers self-select by conditioning the decision to split on expected future performance. Presplit runup and post-split excess returns are inversely related, indicating that our results are not caused by momentum

Share repurchases as a potential tool to mislead investors

A rich literature argues that stock repurchases often serve as positive economic signals beneficial to investors. Yet due to their inherent flexibility, open-market repurchase programs have long been criticized as weak signals lacking commitment. We evaluate whether some managers potentially use buyback announcements to mislead investors. We focus on cases where managers were seemingly under heavy pressure to boost stock prices and might have announced a repurchase only to convey a false signal. For suspect cases, the immediate market reaction to a buyback announcement does not differ from that generally observed. However over longer horizons, suspect firms do not enjoy the improvement in economic performance otherwise observed. Suspect firms repurchase less stock. Further, managers in suspect firms have comparatively higher exposure to stock options, a potentially endogenous result suggesting greater sensitivity to both stock valuation and to future equity dilution. Overall, the results suggest only a limited number of managers may have used buybacks in a misleading way as 'cheap talk.' Yet as theory also suggests, we find no long-run economic benefit to this behavior.link_to_subscribed_fulltex

News and noise: do investors react to stock split announcements differently during periods of high and low market volatility?

Stock Splits, Noise, Information, Abnormal Returns, Volatility, Event Study, VIX, G14,

Understanding the Middle East peace process: a historical institutionalist approach

This article challenges the common assumption that the external actors involved in the Middle East Peace Process (MEPP) are driven either by neo-realist strategic competition or by the constraining power of domestic lobbies, or by a mixture of both. Such implicit assumptions are evident in the controversial argument of the power of the ‘Israel lobby’ as promoted by Stephen Walt and John Mearsheimer. This article argues that approaches based on such assumptions fail to explain adequately the policies adopted not only by the United States, but also by other key external actors who have been historically engaged in the MEPP — the Soviet Union and the European Union. A better explanatory framework is provided by treating the MEPP as an institution and by applying a historical institutionalist approach to the development of the MEPP, using such concepts as critical junctures, path dependence and positive feedback to analyse how the main external actors involved in the MEPP came to adopt their distinctive national approaches to the peace process. In particular, it is the responses of these actors to certain critical junctures, most notably but not exclusively to the period of the 1967 and 1973 Arab–Israeli wars, that has had a particularly strong influence on policy formulation. For the US case, the creative policymaking of Henry Kissinger during the period after the 1973 war, which was subsequently incorporated into the US conceptualization of the MEPP, provides powerful and generally unrecognized insights into the initial puzzle identified by Walt and Mearsheimer — the consistent and almost unconditional support given to Israel by the United States despite the strategic problems this creates for broader US Middle East policy