Global political risk and currency momentum

Using a measure of political risk, relative to the United States, that captures unexpected political conditions, we show that political risk is priced in the cross section of currency momentum and contains information beyond other risk factors. Our results are robust after controlling for transaction costs, reversals, and alternative limits to arbitrage. The global political environment affects the profitability of the momentum strategy in the foreign exchange market; investors following such strategies are compensated for the exposure to the global political risk of those currencies they hold, that is, the past winners, and exploit the lower returns of loser portfolios. The risk compensation is mainly justified by the different exposures of foreign currencies in the momentum portfolio to U.S. political shocks, which is the main component of global political risk

Pre-trade transparency and informed trading : experimental evidence on undisclosed orders

I use experimental asset markets to analyze trading under different transparency and information settings. I find that both liquidity and informed traders use undisclosed orders to compete for liquidity provision. In opaque markets, traders increase aggressiveness to improve execution probability. Without information friction, market opacity enhances liquidity, especially toward the end of trading, and is beneficial for liquidity traders. Under informed trading, adverse selection drives market outcomes mainly around news announcements. Monopolistic insiders exploit opacity at the expense of large liquidity traders. Opacity does not affect informational e¢ ciency with a monopolistic insider, but value discovery is faster when informational rents are shared

Lot size constraints and market quality:evidence from the Borsa Italiana

Trading venues often impose a minimum lot size (minimum trade unit or MTU) to facilitate order execution. We document changes in market quality associated with the reduction of the MTU to one share on the Italian stock exchange, the Borsa Italiana. We observe a substantial improvement in liquidity, with an average decrease in the relative spread of 10.2%, and more significant improvements for those firms for which the MTU constraint was more binding. We also show that the improvement in liquidity is mainly driven by a reduction in adverse selection; that informational efficiency is not significantly affected; and there is an increase in retail trading. We interpret our findings in light of a model of asymmetric information in which the MTU affects traders’ choice of order size

Banning dark pools : venue selection and investor trading costs

We analyze the relation between transaction costs and venue choice using proprietary transaction-level data from institutional trade executions in the U.K. equity market. We show that, for a given investor, a higher share of dark trading (midpoint dark pools) is associated with lower execution costs. In the context of a recent ban on dark trading, we provide evidence consistent with migration towards substitute trading venues such as periodic auctions, which has mitigated adverse effects on trading costs for large investors. We also provide micro-evidence on Menkveld et al.’s (2017) pecking order theory of venue choice over the life-cycle of large parent orders

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

A new project management system dynamics model and simulator

Thesis: S.M. in Engineering and Management, Massachusetts Institute of Technology, System Design and Management Program, 2017.Cataloged from PDF version of thesis.Includes bibliographical references (pages 56-57).Simulators generated from project management system dynamics models are exercised for training the future project managers. In today's' high dynamic, vibrant and complex markets, the models should incorporate more business dynamics and also provide more tools to the players who can flexibly steer in the project games. Along with that objective, this study brings new dynamics and modeling approach to the original multi-phase project system dynamics model of Ford and Sterman, 1998. The new dynamics include the development of new features in the market growing the customer expectation, reflection of customer expectation to project economics, supersede of project concurrencies by rushing the tasks, allowing the defects delivered to customers to be compensated by lifetime repair cost and free positioning of the phase schedules while maintaining concurrencies. A new formulation for completion putthrough, option to include final downstream defect correction and elaborate project econometrics are also included. The model is built in modules that can be utilized to increase the number of phases and/or explain the model to the trainees more easily. The project model employs two options; a zero-defect policy and allowed defect policy where the latter is newly introduced by the repair cost. The system dynamics model is tested by proposed extreme project manager traits which are implemented as table function to use one or more modules to pursue an ultimate objective within a certain logic. A construction project principally mimicking the cases provided by Parvan et al. 2015 is simulated with the manager traits. The results initiate interesting tradeoffs such as the influence of project delivery time versus repair cost, accepting new tasks versus creating more defects or rescheduling the project or positioning the workforce before the ramping up of testing and defective task correction activities. The model necessitates a deeper understanding and analyses of long-term phenomenon such as the lifetime repair cost, the financial consequences of defects and lifetime earnings of products as well as the continuous feature development in the market and its economic value. It is found that the current model proposes an enhanced tool for the training of future project managers. Keywords: System dynamics, project management, simulation, defect policy, numerical modeling.by Burak Gozluklu.S.M. in Engineering and Managemen

Demographics and the behavior of interest rates

Interest rates are very persistent. Modelling the persistent component of interest rates has important consequences for forecasting. Factor models of the term structure are restricted VAR models that project over a long-horizon the one-period risk free rate to obtain yields at longer horizon as the sum of the expected future monetary policy and the term premia. The included factors are typically mean reverting and the equilibrium real rates are considered constant (think, for example, of the standard Taylor-rule), partial adjustments to equilibrium yields are then used to rationalize the persistence in observed data. As a result the empirical models feature a very high level of persistence that makes long-horizon predictions inherently inaccurate. This paper relates the common persistent component of the U.S. term structure of interest rates to the age composition of population. The composition of age structure determines the equilibrium rate in the monetary policy rule and therefore the persistent component in one-period yields. Fluctuations in demographics are then transmitted to the whole term structure via the expected policy rate components. We build an a¢ ne term structure model (ATSM) which exploits demographic information to capture the dynamics of yields and produce useful forecasts of bond yields and excess returns that provides economic value for long-term investors

MODELING OF DYNAMIC DELAMINATION IN L-SHAPED COMPOSITE BRACKETS

One of the widely used geometrically complex parts in recent civil passenger aircrafts is the L-shaped composite brackets connecting ribs to skins. Due to the sharp curved geometry, interlaminar opening stresses are induced and delamination occurs under considerable mode-mixities at the corner. Dynamic phenomena during delamination initiation and propagation of L-shaped beams are investigated using dynamic (explicit) finite element analysis in conjunction with cohesive zone methods (CZM). In ABAQUS a sequential explicit analysis followed by static (implicit) solution is used where the solution duration is considerably reduced. The thickness of the specimens is varied from 1.0 mm to 4.0 mm while the inner radius is kept same. Loading is applied parallel to one of the arms quasi-statically. Even though the crack is at the very middle of the specimen, this specific loading type yields variable traction fields and mode-mixities in the two sides of the crack in which delamination occurs under shear stress dominated loading on one crack tip and opening stress dominated loading on the other. It is observed that the delamination propagation is highly dynamic even though the loading is quasi-static. The speed of the delamination under shear dominated loading at one side can reach 800 m/s and under normal stress dominated loading is 50 m/s in dedicated thickness levels. In addition, moving elasto-dynamic radial compressive waves along the interface are observed. An important observation for design applications, a typical solution of adding more plies to the laminate might yield failure transition to a secondary crack nucleating at the arm and propagating towards the center crack

FAILURE MODE TRANSITION DURING DELAMINATION OF THICK UNIDIRECTIONAL L-SHAPED COMPOSITE LAMINATES

Curved composite laminates such as L-beams are frequently used in wind turbine blade structures such as spars and ribs. It is widely assumed that delamination initiates at the curved region of the L-shaped laminate leading to loss of loading carrying capacity. However, as shown in this paper, under certain conditions a second failure mode in thick L-shaped laminates is observed in which a secondary crack initiates at the arm region. Delamination in L-shaped laminates is modeled using a sequential analysis with implicit analysis followed by explicit dynamic (explicit) finite element analysis in conjunction with cohesive zone methods. The 2-D model consists of 24 plies of unidirectional CFRP laminate with an initial crack at the center of curved region. Loading is applied parallel to one arm quasi-statically and the observed delamination occurs dynamically. For thin laminates and larger precracks, delamination starts from the initial crack and propagates towards the arms. For thicker L-shaped laminates and smaller precracks at the center of curved region, formation of secondary crack in the arm region is observed. Therefore the size of the initial crack as a function of thickness at the center of the curved region mainly decides the failure mode