The impact of momentum trades on return comovements and asymmetric volatility in dual listings

We empirically investigate the impact of volume on serial return comovements (continuation vs. reversal) and asymmetric volatility (inverse relation with excess return) of 175 ADRs and their underlying securities in 27 countries. We classify +/-/0 trade momentum days based on a joint distribution of volume and return and determine how momentum affects return comovements and asymmetric volatility. Our VAR estimates confirm asymmetric volume comovements, positive volume return correlations implying continuation, and non-monotonic effects of excess return on volatility among ADRs and their underlying home shares. Return comovements and asymmetric volatility are associated with momentum, size, and liquidity

The impact of momentum trades on return comovements and asymmetric volatility in dual listings

We empirically investigate the impact of volume on serial return comovements (continuation vs. reversal) and asymmetric volatility (inverse relation with excess return) of 175 ADRs and their underlying securities in 27 countries. We classify +/-/0 trade momentum days based on a joint distribution of volume and return and determine how momentum affects return comovements and asymmetric volatility. Our VAR estimates confirm asymmetric volume comovements, positive volume return correlations implying continuation, and non-monotonic effects of excess return on volatility among ADRs and their underlying home shares. Return comovements and asymmetric volatility are associated with momentum, size, and liquidity

Magnitude distribution of earthquakes: Two fractal contact area distribution

The `plate tectonics' is an observed fact and most models of earthquake incorporate that through the frictional dynamics (stick-slip) of two surfaces where one surface moves over the other. These models are more or less successful to reproduce the well known Gutenberg-Richter type power law in the (released) energy distribution of earthquakes. During sticking period, the elastic energy gets stored at the contact area of the surfaces and is released when a slip occurs. Therefore, the extent of the contact area between two surfaces plays an important role in the earthquake dynamics and the power law in energy distribution might imply a similar law for the contact area distribution. Since, fractured surfaces are fractals and tectonic plate- earth's crust interface can be considered to have fractal nature, we study here the contact area distribution between two fractal surfaces. We consider the overlap set of two self-similar fractals, characterised by the same fractal dimensions, and look for their distribution. We have studied numerically the specific cases of both regular and random Cantor sets in one dimension and gaskets and percolation fractals in two dimension. We find that in all the cases the distributions show an universal finite size scaling behavior. The contact area distributions have got a power law decay for both regular and random Cantor sets and also for gaskets. However, for percolation clusters the distribution shows Gaussian variation.Comment: 6 pages, 6 figures, revtex styl

Essays on information asymmetry and microstructure of equity markets

Research in market microstructure attempts to determine how differences among trading systems affect price formation in financial markets. In this dissertation, I investigate how large order sizes, and discrete order time/short selling constraints may affect price formation in an equity market. I model a trading system where there are three types of traders, pure information, pure liquidity, and information-liquidity traders. Information-liquidity traders use both private information regarding future value of securities and their liquidity needs to determine their trades. The information liquidity traders are institutions that frequently trade large blocks, and are not subject to short selling constraints. First, a one-shot game is developed as in Easley and O\u27Hara (1987) with three types of traders and multiple order sizes. Derived results from the model confirm observed price effect of block trades in general, and particularly of large order size on thinly traded stocks. Second, I derive a mixed model in which the arrival of each type of trader is assumed to be a poisson process with time-invariant parameters as in Easley, Kiefer, O\u27Hara, and Paperman (1996). I outline an MLE method to empirically estimate the parameters of the theoretical model in the first essay. Further using TORQ data, I provide empirical results confirming the role of institutional trading as a determinant of bid ask spread. Finally, I outline a repeated game with two kinds of shocks—private and public information shocks. Some agents receive both shocks, while others receive only a public information shock. I call them complete and incomplete information traders respectively. If there are conflicting signals from the two information sources a fraction of the complete information traders who do not have short selling constraints short sell; others do not trade at all. In this model several rounds of trades occur following a set of shocks. I follow the general framework of Easley and O\u27Hara (1992) and Diamond and Verecchhia (1987) to show that order time and short sell prohibitions have different price effects in bull (buy \u3e sell) and bear (sell \u3e buy) markets. In a bull market, adverse private information is readily impounded into prices

Trimmed estimates in simultaneous estimation of parameters in exponential families

AbstractLet X1,…, Xp be p (≥ 3) independent random variables, where each Xi has a distribution belonging to the one-parameter exponential family of distributions. The problem is to estimate the unknown parameters simultaneously in the presence of extreme observations. C. Stein (Ann. Statist. 9 (1981), 1135–1151) proposed a method of estimating the mean vector of a multinormal distribution, based on order statistics corresponding to the |Xi|'s, which permitted improvement over the usual maximum likelihood estimator, for long-tailed empirical distribution functions. In this paper, the ideas of Stein are extended to the general discrete and absolutely continuous exponential families of distributions. Adaptive versions of the estimators are also discussed

Trimmed estimates in simultaneous estimation of parameters in exponential families

Let X1,..., Xp be p (>= 3) independent random variables, where each Xi has a distribution belonging to the one-parameter exponential family of distributions. The problem is to estimate the unknown parameters simultaneously in the presence of extreme observations. C. Stein (Ann. Statist. 9 (1981), 1135-1151) proposed a method of estimating the mean vector of a multinormal distribution, based on order statistics corresponding to the Xi's, which permitted improvement over the usual maximum likelihood estimator, for long-tailed empirical distribution functions. In this paper, the ideas of Stein are extended to the general discrete and absolutely continuous exponential families of distributions. Adaptive versions of the estimators are also discussed.Exponential family discrete absolutely continuous shrinkage estimators trimmed estimators adaptive estimators