The quality of price formation at market openings and closings: evidence from the Nasdaq stock market

Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where trades are time-critical, liquidity is limited and there is limited enforcement of trades. We show a CCP novating trades implements efficient trading behaviour. It is optimal for the CCP to face default losses to achieve the efficient level of trade. To cover these losses, the CCP optimally uses margin calls, and, as the default problem becomes more severe, also requires default funds and then imposes position limits

Large capital infusions, investor reactions, and the return and risk performance of financial institutions over the business cycle and recent finanical crisis

The authors examine investors' reactions to announcements of large seasoned equity offerings (SEOs) by U.S. financial institutions (FIs) from 2000 to 2009. These offerings include market infusions as well as injections of government capital under the Troubled Asset Relief Program (TARP). The sample period covers both business cycle expansions and contractions, and the recent financial crisis. They present evidence on the factors affecting FI decisions to issue capital, the determinants of investor reactions, and post-SEO performance of issuers as well as a sample of matching FIs. The authors find that investors reacted negatively to the news of private market SEOs by FIs, both in the immediate term (e.g., the two days surrounding the announcement) and over the subsequent year, but positively to TARP injections. Reactions differed depending on the characteristics of the FIs, stage of the business cycle, and conditions of financial crisis. Larger institutions were less likely to have raised capital through market offerings during the period prior to TARP, and firms receiving a TARP injection tended to be larger than other issuers. The authors find that while TARP may have allowed FIs to increase their lending (as a share of assets) in the year after the issuance, they took on more credit risk to do so. They find no evidence that banks' capital adequacy increased after the capital injections.Securities ; Financial services industry ; Banks and banking

Measuring the efficiency of capital allocation in commercial banking

Commercial banks leverage their equity capital with demandable debt that participates in the economy's payments system. The distinctive nature of this debt generates an unusual degree of liquidity risk that can, at times, threaten the payments system. To reduce this threat, insurance protects deposits; and to reduce the moral hazard problems of the debt contract and deposit insurance, bank regulation constrains risk-taking and defines standards of capital adequacy. The inherent liquidity risk of demandable debt as well as potential regulatory penalties for poor financial performance creates the potential for costly episodes of financial distress that affects banks' employment of capital. ; The existence of financial-distress costs implies that many banks are likely to take actions, such as holding additional capital, that increase bank safety at the expense of short-run returns. While such a strategy may reduce average returns in the short run, it may maximize the market value of the bank by protecting charter value and protecting against regulatory interventions. On the other hand, some banks whose charter values are low may have an incentive to follow a higher risk strategy, one that increases average return at the expense of greater risk of financial distress and regulatory intervention. ; This paper examines how banks' employment of capital in their production plans affects their "market value" efficiency. The authors develop a market-based measure of production efficiency and implement it on a sample of publicly traded bank holding companies. Our evidence indicates that banks' efficiency and, hence, the market value of their assets are influenced by the level and allocation of capital. However, even controlling for the effect of size, we find that the influence of equity capital differs markedly between banks with higher capital-to-assets ratios and those with lower ratios. For inefficient banks with higher capital-to-assets ratios, marginal increases in capitalization and asset quality boost their market-value efficiency. For inefficient banks with lower levels of capitalization, the signs of these effects are reversed. Controlling for asset size, it appears that less capitalized banks cannot afford to mimic the investment strategy of more capitalized banks, which may be using this greater capitalization to signal their safety to financial markets.Bank capital

Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation and Financial Performance

Bank consolidation is a global phenomenon that may enhance stakeholders' value if managers do not sacrifice value to build empires. We find strong evidence of managerial entrenchment at U.S. bank holding companies that have higher levels of managerial ownership, better growth opportunities, poorer financial performance, and smaller asset size. At banks without entrenched management, both asset acquisitions and sales are associated with improved performance. At banks with entrenched management, sales are related to smaller improvements while acquisitions are associated with worse performance. Consistent with scale economies, an increase in assets by internal growth is associated with better performance at most banks. Key Words: consolidation, acquisitions, managerial incentives, efficiency, agency problems, corporate control, stochastic frontier

Liquidity, Markets and Trading in Action

This open access book addresses four standard business school subjects: microeconomics, macroeconomics, finance and information systems as they relate to trading, liquidity, and market structure. It provides a detailed examination of the impact of trading costs and other impediments of trading that the authors call “frictions”. It also presents an interactive simulation model of equity market trading, TraderEx, that enables students to implement trading decisions in different market scenarios and structures. Addressing these topics shines a bright light on how a real-world financial market operates, and the simulation provides students with an experiential learning opportunity that is informative and fun. Each of the chapters is designed so that it can be used as a stand-alone module in an existing economics, finance, or information science course. Instructor resources such as discussion questions, Powerpoint slides and TraderEx exercises are available online

Introducing water frogs – Is there a risk for indigenous species in France?

The ecological success of introduced species in their new environments is difficult to predict. Recently, the water frog species Rana ridibunda has raised interest, as different genetic lineages were introduced to various European countries. The aim of the present study was to analyze the potential invasiveness of R. ridibunda and assess the risk of replacement for indigenous water frog species. The investigation of over 700 water frogs from 22 locations in southern France and four locations in Spain shows that the competition with indigenous species is mainly limited to a particular habitat type, characterized by high-oxygen and low-salinity freshwater. The competitive strength of R. ridibunda may be related to a higher growth rate and longevity as compared to the indigenous species R. grafi and R. perezi. Our data suggest that R. ridibunda is a risk to the diversity of indigenous water frog assemblages in France. Future monitoring needs to clarify the distribution of R. ridibunda, its ecological niche, and the risk status for indigenous water frog species

Ubiquitin editing enzyme UCH L1 and microtubule dynamics: Implication in mitosis

Microtubules are essential components of the cytoskeleton and are involved in many aspects of cell responses including cell division, migration, and intracellular signal transduction. Among other factors, post-translational modifications play a significant role in the regulation of microtubule dynamics. Here, we demonstrate that the ubiquitin-editing enzyme UCH L1, abundant expression of which is normally restricted to brain tissue, is also a part of the microtubule network in a variety of transformed cells. Moreover, during mitosis, endogenous UCH L1 is expressed and tightly associated with the mitotic spindle through all stages of M phase, suggesting that UCH L1 is involved in regulation of microtubule dynamics. Indeed, addition of recombinant UCH L1 to the reaction of tubulin polymerization in vitro had an inhibitory effect on microtubule formation. Unexpectedly, western blot analysis of tubulin fractions after polymerization revealed the presence of a specific ∼50 kDa band of UCH L1 (not the normal ∼25 kDa) in association with microtubules, but not with free tubulin. In addition, we show that along with 25 kDa UCH L1, endogenous high molecular weight UCH L1 complexes exist in cells, and that levels of 50 kDa UCH L1 complexes are increasing in cells during mitosis. Finally, we provide evidence that ubiquitination is involved in tubulin polymerization: the presence of ubiquitin during polymerization in vitro by itself inhibited microtubule formation and enhanced the inhibitory effect of added UCH L1. the inhibitory effects of UCH L1 correlate with an increase in ubiquitination of microtubule components. Since besides being a deubiquitinating enzyme, UCH L1 as a dimer has also been shown to exhibit ubiquitin ligase activity, we discuss the possibility that the ∼50 kDa UCH L1 observed is a dimer which prevents microtubule formation through ubiquitination of tubulins and/or microtubule-associated proteins

Diagnostic and prognostic significance of exercise-induced premature ventricular complexes in men and women: A four year follow-up

Two hundred eighty patients (197 men and 83 women) with normal rest electrocardiograms and no history of prior myocardial infarction were referred for evaluation of chest pain. It was found that exercise-induced premature ventricular complexes had a lower sensitivity, specificity, positive predictive value and negative predictive value in predicting significant coronary artery disease than exercise-induced ST segment depression greater than or equal to 1 mm. The incidence of exercise-induced premature ventricular complexes was not significantly different in patients with no significant coronary artery disease, single vessel disease or multivessel disease. The site of origin of exercise-induced premature ventricular complexes was not helpful in predicting the presence or severity of coronary artery disease. At a mean follow-up period of 47.1 months, exercise-induced premature ventricular complexes did not predict coronary events (cardiac death or nonfatal myocardial infarction) in men or women

Limiting distributions for explosive PAR(1) time series with strongly mixing innovation

This work deals with the limiting distribution of the least squares estimators of the coefficients a r of an explosive periodic autoregressive of order 1 (PAR(1)) time series X r = a r X r--1 +u r when the innovation {u k } is strongly mixing. More precisely {a r } is a periodic sequence of real numbers with period P \textgreater{} 0 and such that P r=1 |a r | \textgreater{} 1. The time series {u r } is periodically distributed with the same period P and satisfies the strong mixing property, so the random variables u r can be correlated