An Empirical Analysis of the Role of the Trading Intensity in Information Dissemination on the NYSE

Asymmetric information models predict comovements among trade characteristics such as returns, bid-ask spread, and trade volume on one hand and the trading intensity on the other hand.In this paper we investigate empirically the two-sided causality between trade characteristics and trading intensity.We apply a VAR-model for returns, bid-ask spread, trade volume, and trading intensity to transaction data on five stocks traded on the NYSE, covering the period August 1 until October 31, 1999.Similar to Dufour and Engle (2000), we find that the price impact of a trade is larger, the higher the trading intensity.Moreover, we establish significant feedback from the trade characteristics to the the trading intensity.Wide spreads, large volume, and high returns have a significantly positive impact on the trading intensity.We show that this feedback affects the price impact of large trades in transaction and in calendar time.vector autoregressive models;prices;trade;duration ananlysis

Geography, culture, and religion: Explaining the bias in Eurovision song contest voting

This paper analyses votes cast in the Eurovision Song Contest in the period 1975 - 2003. We test whether accusations of 'political' voting among participants can be substantiated by looking at geographical influences. Our approach differs in two ways from earlier studies. First, we take into account a variety of variables to distinguish political voting from preferences based on cultural, linguistic, ethnic, and religious differences and similarities between countries. Secondly, we analyse the determinants of the voting behaviour separately per country, instead of looking at average effects over all participating countries. We find that geographical factors substantially affect the votes. Even after correction for cultural, linguistic and other factors many countries prefer or dislike the songs of surrounding countries. This leads to the suspicion that the geograph¬ical preferences reflect political voting. Also, we show that several countries favour songs of participants with the same religious background, while others prefer the contributions of countries with a different religion. Moreover, using data on the amount of Turkish immigrants across European countries, we document that countries with a substantial Turkish population favour the Turkish songs ('patriotic' voting). Furthermore, we study the repercussions of opening up the voting system to the general public by the introduction of televoting. It turns out that religious and patriotic voting have become considerably stronger since the introduction of the new voting system. Finally, we confront our em¬pirical findings to the publicly debated accusations of political voting made against certain blocks of countries. Although our analysis uncovers significant geographical patterns (suggesting political voting), we do hardly establish any empirical evidence for the claims against these particular countries

Superstars without talent? The Yule distribution controversy

Chung and Cox (1994) provided an intuitively appealing stochastic model which indicates that superstars may exist regardless of talent and which gives rise to the Yule distribution. We adopt a different empirical approach and test its goodness-of-fit using a parametric bootstrap and several powerful test statistics. Just like the discrete Pareto distribution, it is overwhelmingly rejected: it is a fairly accurate approximation of the lower quantiles of the superstar distribution, but overestimates the snowball effect that makes consumers purchase records of the most successful artists. In other words, the Yule distribution captures stardom, but not superstardom. A generalization of the Yule distribution provides an excellent fit in two of the three data sets.Superstardom; Yule distribution

Measuring and explaining competition in the financial sector

The first part of this paper provides a systematic discussion of the structural problems of competition on financial markets as observed from the demand and from the supply side, using a diagnostic framework. Potential impediments to competition are concentration, entry barriers, lack of transparency, product complexity, switching and search costs, financial illiteracy, lack of consumer power and weak intermediaries. In response to such financial market failures, we suggest a number of possible policy reactions. The second part of the paper investigates ways to measure competition and provides empirical figures on banking competition in 101 separate countries and assesses the market structure as monopolistic (or a perfect cartel), perfectly competitive or monopolistic competitive. Also, banking competition is explained, using explanatory variables of market structure, contestability, inter-industry competition, and institutional and macro economic conditions. This analysis provides possible instruments for reform in order to help promote competition. Next, the impact of banking consolidation is examined. Finally, developments in competition are observed over time, generally pointing to a downward trend.competition, concentration, entry barriers, transparency, consolidation, contestability, institutional conditions, restrictions on activities or investment, regulation, Panzar-Rosse model.

Cheap versus expensive trades: Assessing the determinants of market impact costs

This paper assesses the determinants of market impact costs of institutional equity trades, using unique data from the world's second largest pension fund. We allow the impact of trade characteristics and market conditions on trading costs to depend on the level of trading costs itself and establish significant differences in the responses of cheaper and more expensive trades. We explain the distinct responses from differences in information content and demand for liquidity between trades with high and low trading costs. Finally, to illustrate the practical relevance of the approach, we use our method to forecast future trading costs

An Empirical Analysis of the Role of the Trading Intensity in Information Dissemination on the NYSE

Asymmetric information models predict comovements among trade characteristics such as returns, bid-ask spread, and trade volume on one hand and the trading intensity on the other hand.In this paper we investigate empirically the two-sided causality between trade characteristics and trading intensity.We apply a VAR-model for returns, bid-ask spread, trade volume, and trading intensity to transaction data on five stocks traded on the NYSE, covering the period August 1 until October 31, 1999.Similar to Dufour and Engle (2000), we find that the price impact of a trade is larger, the higher the trading intensity.Moreover, we establish significant feedback from the trade characteristics to the the trading intensity.Wide spreads, large volume, and high returns have a significantly positive impact on the trading intensity.We show that this feedback affects the price impact of large trades in transaction and in calendar time

Market impact costs of institutional equity trades

This paper is the first to analyze market impact and execution costs of equity trading by a pension fund. We find that, on average, these costs are nonnegligible. Average market impact costs equal 20 basis points for buys and 30 basis points for sells; average execution costs equal 27 basis points and 38 basis points, respectively. Furthermore, we show that relative trade size and market capitalization, commonly found to play an important role, have only limited influence on the market impact of a trade. The most important determinants of the price effect are momentum, stock price volatility, investment style, trade type (agency, single, or principal), and trading venue

Price dynamics and trading volume: A semiparametric approach

In this paper we investigate the relation between price impact and trading volume for a sample of stocks listed on the New York Stock Exchange. The parametric VAR-models that have been used in the literature impose strong proportionality and symmetry restrictions on the price impact of trades, although market microstructure theory provides many reasons why these restrictions would not hold. We analyze a more flexible semiparametric partially linear specification and establish significant evidence for a nonlinear, asymmetric, increasing, and concave relation between trading volume and both immediate and persistent price impact. Moreover, we compare the price-impact functions obtained in the partially linear model to the ones generated by the parametric models and show that there are considerable differences. We test the parametric specifications against the partially linear model and show that the parametric models are rejected in favor of the semiparametric model. We also test the partially linear model against a more flexible fully nonparametric specification and show that this test does not reject the partially linear model