Competition between stock exchanges and optimal trading

This doctoral thesis focuses on two topics on trading in financial markets: competition between stock exchanges and optimal trading strategies. Chapter one analyzes the effect on the liquidity of a stock when it is traded on multiple trading venues, and distinguishes between competition from transparent and opaque venues. Chapter two demonstrates a strong interaction between the supply and demand of trading activity across trading venues. Chapter three focuses on the optimal strategy to trade a large amount of shares before a deadline. It studies the information asymmetry between informed and uninformed traders, and finds that splitting the large quantity into smaller parts may resolve this friction.

The Impact of Dark and Visible Fragmentation on Market Quality (Replaces CentER Discussion Paper 2011-051)

Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental effect. In addition, local liquidity is lowered by fragmentation in visible order books.Market microstructure;Market fragmentation;Liquidity;MiFID

The Impact of Dark and Visible Fragmentation on Market Quality (Replaces CentER Discussion Paper 2011-051)

Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental effect. In addition, local liquidity is lowered by fragmentation in visible order books.

The Impact of Dark and Visible Fragmentation on Market Quality (Replaces EBC Discussion Paper 2011-013)

Two important characteristics of current European equity markets are rooted in changes in financial regulation (the Markets in Financial Instruments Directive). The regulation (i) allows new trading venues to emerge, generating a fragmented market place and (ii) allows for a substantial fraction of trading to take place in the dark, outside publicly displayed order books. This paper evaluates the impact on liquidity of fragmentation in visible order books and dark trading for a sample of 52 Dutch stocks. We consider global liquidity by consolidating the entire limit order books of all visible European trading venues, and local liquidity by considering the traditional market only. We find that fragmentation in visible order books improves global liquidity, but dark trading has a detrimental effect. In addition,local liquidity is lowered by fragmentation in visible order books.

Price impact versus bid-ask spreads in the index option market

We investigate the puzzle of why bid-ask spreads of options are so large by focussing on the price impact component of the spread. We propose a structural vector autoregressive model for trades in the option market to analyze whether they move the underlying price and/or the underlying’s volatility. Our model captures cross-option strategies by pooling order flows across contracts after a decomposition into exposure to the underlying asset and its volatility. While our estimates confirm that S&P500 option trades indeed significantly move the underlying and the volatility, the economic magnitudes are very small. Hence, large bid-ask spreads of options remain a puzzle

Repetitive transcranial magnetic stimulation in drug‐resistant idiopathic epilepsy of dogs : a noninvasive neurostimulation technique

Background Although repetitive transcranial magnetic stimulation (rTMS) has been assessed in epileptic humans, clinical trials in epileptic dogs can provide additional insight. Objectives Evaluate the potential antiepileptic effect of rTMS in dogs. Animals Twelve client-owned dogs with drug-resistant idiopathic epilepsy (IE). Methods Single-blinded randomized sham-controlled clinical trial (dogs allocated to active or sham rTMS) (I) and open-labeled uncontrolled clinical trial (dogs received active rTMS after sham rTMS) (II). Monthly seizure frequency (MSF), monthly seizure day frequency (MSDF), and number of cluster seizures (CS) were evaluated for a 3-month pre-TMS and post-rTMS period and safety was assessed. The lasting effect period of rTMS was assessed in each dog treated by active stimulation using the MSF ratio (proportion of post-TMS to pre-rTMS MSF) and treatment was considered effective if the ratio was No adverse effects were reported. In trial I, MSF and MSDF decreased significantly (P= .04) in the active group (n = 7). In the sham group (n = 5), no significant changes were found (P= .84 and .29, respectively). Cluster seizures did not change significantly in either group. No significant differences were detected between the groups. In trial II, previously sham-treated dogs (n = 5) received active rTMS and significant decreases in MSF and MSDF were noted (P= .03 and .008, respectively). The overall effect of rTMS lasted for 4 months; thereafter, the MSF ratio was >1. Conclusions and Clinical Importance Repetitive transcranial magnetic stimulation may be a safe adjunctive treatment option for dogs with drug-resistant IE, but large-scale studies are needed to establish firm conclusions

Ultra-Fast Activity and Intraday Market Quality

This paper studies the intraday relationship between ultra-fast machine-driven activity (UFA) and market quality in automated equity markets. We find that higher UFA is associated with lower intraday market quality (greater quoted and effective spreads and lower depth). This effect is economically significant, and robust to different specifications, endogeneity tests, and alternative measures of UFA. Our results hold after controlling for volatility, periods of unusually high UFA (a proxy for quote stuffing), and periods where UFA is primarily driven by fleeting orders inside the spread (a proxy for spoofing and competition between liquidity providers)