Source of Information-Driven Trading on the Prague Stock Exchange

We focus on the extent of information-driven trading sourced from the behavior of market makers on an emerging market. We develop a methodology based on the Easley et al. (1996) model in order to estimate the extent of informed trading originating from the behavior of Czech market makers on the Prague Stock Exchange (PSE). Based on the high percentage of block trades in the years 2003-05, the market makers focusing on large customers may have a significant source of private information on the PSE. Significant differences in the behavior of market makers lead us to conclude that these differences remarkably affect the extent of information-driven trading. Under current regulation, market makers are able to protect their private information and not reveal it for a surprisingly long period of time. Our study contributes to the detection mechanisms of regulatory authorities on the emerging markets in identifying the suspicious behavior of particular market participants.Trading systems, Informed trading, Emerging markets

Estimating the Effect of the Red Card in Soccer: When to Commit an Offense in Exchange for Preventing a Goal Opportunity

We study the effect of the red card in a soccer game. A red card is given by a referee to signify that a player has been sent off following serious misconduct. The player who has been sent off must leave the game immediately and cannot be replaced during the game. His team must continue the game with one player fewer. We estimate the effect of the red card from betting data on the FIFA World Cup 2006 and Euro 2008, showing that the scoring intensity of the penalized team drops significantly, while the scoring intensity of the opposing team increases slightly. We show that a red card typically leads to a smaller number of goals scored during the game when a stronger team is penalized, but it can lead to an increased number of goals when a weaker team is punished. We also show when it is better to commit a red card offense in exchange for the prevention of a goal opportunity.