Transaction Costs in Dealer Markets: Evidence From The London Stock Exchange

This paper describes regularities in the intraday spreads and prices quoted by dealers on the London Stock Exchange. It develops a measure of spread-related transaction costs, one that recognizes dealers' willingness to price trades within their quoted spreads. This measure of transaction costs shows that trading costs are systematically related to a trade's size, characteristics of the trading counterparties, and security characteristics. Customers pay the full spread on small trades while medium to large trades receive more favorable execution. Market makers only discount very large customer trades while dealers regularly discount medium to large trades. Inter-dealer trades generally receive favorable execution, and discounts increase in size. Market makers do not discount trades with each other over the phone, but do discount when trading anonymously using inter-dealer-brokers. Quoted and touch spreads are falling in the number of market makers. The rate of decline is interpreted as reflecting economies of scale in market making.

International Equity Transactions and U.S. Portfolio Choice

This paper studies the cross-border transactions in equity by investors in Canada, Germany,Japan, the U.K. and the U.S. We find that investors from different countries make very different decisions about the allocation of their portfolio across markets. In contradiction to the notion that high variable transactions costs hinder international diversification, we find that the volume of gross equity flows vastly exceeds net equity flows and the turnover rate on foreign equity investments by some investors even exceeds domestic turnover rates. We also reject the hypothesis that U.S. investors follow the standard CAPM in allocating their global equity portfolio.

Short-sale strategies and return predictability

We examine short selling in US stocks based on new SEC-mandated data for 2005. There is a tremendous amount of short selling in our sample: short sales represent 24% of NYSE and 31% of Nasdaq share volume. Short sellers increase their trading following positive returns and they correctly predict future negative abnormal returns. These patterns are robust to controlling for voluntary liquidity provision and for opportunistic risk-bearing by short sellers. The results are consistent with short sellers trading on short-term overreaction of stock prices. A trading strategy based on daily short-selling activity generates significant positive returns during the sample period. (JEL G12, G14) There is currently tremendous interest in short selling not only from academics, but also from issuers, media representatives, the Securities and Exchange Commission (SEC), and Congress. Academics generally share the view that short sellers help markets correct short-term deviations of stock prices from fundamental value. This view is by no means universally held, and many issuers and media representatives instead characterize short sellers as immoral, unethical, and downright un-American

Chandra X-Ray Observatory Observations of the Globular Cluster M71

We observed the nearby, low-density globular cluster M71 (NGC 6838) with the Chandra X-ray Observatory to study its faint X-ray populations. Five X-ray sources were found inside the cluster core radius, including the known eclipsing binary millisecond pulsar (MSP) PSR J1953+1846A. The X-ray light curve of the source coincident with this MSP shows marginal evidence for periodicity at the binary period of 4.2 h. Its hard X-ray spectrum and luminosity resemble those of other eclipsing binary MSPs in 47 Tuc, suggesting a similar shock origin of the X-ray emission. A further 24 X-ray sources were found within the half-mass radius, reaching to a limiting luminosity of 1.5 10^30 erg/s (0.3-8 keV). From a radial distribution analysis, we find that 18+/-6 of these 29 sources are associated with M71, somewhat more than predicted, and that 11+/-6 are background sources, both galactic and extragalactic. M71 appears to have more X-ray sources between L_X=10^30--10^31 erg/s than expected by extrapolating from other studied clusters using either mass or collision frequency. We explore the spectra and variability of these sources, and describe the results of ground-based optical counterpart searches.Comment: 36 pages including 7 figures and 8 tables, accepted by The Astrophysical Journa

Chandra X-ray Observations of 12 Millisecond Pulsars in the Globular Cluster M28

We present a Chandra X-ray Observatory investigation of the millisecond pulsars (MSPs) in the globular cluster M28 (NGC 6626). In what is one of the deepest X-ray observations of a globular cluster, we firmly detect seven and possibly detect two of the twelve known M28 pulsars. With the exception of PSRs B1821-24 and J1824-2452H, the detected pulsars have relatively soft spectra, with X-ray luminosities 10^30-31 ergs s^-1 (0.3-8 keV),similar to most "recycled" pulsars in 47 Tucanae and the field of the Galaxy, implying thermal emission from the pulsar magnetic polar caps. We present the most detailed X-ray spectrum to date of the energetic PSR B1821-24. It is well described by a purely non-thermal spectrum with spectral photon index 1.23 and luminosity 1.4x10^33Theta(D/5.5 kpc)^2 ergs s^-1 (0.3-8 keV), where Theta is the fraction of the sky covered by the X-ray emission beam(s). We find no evidence for the previously reported line emission feature around 3.3 keV, most likely as a consequence of improvements in instrument calibration. The X-ray spectrum and pulse profile of PSR B1821--24 suggest that the bulk of unpulsed emission from this pulsar is not of thermal origin, and is likely due to low-level non-thermal magnetospheric radiation, an unresolved pulsar wind nebula, and/or small-angle scattering of the pulsed X-rays by interstellar dust grains. The peculiar binary PSR J1824-2452H shows a relatively hard X-ray spectrum and possible variability at the binary period, indicative of an intrabinary shock formed by interaction between the relativistic pulsar wind and matter from its non-degenerate companion star.Comment: 9 pages, 6 figures. Accepted for publication in the Astophysical Journa