Fails-to-deliver, short selling, and market quality

We investigate the collective net impact on market liquidity and pricing efficiency of equity trades that result in fails to deliver (“FTDs”). Given the nature of the US electronic trade settlement system for stocks, such “FTD trades” should originate almost exclusively from short sales, and we confirm this empirically on the basis of a natural experiment arising from a regulatory event. For a sample of 1,492 NYSE common stocks over a 42-month period from 2005 to 2008, we find that such trades lead to the same beneficial impact on liquidity and pricing efficiency as short sales that result in timely delivery. We do not find evidence that such trades are causally related to subsequent price declines or distortions, or to the failure of financial firms during the 2008 financial crisis

Naked short selling: The emperor`s new clothes?

Regulatory and media concern has focused heavily on the potentially manipulative distortion of market prices associated with naked short selling. However, naked shorting can also have beneficial effects for liquidity and pricing efficiency. We empirically investigate the impact of naked short-selling on market quality, and find that naked shorting leads to significant reduction in positive pricing errors, the volatility of stock price returns, bid-ask spreads, and pricing error volatility. We study naked shorting surrounding the demise of financial institutions hardest hit by the financial crisis in 2008 and find no evidence that stock price declines were caused by naked shorting. We also find that naked short-selling intensifies after rather than before credit downgrade announcements during the 2008 financial crisis. In general, we find that naked short sellers respond to public news and intensify their activity after price declines rather than triggering these price declines. We study the impact of the SEC ban on naked short selling of financial securities during July and August 2008, and find that the ban did not slow the price decline of those securities and had a negative impact on liquidity and pricing efficiency. Finally, after examining the speeds of mean reversion of pricing errors and order imbalances, we infer that Regulation SHO was successful in curbing the impact of manipulative naked short selling, and this reduction in the impact of manipulative naked shorting has continued through the 2008 financial crisis. Overall, our empirical results are in sharp contrast with the extremely negative preconceptions that appear to exist among media commentators and market regulators in relation to naked shortselling. --Naked Short Selling,Short Selling,Pricing Efficiency

Short selling and price discovery in corporate bonds

We show short selling in corporate bonds forecasts future bond returns. Short selling predicts bond returns where private information is more likely, in high-yield bonds, particularly after Lehman’s collapse. Short selling predicts returns following both high and low past bond returns. This, together with short selling increasing following past buying order imbalances, suggests short sellers trade against price pressures as well as trade on information. Short selling predicts bond returns both in the individual bonds that are shorted and in other bonds by the same issuer. Past stock returns and short selling in stocks predict bond returns, but do not eliminate bond short selling predicting bond returns. Bond short selling does not predict the issuer’s stock returns. These results show bond short sellers contribute to efficient bond prices and that short sellers’ information flows from stocks to bonds, but not from bonds to stocks

Essays in Market Microstructure and Risk Management

This dissertation is a collection of three essays that investigates various issues related to market microstructure and risk management. Chapter 1 examines the determinants of traders' decisions to revise orders, and the profitability of traders' order revision strategies using a unique dataset which provides complete information on trades, orders, trader identification codes, and trader categories. The analysis provides three important results. One, informed traders and traders who function as voluntary market makers revise orders most intensely. Two, along with changes in market prices and other market conditions, changes in traders' inventories, including inventories of correlated stocks, influence order revision strategies. Three, informed traders reduce the execution costs of their order portfolios through active order revisions; the benefit is especially pronounced on earnings announcement days, when the value of private information is high. That traders employ revisions to mitigate their order submission, inventory, and adverse selection risks indicates that order revisions are a valuable feature of the rapidly proliferating electronic limit order markets. Chapter 2 examines the impact of the option to fail and the resultant naked short-selling on market quality. For a sample of 1,492 NYSE securities, the study finds that naked short-selling has the same beneficial impact on liquidity and pricing efficiency as covered short-selling. The study does not find any evidence that naked short-sellers engineered price declines or distortions, or triggered the demise of financial firms during the 2008 financial crisis. Hence, the study questions the removal of the option to fail, a potentially valuable tool for limiting settlement-related distortions and stock-borrowing costs of all short-sellers. Chapter 3 examines how the gold and stock markets react to corporate hedging announcements by gold mining firms. The gold market reaction is consistent with the market believing that firms have credible private information about future gold prices, which is puzzling in light of extant evidence that firms cannot successfully time the market when they hedge. After controlling for the gold market announcement effect, the study finds a strong negative (positive) reaction in the stock prices of the firm making the announcement and other gold mining firms to a hedging increase (decrease), suggesting that (a) the announcement also conveys information about a change in the expected cost of financial distress of both the firm and its industry; and (b) any shareholder benefit of a hedging increase is more than offset by the negative news conveyed to shareholders about the change in the firm's prospects, and vice versa. These findings provide new insights into the endogeneity associated with hedging policy changes and its confounding effect on measuring the relation between hedging and the value of the firm

Vibration exposure and transmissibility on dentist's anatomy : a study of micro motors and air-turbines

The use of dental hand pieces endanger dentists to vibration exposure as they are subjected to very high amplitude and vibration frequency. This paper has envisaged a comparative analysis of vibration amplitudes and transmissibility during idling and drilling with micro motor (MM) and air-turbine (AT) hand pieces. The study aims to identify the mean difference in vibration amplitudes during idling, explore different grasp forces while drilling with irrigant injection by the dentist, and various vibration transmission of these hand pieces. The study utilized 22 separate frequency resonances on two new and eight used MMs and two new and eight used ATs of different brands by observing the investigator at 16 different dentist clinics. The study adopted a descriptive research design with non–probability sampling techniques for selecting dentists and hand pieces. Statistical methods like Levene Test of Homogeneity, Welch ANOVA, independent t-test, and Games–Howell test were utilized with SPSS version 22 and MS-Excel. The results reveal that vibration amplitudes and vibration transmissibility when measured at position 2 are higher than in another position 1. Vibrations during idling for used MMs are more than AT hand pieces, and the used MM (MUD) and used AT (AUA) hand pieces differ due to their obsolescence and over-usage. Vibration amplitudes increase every time with the tightening of grasping of the hand piece. Vibration amplitudes for each grasping style of MM hand piece differ from all other grasping styles of AT hand pieces. Routine exposure to consistent vibrations has ill physical, mental, and psychological effects on dentists. The used hand pieces more hazardous as compared to newer ones. The study suggests that these hand pieces must be replaced periodically, sufficient to break between two operations, especially after every hand piece usage. Hence, the present research work can be further extended by creating some control groups among dentists and then studying the vibration amplitude exposure of various dental hand pieces and subsequent transmissibility to their body parts

Multiparent-Derived, Marker-Assisted Introgression Lines of the Elite Indian Rice Cultivar, ‘Krishna Hamsa’ Show Resistance against Bacterial Blight and Blast and Tolerance to Drought

Major biotic stresses viz., bacterial blight (BB) and blast and brown plant hopper (BPH) coupled with abiotic stresses like drought stress, significantly affect rice yields. To address this, marker-assisted intercross (IC) breeding involving multiple donors was used to combine three BB resistance genes—xa5, xa13 and Xa21, two blast resistance genes—Pi9 and Pi54, two BPH resistance genes—Bph20 and Bph21, and four drought tolerant quantitative trait loci (QTL)—qDTY1.1, qDTY2.1, qDTY3.1 and qDTY12.1—in the genetic background of the elite Indian rice cultivar ‘Krishna Hamsa’. Three cycles of selective intercrossing followed by selfing coupled with foreground selection and phenotyping for the target traits resulted in the development of 196 introgression lines (ILs) with a myriad of gene/QTL combinations. Based on the phenotypic reaction, the ILs were classified into seven phenotypic classes of resistance/tolerance to the following: (1) BB, blast and drought—5 ILs; (2) BB and blast—10 ILs; (3) BB and drought—9 ILs; (4) blast and drought—42 ILs; (5) BB—3 ILs; (6) blast—84 ILs; and (7) drought—43 ILs; none of the ILs were resistant to BPH. Positive phenotypic response (resistance) was observed to both BB and blast in 2 ILs, BB in 9 ILs and blast in 64 ILs despite the absence of corresponding R genes. Inheritance of resistance to BB and/or blast in such ILs could be due to the unknown genes from other parents used in the breeding scheme. Negative phenotypic response (susceptibility) was observed in 67 ILs possessing BB-R genes, 9 ILs with blast-R genes and 9 ILs harboring QTLs for drought tolerance. Complex genic interactions and recombination events due to the involvement of multiple donors explain susceptibility in some of the marker positive ILs. The present investigation successfully demonstrates the possibility of rapid development of multiple stress-tolerant/resistant ILs in the elite cultivar background involving multiple donors through selective intercrossing and stringent phenotyping. The 196 ILs in seven phenotypic classes with myriad of gene/QTL combinations will serve as a useful genetic resource in combining multiple biotic and abiotic stress resistance in future breeding programs

The Informativeness of Derivatives Use:Evidence from Corporate Disclosure through Public Announcements

We provide new evidence on the determinants of corporate derivatives use by studying how markets respond to announcements of changes in derivatives positions by gold-mining firms. Announcements of increases or decreases in derivatives positions are associated with, respectively, negative or positive reactions in equity prices for both the announcing firm and other gold-mining firms, and, respectively, negative or positive reactions in the gold market. The reactions in the gold market and stock market (both firm and industry) are significantly more positive or negative, respectively, when firms explicitly state that they are decreasing or increasing derivatives positions due to changes in their market views of future gold prices. We help bridge an important gap in the literature by providing evidence consistent with some firms possessing credible private information that underlies changes in their derivatives positions, despite the absence of documented shareholder benefits created by firms that engage in selective hedging. Our findings also provide support for distress-cost minimization as a rationale for corporate derivatives use