Interaction model for magnetic holes in a ferrofluid layer

Nonmagnetic spheres confined in a ferrofluid layer (magnetic holes) present dipolar interactions when an external magnetic field is exerted. The interaction potential of a microsphere pair is derived analytically, with a precise care for the boundary conditions along the glass plates confining the system. Considering external fields consisting of a constant normal component and a high frequency rotating in-plane component, this interaction potential is averaged over time to exhibit the average interparticular forces acting when the imposed frequency exceeds the inverse of the viscous relaxation time of the system. The existence of an equilibrium configuration without contact between the particles is demonstrated for a whole range of exciting fields, and the equilibrium separation distance depending on the structure of the external field is established. The stability of the system under out-of-plane buckling is also studied. The dynamics of such a particle pair is simulated and validated by experiments.Comment: 15 pages, 11 figures (18 with subfigures). to appear in Phys. Rev.

Strategic Investor Behaviour and the Volume-Volatility Relation in Equity Markets

We examine the volume-volatility relation using detailed data from a limit order driven equity market. Estimates of the intraday slope of the demand and supply schedules of the order book are found to capture regularities in spreads, trade size and submission strategies which are believed to be related to asymmetric information. On a daily level, the order book slope should also captures differences in dispersion of beliefs about stock values. The relationship between our daily slope measure and the contemporaneous volatility across companies and time supports models where strategic trading and dispersion of beliefs increase both volume and volatility.Market Microstructure; Volume-volatility relation; Equity trading; Asymmetric Information

The information content of market liquidity: An empirical analysis of liquidity at the Oslo Stock Exchange

We investigate the information content of aggregate stock market liquidity and ask whether it may be a useful realtime indicator, both for financial stress, and real economic activity in Norway. We describe the development in a set of liquidity proxies at the Oslo Stock Exchange (OSE) for the period 1980-2008, with particular focus on crisis period 2007 through 2008, showing how market liquidity and trading activity changed for the whole market as well as for individual industry sectors. We also evaluate the predictive power of market liquidity for economic growth both in-sample and out-of-sample.Liquidity; Business Cycles; Financial crisis; Economic Activity

Why do firms pay for liquidity provision in limit order markets?

In recent years, a number of electronic limit order have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper we ask why firms are willing to pay to improve the secondary market liquidity of its shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find some evidence of agency costs, managers desiring good liquidity when they plan insider trades.Market microstructure; Corporate Finance; Designated Market Makers; Insider Trading

The ownership structure of repurchasing firms

This paper provides an examination of the ownership structure in Norwegian firms that announced repurchase plans during the period 1999 through 2001, as well as for groups of these firms conditional on whether they actually executed repurchases or not. By using detailed information on various ownership variables that can be related to corporate governance mechanisms, the paper also examines whether the propensity for firms to announce a repurchase program depends on the ownership composition. Some interesting patterns are found which are consistent with models where firms with potentially the highest agency problems use repurchases to mitigate agency costs. However, a high insider ownership in these firms may also suggest that asymmetric information, shareholder expropriation and entrenchment may also be motivations for why firms repurchase shares.Stock repurchases, ownership structure, corporate governance

Liquidity and the Business Cycle

We show evidence of a contemporaneous relation between stock market liquidity and the business cycle. Stock market liquidity worsen when the economy is slowing down, and vice versa. This effect is most pronounced for small firms. Using data for both the US and Norway, we find strong evidence that stock market liquidity predict the current and future state of the economy. We also show some evidence that can shed light on the link between stock markets and the real economy. Using stock ownership data from Norway, we find that the portfolio compositions of investors change with the business cycle. Our results suggests a flight to quality during economic downturns where equity traders move from smaller/less liquid stocks to large/liquid stocks. Our results suggest that an important explanation for the equity premium in general, and the equity size premium in particular, may be related to time variation in stock market liquidity at business cycle frequencies.Market Microstructure; Liquidity; Business Cycle

The Risk Components of Liquidity

Does liquidity risk differ depending on our choice of liquidity proxy? Unlike literature that considers common liquidity variation, we focus on identifying different components of liquidity, statistically and economically, using more than a decade of US transaction data. We identify three main statistical liquidity factors which are utilized in a linear asset pricing framework. We motivate a correspondence of the statistical factors to traditional dimensions of liquidity as well as the notion of order and trade based liquidity measures. We find evidence of multiple liquidity risk premia, but only a subset of the financial liquidity factors are associated with significant risk premia. These are the factors that we relate to the dimensions of immediacy and resilliency, while the depth dimension does not command a risk premium in any of the models. Our results suggests caution when choosing liquidity variables in asset pricing applications, since liquidity premia may be reflected in only some dimensions of liquidity.Liquidity Risk; Liquidity Factors; Asset Pricing; Market Microstructure

What factors affect the Oslo Stock Exchange?

This paper analyzes return patterns and determinants at the Oslo Stock Exchange (OSE) in the period 1980--2006. We find that a three-factor model containing the market, a size factor and a liquidity factor provides a reasonable fit for the cross-section of Norwegian stock returns. As expected, oil prices significantly affect cash flows of most industry sectors at the OSE. Oil is, however, not a priced risk factor in the Norwegian stock market. As the case in many other countries, we find that macroeconomic variables affect stock prices, but since we find only weak evidence of these variables being priced in the market, the most reasonable channel for these effects is through company cash flows.Stock Market Valuation; Asset Pricing; Factor Models; Generalized Method of Moments

Throttling hyperactive robots – order-to-trade ratios at the Oslo Stock Exchange

This version is made available in accordance with publisher policies. It is the author’s last version of the article after peer-review, usually referred to as postprint or accepted version. Please cite only the published version.We investigate the effects of introducing a fee on excessive order-to-trade ratios (OTRs) on market quality at the Oslo Stock Exchange (OSE). We find that traders reacted to the regulation as measured OTRs fell. However, market quality, measured with depth, spreads, and realized volatility, remain largely unaffected. This result differs sharply from the experience in other markets, such as Italy and Canada, where similar regulatory changes have been accompanied by a worsening of liquidity. The unchanged market quality at the OSE is likely due to the different design of the regulation, which is tailored to encourage liquidity supply.acceptedVersio

Identifying Cross-Sided Liquidity Externalities

__Abstract__ We study the relevance of the cross-sided externality between liquidity makers and takers from the two-sided market perspective. We use exogenous changes in the make/take fee structure, minimum tick-size and technological shocks for liquidity takers and makers, as experiments to identify cross-sided complementarities between liquidity makers and takers in the U.S. equity market. We find that the externality is on average positive, but it decreases with adverse selection. We quantify the economic significance of the externality by evaluating an exchange's revenue after a make/take fee change