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Market Makers (market + maker)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	89%
2 Other Domains	11%

Selected Abstracts

FROM DISCRETE-TIME MODELS TO CONTINUOUS-TIME, ASYNCHRONOUS MODELING OF FINANCIAL MARKETS

COMPUTATIONAL INTELLIGENCE, Issue 2 2007
Katalin Boer
Most agent-based simulation models of financial markets are discrete-time in nature. In this paper, we investigate to what degree such models are extensible to continuous-time, asynchronous modeling of financial markets. We study the behavior of a learning market maker in a market with information asymmetry, and investigate the difference caused in the market dynamics between the discrete-time simulation and continuous-time, asynchronous simulation. We show that the characteristics of the market prices are different in the two cases, and observe that additional information is being revealed in the continuous-time, asynchronous models, which can be acted upon by the agents in such models. Because most financial markets are continuous and asynchronous in nature, our results indicate that explicit consideration of this fundamental characteristic of financial markets cannot be ignored in their agent-based modeling. [source]

Competition and Market Structure of National Association of Securities Dealers Automated Quotations

INTERNATIONAL REVIEW OF FINANCE, Issue 3-4 2007
YOUNGSOO KIM
ABSTRACT In this paper, we study the relation among market structure, trading costs, and competition in National Association of Securities Dealers Automated Quotations (NASDAQ). In particular, we address the following questions: Do NASDAQ dealers exercise market power and extract economic rents in setting bid-ask spread? How persistent is the market power of dominant dealers? Our estimate of the rent is approximately ¢8.76, or 0.54% of stock price. The half-life of the persistence of this rent is approximately 20 months for the entire sample, while the half-life of younger stocks tend to be shorter than those of more mature stocks. Our result supports Schultz: NASDAQ dealers make markets only for stocks where they have competitive advantages in accessing order flow and in information. It might take a while before a market maker poses effective competition to existing dominant market makers. In the meantime, incumbent market makers are able to exercise market power and appear to earn abnormally large profits. [source]

Efficiency of single-stock futures: An intraday analysis

THE JOURNAL OF FUTURES MARKETS, Issue 6 2008
Joseph K.W. Fung
Using intraday bid,ask quotes of single-stock futures (SSFs) contracts and the underlying stocks, the pricing and informational efficiency of SSF traded on the Hong Kong Exchange are examined. Both the SSFs and the stocks are traded on electronic platforms. The market microstructure and the data obviate the problems of stale and non-executable prices as well as uncertain bid,ask bounce of the thinly traded futures contracts. Nominal price comparisons show that more than 80% of SSF quotes are inferior to stock quotes. More than 99% of the observed futures spreads are above one stock tick compared with only 2% of those for stocks. After adjusting for the cost-of-carry, however, SSFs are fairly priced. Given higher stock trading costs, non-members should even find the futures attractively priced. Thus, the absence of competitive market maker does not bias prices so as to discourage trading. SSF quotes also account for one-third of price discovery despite their low volume. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:518,536, 2008 [source]

Do designated market makers improve liquidity in open-outcry futures markets?

THE JOURNAL OF FUTURES MARKETS, Issue 5 2004
Yiuman Tse
On February 1, 2002, the Chicago Board of Trade appointed a designated market maker to enhance liquidity in its 10-year interest rate swap futures contract. This market-making program is the first of its kind in the open-outcry futures industry. We find that introduction of the market maker has increased volume and reduced transaction costs. The market maker has also enhanced the speed and the efficiency of price discovery. Overall, the results suggest that the market-making program is successful in improving liquidity. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:479,502, 2004 [source]

Hedging under the influence of transaction costs: An empirical investigation on FTSE 100 index options

THE JOURNAL OF FUTURES MARKETS, Issue 5 2007
Andros Gregoriou
The Black,Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid- (the average of the ask and the bid) price. In this article the authors consider the Financial Times and London Stock Exchange (FTSE) 100 Index Options for the time period 1992,1997. They estimate the ask and bid prices for the index, and show that, when substituted for the mid-price in the BS formula, they provide superior option price predictors, for call and put options, respectively. This result is reinforced further when they .t a non-parametric neural network model to market prices of liquid options. The empirical .ndings in this article suggest that the ask and bid prices of the underlying asset provide a superior fit to the mid/closing price because they include market maker's, compensation for providing liquidity in the market for constituent stocks of the FTSE 100 index. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:471,494, 2007 [source]

Price Movers on the Stock Exchange of Thailand: Evidence from a Fully Automated Order-Driven Market

FINANCIAL REVIEW, Issue 3 2010
Charlie Charoenwong
G12; G14; G15 Abstract This study examines which trade sizes move stock prices on the Stock Exchange of Thailand (SET), a pure limit order market, over two distinct market conditions of bull and bear. Using intraday data, the study finds that large-sized trades (i.e., those larger than the 75th percentile) account for a disproportionately large impact on changes in traded and quoted prices. The finding remains even after it has been subjected to a battery of robustness checks. In contrast, the results of studies conducted in the United States show that informed traders employ trade sizes falling between the 40th and 95th percentiles (Barclay and Warner, 1993; Chakravarty, 2001). Our results support the hypothesis that informed traders in a pure limit order market, such as the SET, where there are no market makers, also use larger-size trades than those employed by informed traders in the United States. [source]

Short Selling and the Weekend Effect in Nasdaq Stock Returns

FINANCIAL REVIEW, Issue 1 2009
Stephen E. Christophe
G10; G11 Abstract We examine daily short selling of Nasdaq stocks to explore whether speculative short selling causes a significant portion of the weekend effect in returns. We identify a weekend effect in speculative short selling whereby it constitutes a larger percentage of trading volume on Mondays versus Fridays. We find an opposite effect in dealer short selling, consistent with market makers adding liquidity and stability. Our main finding is that speculative short selling does not explain an economically meaningful portion of the weekend effect in returns, even among the firms most that are most actively shorted. This finding contradicts some prior studies. [source]

Is Off,Board Trading Detrimental to Market Liquidity?

FINANCIAL REVIEW, Issue 3 2002
Joanne Hamet
Dual trading can have opposite effects: although competition between markets should induce dealers to offer cheaper transactions, market fragmentation could reduce market activity, liquidity, and exchange efficiency. This paper shows that for French stocks traded on the London Stock Exchange's SEAQ International (SEAQ,I), market activity decreases significantly in the Paris Bourse during UK bank holidays. Thus, SEAQ,I market makers seem to divert a new clientele to the Paris Bourse, increasing both market activity and the breadth of the Bourse's order book. Also, contrary to the fragmentation hypothesis, dual trading does not seem to increase information asymmetry. [source]

Competition and Market Structure of National Association of Securities Dealers Automated Quotations

Spatial segregation, segregation indices and the geographical perspective

POPULATION, SPACE AND PLACE (PREVIOUSLY:-INT JOURNAL OF POPULATION GEOGRAPHY), Issue 2 2006
Lawrence A. Brown
Abstract What could be more inherently geographical than segregation? However, the richness of the spatial variations in segregation is seldom captured by the dominant genre of empirical research. Returning the ,geography' to segregation research, we argue that local areas need to be given considerably more attention, using measures that explicitly reveal the spatial fabric of residential clustering along racial/ethnic lines. We first critique global measures such as the Dissimilarity Index and its spatial counterparts. Attention then turns to local measures such as the Location Quotient and Local Moran's I, applying them to Franklin County, Ohio, the core of Columbus MSA (Metropolitan Statistical Area). Our interpretation of the findings also employs local knowledge concerning neighbourhood characteristics, ongoing urban processes, historical occurrences, and the like. Thus, while local indices based on secondary data expose the terrain of clustering/segregation, follow-up fieldwork and/or secondary data analysis in a mixed-methods framework provides a better understanding of the ground-level reality of clustering/segregation. Tangible evidence of the gain from this approach is provided by our evaluation of conventional frameworks for understanding racial/ethnic aspects of residential patterning , assimilation, stratification and resurgent ethnicity , and in our proposal for a new framework, ,market-led pluralism', which focuses on market makers who represent the supply side of housing. Copyright © 2006 John Wiley & Sons, Ltd. [source]

Getting Out Early: An Analysis of Market Making Activity at the Recommending Analyst's Firm

THE JOURNAL OF FINANCE, Issue 5 2009
JENNIFER L. JUERGENS
ABSTRACT This paper examines trading volume for Nasdaq market makers around analyst recommendation changes issued by an analyst at the same firm. Using Nasdaq PostData, we find a disproportionate increase in market making volume associated with the firm's recommendation changes and evidence of elevated sell volume at the recommending analyst's firm in the 2 days preceding a downgrade. The implications are that the information source matters in determining the placement of trades and that the issuing analyst's firm appears to be rewarded for prereleasing information through increased volume. These findings constitute new evidence of compensation for research production through the market making channel. [source]

Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter

THE JOURNAL OF FINANCE, Issue 6 2000
Reena Aggarwal
We examine the price discovery process of initial public offerings (IPOs) using a unique dataset. The first quote entered by the lead underwriter in the five-minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO. [source]

TRADER EXPLOITATION OF ORDER FLOW INFORMATION DURING THE LTCM CRISIS

THE JOURNAL OF FINANCIAL RESEARCH, Issue 3 2009
Fang Cai
Abstract By using a unique data set of audit trail transactions, I examine the trading behavior of market makers in the Treasury-bond futures market during the Long-Term Capital Management (LTCM) crisis in 1998. I find strong evidence that during the crisis market makers in the aggregate engaged in anticipatory trading against customer orders from a particular clearing firm (coded PI7) that closely match various features of LTCM's trades through Bear Stearns. I also show that a significant percentage of market makers made abnormal profits during the crisis. Their aggregate abnormal profits, however, were more than offset by abnormal losses following the recapitalization of LTCM. [source]

DO TRACKING STOCKS REDUCE INFORMATION ASYMMETRIES?

THE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2005
AN ANALYSIS OF LIQUIDITY AND ADVERSE SELECTION
Abstract A firm's announcement that it intends to restructure based on tracking stock is usually associated with a positive stock price reaction, at least in the short run. Typically, this reaction is attributed to expected reductions in a diversification discount, through reduced agency costs or information asymmetries. We reinvestigate this latter hypothesis by focusing on the liquidity provided by market makers before and after a firm issues a tracking stock. Our results suggest that such restructurings are not effective at reducing information asymmetries. Rather, firms that issue tracking stocks exhibit less liquidity and greater adverse selection than comparable control firms. [source]

The impact of off-market trading on liquidity: Evidence from the Australian options market

THE JOURNAL OF FUTURES MARKETS, Issue 4 2010
Andrew Lepone
This study investigates the impact of reducing the contract size threshold for off-market trading on transaction costs in an options market. This study provides evidence that market makers compete more aggressively for small-to-medium trades and quote mid-size depths more often after the regime change. Results also indicate that small-to-medium trades incur lower transaction costs; however, large trades that are executed on the central limit order book do not benefit from the structural transition. Given recent frictions imposed by regulators on equity markets, these results suggest that options markets provide an effective means for investors to replicate short-selling in underlying securities. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:361,377, 2010 [source]

Information flows and option bid/ask spreads

THE JOURNAL OF FUTURES MARKETS, Issue 12 2005
Fredrik Berchtold
This study analyzes two types of information flows in financial markets. The first type represents return information, where informed investors know whether the stock price will increase or decrease. The second type is labeled volatility information, where the direction of the stock price is unknown, but informed investors know that the stock price either will increase or decrease. Both information flows are estimated within the GARCH framework, approximated with the use of Swedish OMX stockindex and options strangle return shocks, respectively. The results show significant conditional stock-index and options strangle variance, although with notable differences. Stock-index return shocks exhibit a high level of variance persistence and an asymmetric initial impact to the variance. Option strangle shocks have a relatively low persistence level, but a higher and more symmetric initial impact. A time-series regression of call and put option bid/ask spreads is performed, relating the spreads to the information flows and other explanatory variables. The results show that call and put option bid/ask spreads are related to stock-index and options strangle return shocks, as well as the conditional stock-index variance. This is consistent with the view that market makers alter option spreads in response to return and volatility information flows, as well as the conditional stock-index variance.© 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1147,1172, 2005 [source]