Abstract not found

Abstract not found

In this paper we investigate the relation between price impact and trading volume for a sample of illiquid stocks listed on the New York Stock Exchange. The parametric VAR-models that have been used in the literature starting with Hasbrouck (1991a, 1991b) impose strong proportionality and symmetry restrictions on the price impact of trades, although market microstructure theory provides many reasons why these restrictions would not hold. We analyze a more flexible semiparametric partially linear specification and establish significant evidence for a nonlinear, asymmetric, and concave relation between trading volume and both temporary and persistent price impact. Moreover, we compare the price-impact functions obtained in the partially linear model to the ones generated by the parametric models and show that there are considerable differences. We test the parametric specifications against the partially linear model and show that the parametric models are rejected in favor of the semiparametric model. We also test the partially linear model against a more flexible fully nonparametric specification and show that this test does not reject the partially linear model.

We would like to thank Kee-Hong Bae, Ananth Madhavan, and the seminar participants at Korea University for their helpful comments. We also thank the City University of Hong Kong for its generous

In this paper, we examine whether there is more informed trading in an anonymous market than in a non-anonymous market. It is widely believed that institutional traders prefer to trade in an anonymous environment, whereas market markers in a non-anonymous setting protect themselves by diverting informed trades to other trading venues. We conduct our analysis by using the unique institutional characteristics of the London Stock Exchange where an anonymous electronic order book market (SETS) operates alongside a non-anonymous voluntarily dealer market. We measure asymmetric information using metrics based on both trade flow (PIN) and priceimpact. Whereas PIN is equal on the markets, our evidence regarding the price impact of trades shows strong support for the ability of dealers to identify informed order flow. The permanent price impact of trades is significantly lower on the Dealer market than on SETS suggesting that informed traders do not benefit a lot from dealers. We also find that the Dealer market can compete effectively with SETS for uninformed order flow. Institutions also appear to prefer trading with dealers as most large trades are routed to the Dealer market and such sizes are not obtainable on SETS. Finally, we show that the temporary price impact of trades on the Dealer market is significantly larger than on SETS, indicating that liquidity for large trades, can be acquired on the Dealer market, but it comes at a considerable cost. 2

This paper reviews and computes several liquidity proxies on twentynine stocks of Euronext. With principal component analysis, we found that three principal components are necessary to capture around 70% of the total variance of liquidity. It confirms the fact that actual liquidity has several dimensions. None of these dimension is driven solely by prices nor quantities. The characteristics of (orthogonal) principal components suggest particular mix of liquidity proxies to investigate how liquid a stock is. The liquidity function and price impact on ask and buy side play key roles all together. With factor analysis, we identify co-movement of liquidity proxies across stocks suggesting comovement of liquidity. A common factor explains 17 % of the variance of the cost of simultaneously buying and selling 1.5 time the average volume traded for each stock. 1

In this paper, we examine trading on the London Stock Exchange where the same stocks trade side-by-side on the computer-based Stock Exchange Trading System (SETS) and the Dealer market. Both markets are successful. SETS has more trades overall, but the Dealer market has larger trades and dominates the execution of very large sized trades. Dealers are able to screen out informed orders as evident from the fact the permanent price impact of trades is much larger on SETS than on the Dealer market. However, the temporary price impact of trades is significantly larger on the Dealer market than on SETS, indicating that liquidity can be purchased on the Dealer market, but at a significant cost. 2

This paper examines the price impact of trading intensity on an emerging futures market. Utilizing a novel volume-augmented duration model of price discovery, the intensity effect is decomposed into liquidity and information components for the MexDer 28-day interest rate futures contract. We find that the duration between transactions exerts a positive influence on price changes. Increases in order flow and trade volume exert a positive and negative influence on price changes, respectively. The liquidity and information coefficients exhibit a contrasting effect on returns. The dominance of the liquidity component suggests that it is the liquidity traders who dictate the time to trade.

costs in an electronic call auction in the