nep-cfn New Economics Papers
on Corporate Finance
Issue of 2014‒03‒01
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Throttling hyperactive robots - Message to trade ratios at the Oslo Stock Exchange By Jørgensen, Kjell; Skjeltorp, Johannes Atle; Ødegaard, Bernt Arne
  2. Mortgage Loan Characteristics , Unobserved Heterogeneity and the Performance of United Kingdom Securitised Sub-Prime Loans By Lanot, Gauthier; Leece, David

  1. By: Jørgensen, Kjell (Norwegian Business School (BI) and University of Stavanger); Skjeltorp, Johannes Atle (Norges Bank); Ødegaard, Bernt Arne (University of Stavanger (UiS) and Norwegian School of Economics (NHH))
    Abstract: We use the introduction of a cost on high message to trade ratios for traders at the Oslo Stock Exchange to investigate the effects on market quality and fragmentation of introduction of such ``speed bumps'' to equity trading. The exchange introduced a fee payable by market participants whose orders (messages to the exchange's trade system) exceeded seventy times the number of consummated trades. Market participants quickly adjusted their behavior to avoid paying the extra cost. The overall ratios of messages to trades fell, but common measures of the quality of trading, such as liquidity, transaction costs, and realized volatility, did not deteriorate, they were essentially unchanged. This is a policy intervention where we can match the treated sample (OSE listed stocks) with the same assets traded elsewhere. We can therefore do a ``diff in diff'' analysis of liquidity in Oslo compared with liquidity of the same asset traded on other exchanges. Surprisingly, we see that liquidity, as measured by the spread, deteriorated on alternative market places when the tax was introduced, a tax that is only valid for trading at the OSE. The spread is the only liquidity measure for which we observe this difference between the OSE and other markets, for depth and turnover we do not find any differences between other markets and the OSE.
    Keywords: High Frequency Trading; Regulation; Message to Trade Ratio; Order to Trade Ratio
    JEL: G10 G20
    Date: 2014–02–18
  2. By: Lanot, Gauthier (Department of Economics, Umeå School of Business and Economics,); Leece, David (Keele Management School)
    Abstract: The research estimates a competing risk model of mortgage terminations on samples of UK securitised subprime mortgages. Given the argued role of these types of loan in the recent financial crisis then it is important to better understand their performance and supposed idiosyncratic behaviour. The methodological and empirical advance is the use of a general, flexible modelling of unobserved heterogeneity over several dimensions, controlling for both selection issues involving initial mortgage choices and dynamic selection over time. Moreover, we estimate specific coefficients for this unobserved heterogeneity and determine the correlation between the unobserved components of default and prepayment. The paper demonstrates the need for researchers and practitioners to jointly estimate household choices whiles controlling for selectivity through unobserved heterogeneity.
    Keywords: Subprime mortgages; unobserved heterogeneity; household behaviour; loan performance
    JEL: C13 C25 C51 D10 D14 E44 G21
    Date: 2014–02–20

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