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on Financial Markets |
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Issue of 2017‒10‒08
six papers chosen by |
| By: | Raffaello Bronzini (Bank of Italy); Giampaolo Caramellino (London School of Economics); Silvia Magri (Bank of Italy) |
| Abstract: | Italian startups financed by venture capitalists (VCs) experience a faster growth in size and become more innovative compared with other startups. VC-backed firms also show a much larger increase in equity and a reduction in their leverage. This evidence is obtained by comparing a representative sample of firms financed by private VCs in the period 2004-2014 with a sample of firms rejected by VC at the very last stage of the screening process or in the due diligence phase. These firms narrowly lost the contest and before VC financing have very similar observable and unobservable characteristics to the VC-backed firms; self-selection is specifically taken into account. The effects on firms' size and innovation are not exclusively explained by equity financing. The results hold when we restrict the comparison to firms in the control group that also increase their equity from investors other than VCs: this suggests that VC effects can also be linked to their managerial expertise and network connection. Finally, the results are exclusively driven by independent VC investors compared with captive VCs. |
| Keywords: | venture capital, innovation, firm financial structure, differences-in-differences |
| JEL: | G21 G24 G32 O30 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1131_17&r=fmk |
| By: | Kartik Anand; Jonathan Khedair; Reimer Kuehn |
| Abstract: | In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian motion model. It is formally equivalent to a model describing the stochastic dynamics of a system of analogue neurons, which is expected to exhibit glassy properties and thus many meta-stable states in a large portion of its parameter space. We perform a generating functional analysis, introducing a slow driving of the dynamics to mimic the effect of slowly varying macro-economic conditions. Distributions of asset returns over various time separations are evaluated analytically and are found to be fat-tailed in a manner broadly in line with empirical observations. Our model also allows to identify collective, interaction mediated properties of pricing distributions and it predicts pricing distributions which are significantly broader than their non-interacting counterparts, if interactions between prices in the model contain a ferro-magnetic bias. Using simulations, we are able to substantiate one of the main hypotheses underlying the original modelling, viz. that the phenomenon of volatility clustering can be rationalised in terms of an interplay between the dynamics within meta-stable states and the dynamics of occasional transitions between them. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1709.10277&r=fmk |
| By: | Vincent van Kervel (Pontificia Universidad Católica de Chile); Albert J. Menkveld (VU University Amsterdam; Tinbergen Institute, The Netherlands) |
| Abstract: | Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading "with the wind," that is, in the same direction. We find that HFTs initially lean against these orders but eventually change direction and take position in the same direction for the most informed institutional orders. Our empirical findings are consistent with investors trading strategically on their information. When deciding trade intensity, they seem to trade off higher speculative profit against higher risk of detection by HFTs and being preyed on. |
| Keywords: | High-frequency traders; institutional investors; trading patterns; transaction cost |
| JEL: | G10 G14 G15 |
| Date: | 2017–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170092&r=fmk |
| By: | Dare, Wale |
| Abstract: | We argue empirically that the U.S. treasury futures market is informational inefficient. We show that an intraday strategy based on the assumption of cointegrated treasury futures prices earns statistically significant excess return over the equally weighted portfolio of treasury futures. We also provide empirical backing for the claim that the same strategy, financed by taking a short position in the 2-Year treasury futures contract, gives rise to a statistical arbitrage. |
| Keywords: | Market efficiency, U.S. treasury futures, statistical arbitrage, joint-hypothesis |
| JEL: | C12 G13 G14 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2017:16&r=fmk |
| By: | Marcus Miller (University of Warwick); Lei Zhang (Songklod Rastapana); Songklod Rastapana (University of Warwick) |
| Abstract: | In this paper, we explore three specific aspects of the US subprime crisis, using both theoretical models and the outcome of subsequent legal proceedings. First, the role of pecuniary externalities in amplifying shocks to the quality of MBS held by Investment Banks. Second, the role of adverse selection in the marketing of such assets by Investment Banks; and third the role of financial panic in making shadow banking disaster prone. The relevance of these differing perspectives is attested by the nature of state support and, more especially, the findings of law courts. Janet Yellen has recently argued that the vulnerabilities within the US financial system in the mid-2000s were “numerous and familiar from past financial panics”. That the aforementioned threats to stability should be complements and not substitutes is of more than technical interest. It helps to show why the US financial system was so exposed to radical failure.Keywords: Financial Instability, Pecuniary Externalities, Asymmetric Information, Bank run JEL Classification: D52, D53, G01, G12, G13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:340&r=fmk |
| By: | Holzmann, Carolin; Scholz, Hendrik; Kreidl, Felix; Büttner, Thiess |
| Abstract: | The paper explores the effect of cum-ex trading on the stock market on ex-dividend days. A loophole in the German withholding tax system until 2011 enabled cum-ex traders to achieve the issuance of cash-equivalent withholding-tax certificates without previous tax payment. The paper discusses the implications for the capital market equilibrium and derives empirical predictions for stock market behavior. The results indicate a major impact of the loophole on the capital market and trading volumes. |
| JEL: | H25 H26 G12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168242&r=fmk |