nep-fmk New Economics Papers
on Financial Markets
Issue of 2018‒02‒12
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Blockchain-based Settlement for Asset Trading By Jonathan Chiu; Thorsten Koeppl
  2. The real value of China’s stock market By Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
  3. Does Investor Attention Affect Trading Volume In The Brazilian Stock Market? By Heloisa Elias de Souza; Claudio Henrique da Silveira Barbedo; Gustavo Silva Araujo

  1. By: Jonathan Chiu (Bank of Canada); Thorsten Koeppl (Queen's University)
    Abstract: Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery-vs-payment by linking transfers of assets with payments and operates via a Proof-of-Work protocol. The main problem is to overcome settlement fails where participants fork the chain to get rid of trading losses. To deter forking, the blockchain needs to restrict block size and block time in order to generate sufficient transaction fees which finance costly mining. We show that large enough trading volume, sufficiently strong preferences for fast settlement and limited trade size and risk are necessary conditions for blockchain-based settlement to be feasible. Despite mining being a deadweight cost, our estimates based on the market for US corporate debt show that gains from moving to faster and more exible settlement are in the range of 1-4 bps relative to existing legacy settlement systems.
    Keywords: Securities Settlement, Blockchain, Block Size, Block Time, Transaction Fees, Club Good
    JEL: G2 H4 P43
    Date: 2018–01
  2. By: Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
    Abstract: This paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment e ciency. For international investors, China's stock market offers high average returns and low correlation with other equity markets.
    JEL: E44 F30 G12 G14 G15 O16 O53 P21 P34
    Date: 2018–01–19
  3. By: Heloisa Elias de Souza; Claudio Henrique da Silveira Barbedo; Gustavo Silva Araujo
    Abstract: Given the large amount of information available about companies and stocks, investors have to be selective about the information they process. This behavior is related to the attention effect, which comes from the natural human incapacity to process all existing information. The aim of this paper is to investigate the relationship between a proxy of attention effect, media coverage, and trading volume in the Brazilian stock market. Media coverage may attract unsophisticated investors. The results suggest that, in periods with high stock index level, there is a strong positive reaction of the trading volume on the same day of the news release in printed newspapers. Moreover, this relation occurs only if the news is negative for the firm. In addition, less visible companies in the media are more susceptible to the attention effect when news is more widespread
    Date: 2018–01

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