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on Market Microstructure |
| By: | Ricardo Lagos; Guillaume Rocheteau; Pierre-Olivier Weill |
| Abstract: | We study the dynamics of liquidity provision by dealers during an asset market crash, described as a temporary negative shock to investors’ aggregate asset demand. We consider a class of dynamic market settings where dealers can trade continuously with each other, while trading between dealers and investors is subject to delays and involves bargaining. We derive conditions on fundamentals, such as preferences, market structure and the characteristics of the market crash (e.g., severity, persistence) under which dealers provide liquidity to investors following the crash. We also characterize the conditions under which dealers’ incentives to provide liquidity are consistent with market efficiency. |
| Keywords: | Assets (Accounting) - Prices ; Portfolio management ; Financial crises ; Liquidity (Economics) |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0708&r=mst |
| By: | Priit Sander |
| Abstract: | This paper examines the trading pattern around the ex-dividend day in the Estonian stock market between 2000 and 2006. An analysis of the Estonian income tax law confirmed that despite its simplicity there exists differential treatment of capital gains and dividends as well as tax heterogeneity among investors. An empirical analysis of the trading data showed a statistically significant abnormal trading volume around the ex-dividend day. By putting these two aspects together and investigating short-term changes in ownership structure around the ex-dividend day it can be concluded that in the Estonian stock market investors use dynamic tax-induced trading strategies around the ex-dividend day. The occurrence of the learning effect and avoidance of transaction costs were also revealed by an analysis of these transactions. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:54&r=mst |
| By: | Patarick Leoni (Economics Department, National University of Ireland, Maynooth) |
| Abstract: | In a typical IPO game with first-price auctions, we argue that risk-averse investors always underbid in equilibrium because of subjective interpretations of the firm' communication about its actual value and resulting risk aversion about the likelihood of facing investors with higher valuations. We show that the noisier the investors' inferences of the firm' value (in the sense of first-order stochastic dominance) the higher the underbidding level. Our finding is independent of winner's curse effects and possible irrationality, and allows for a testable theory. |
| Keywords: | IPO underpricing; first-price auction; risk aversion; firm' communication |
| JEL: | C7 D81 G12 G32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n1770807&r=mst |