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on Market Microstructure |
| By: | Bacha, Obiyathulla I.; Mohamed, Eskandar R.; Ramlee, Roslily |
| Abstract: | This paper undertakes a comprehensive evaluation of the efficacy of firm-specific trading halts in the Malaysian context. The paper examines a total of 291 trading halts that occurred over the five year period 2000 to 2004. In addition to examining the three variables commonly impacted by trading halts, stock price reaction, volatility of returns and trading volume, we also examine four additional parameters that could have material impact. These are (i) the type of halt whether voluntary or mandatory, (ii) type of news released, (iii) duration of halt and (iv) frequency. Based on our overall sample, trading halts result in a positive price reaction, increased volume and volatility. We find evidence of information leakage, significant difference between voluntary and mandatory halts and the type of news released during halt to have a huge impact. The duration of halt has isolated impact and is largely inconsequential. The frequency of halts does not seem to matter. While these results broadly conform with previous studies of trading halts in other markets, our refined analysis by subcategory showed some interesting differences. The two key differences were the significantly positive price reaction for the sample of mandatory halts and the lower volatility for voluntary halts. We attribute the positive price reaction of mandatory halts to the peculiarity of regulation and the resulting survivor bias. We argue that the lower volatility for voluntary halts particularly for those in the good news category, imply that these stocks are being repriced. With the exception of some subsets, our overall results appear to be strongly supportive of The Price Efficiency hypothesis of trading halts which argues that trading halts help disseminate information and enhance the price discovery process. |
| Keywords: | The effectiveness of firm specific stock trading halts. Malaysian Evidence. |
| JEL: | G14 G19 G10 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13077&r=mst |
| By: | Marc Hallin; Charles Mathias; Hugues Pirotte; David Veredas |
| Abstract: | We study market liquidity via daily close relative spreads and daily traded volumes in a sample of 426 S&P500 constituents recorded over the years 2004-2006, a period of “normal” liquidity conditions. We use recent results on the Generalized Dynamic Factor Model (GDFM) with block structure to provide a sound definition of unobservable market liquidity and to assess the complementarity of those two liquidity measures. The advantage of defining market liquidity as dynamic factors is that, contrary to other definitions that can be found in the literature, it tackles time dependence and commonness at the same time, without making any restrictive assumptions on the underlying data generating process. Both relative spread and volume in the dataset under study appear to be driven by the same one-dimensional common shocks, which therefore naturally qualify as the unobservable market liquidity shocks. |
| Keywords: | Commonality, liquidity, equities, factor models, block structure |
| JEL: | C33 C51 G10 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2009_004&r=mst |
| By: | Patrick E. McCabe |
| Abstract: | I examine the economic incentives behind the mutual fund trading scandal, which made headlines in late 2003 with news that several asset management companies had arranged to allow abusive--and, in some cases, illegal--trades in their mutual funds. Most of the gains from these trades went to the traders who pursued market-timing and late-trading strategies. The costs were largely borne by buy-and-hold investors, and, eventually, by the management companies themselves. ; A puzzle emerges when one examines the scandal from the perspective of those management companies. In the short run, they collected additional fee revenue from arrangements allowing abusive trades. When those deals were revealed, investors redeemed shares en masse and revenues plummeted; management companies clearly made poor decisions, ex post. However, my analysis indicates that those arrangements were also uneconomic, ex ante, because--even if the management companies had expected never to be caught--estimated revenue from the deals fell well short of the present value of expected lost revenues due to poor performance in abused funds. ; Why some of the mutual fund industry's largest firms chose to collude with abusive traders remains something of a mystery. I explore several possible explanations, including owner-manager conflicts of interest within management companies (between their shareholders and the executives who benefitted from short-term asset growth), but none fully resolves the puzzle. Management companies' decisions to allow abuses that harmed themselves as well as mutual fund shareholders convey a broader lesson, that shareholders, customers, and fiduciary clients be cautious about relying too heavily on firms' own self-interest to govern their behavior. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2009-06&r=mst |