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on Market Microstructure |
| By: | Babus, Ana; Parlatore, Cecilia |
| Abstract: | We study the determinants of asset market fragmentation. We develop a model of market formation in which investors with heterogeneous valuations for an asset trade strategically. When choosing a dealer with whom to trade, investors trade off the lower price impact and the steeper competition for the dealer's liquidity offered by a larger market. When the correlation among investor valuations is high, the increase in competition dominates the decrease in price impact and investors prefer to trade in a smaller market, which makes market fragmentation an equilibrium outcome. Fragmented market structures can Pareto dominate centralized ones and can exhibit higher trading volumes. |
| Keywords: | demand schedule equilibrium; interdealer trading; market fragmentation |
| JEL: | D43 D47 G12 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11591&r=mst |
| By: | Bernhard K. Meister |
| Abstract: | The influence of Commodity Trading Advisors (CTA) on the price process is explored with the help of a simple model. CTA managers are taken to be Kelly optimisers, which invest a fixed proportion of their assets in the risky asset and the remainder in a riskless asset. This requires regular adjustment of the portfolio weights as prices evolve. The CTA trading activity impacts the price change in the form of a power law. These two rules governing investment ratios and price impact are combined and lead through updating at fixed time intervals to a deterministic price dynamic. For different choices of the model parameters one gets qualitatively different dynamics. The result can be expressed as a phase diagram. Meta-CTA strategies can be devised to exploit the predictability inherent in the model dynamics by avoiding critical areas of the phase diagram or by taking a contrarian position at an opportune time. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1610.10029&r=mst |
| By: | Buehlmaier, Matthias M. M.; Zechner, Josef |
| Abstract: | Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media. A one standard deviation increase in the media-implied probability of merger completion increases the subsequent 12-day return of a long-short merger strategy by 1.2 percentage points. Filtering out the 28% of announced deals with the lowest media-implied completion probability increases the annualized alpha from merger arbitrage by 9.3 percentage points. Our results are particularly pronounced when high-yield spreads are large and on days when only few merger deals are announced. We also document that financial media information is orthogonal to announcement day returns. |
| Keywords: | financial media,merger arbitrage,hedge funds,market efficiency,mergers and acquisitions |
| JEL: | G11 G14 G34 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:551&r=mst |