analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

why do we smile on the determinants of the implied volatility function abstract we report simple regressions and granger causality tests in order to understand the pattern of implied volatilities across exercise prices we employ all calls and puts transacted between 16 00 and 16 45 on the spanish ibex 35 index from january 1994 to april 1996 transaction costs proxied by the bid ask spread seem to be a key determinant of the curvature of the volatility smile moreover time to expiration the uncertainty associated with the market and the relative market momentum are also important variables in explaining the smile

market structure and the intraday pattern of bid ask spreads for nasdaq securities this article examines the intraday pattern of bid ask spreads among nasdaq stocks we find that spreads are relatively stable throughout the day but narrow significantly near the close this contrasts with the u shaped pattern for nyse stocks reported by brock and kleidon and mcinish and wood we attribute these divergent patterns to structural differences between specialist and dealer markets the wider spreads for nyse stocks near periods of market closure may reflect the market power of specialists the decline in spreads near the close for nasdaq stocks is consistent with inventory control by individual dealers copyright 1995 by university of chicago press

limit order book as a market for liquidity we develop a dynamic model of an order driven market populated by discretionary liquidity traders these traders must trade yet can choose the type of order and are fully strategic in their decision traders differ by their impatience less patient traders demand liquidity more patient traders provide it three equilibrium patterns are obtained the pattern is determined by three parameters the degree of impatience of the patient traders which we model as the cost of execution delay in providing liquidity their proportion in the population which determines the degree of competition among the liquidity providers and the tick size which is the cost of the minimal price improvement despite its simplicity the model generates a rich set of empirical predictions on the relation between market parameters time to execution and spreads we argue that the economic intuition of this model is so basic its main results must be robust in much more general models

will digital technologies transform agriculture in developing countries mobile phones and the internet have significantly affected practically all sectors of the economy and agriculture is no exception building on a recent world bank flagship report this article introduces a concise framework for describing the main benefits from new information and communication technologies they promote greater inclusion in the broader economy raise efficiency by complementing other production factors and foster innovation by dramatically reducing transaction costs the article reviews the recent literature on corresponding technology impacts in the rural sector in developing countries digital technologies overcome information problems that hinder market access for many small scale farmers increase knowledge through new ways of providing extension services and they provide novel ways for improving agricultural supply chain management while there are many promising examples of positive impacts on rural livelihoods or digital dividends these have often not scaled up to the extent expected the main reason is that technology can always only address some but not all of the barriers faced by farmers in poorer countries

estimating the gains from trade in limit order markets we present a method to estimate the gains from trade in limit order markets and provide empirical evidence that the limit order market is a good market design using observations on order submissions and execution and cancellation histories we estimate both the distribution of traders unobserved valuations for the stock and latent trader arrival rates we use the resulting estimates to compute the current gains from trade the gains from trade in a perfectly liquid market and the gains from trade with a monopoly liquidity supplier the current gains are 90 of the maximum gains and 150 of the monopolist gains the majority of the world s stock exchanges operate some form of a limit order market a feature of good market design is that traders realize most of the potential gains from trade we develop a method for identifying and estimating the gains from trade in a limit order market and apply our method to a sample from a particular limit order market the vancouver stock exchange vse we find that gains from trade in the vse are approximately 90 of the gains from trade in a perfectly liquid market and approximately 50 more than gains from trade in a market in which liquidity is supplied by a profit maximizing monopolist our results therefore provide new empirical evidence that the limitorder market is a good market design a large number of experimental studies document that the gains from trade in a double auction are close to the maximum gains from trade see for example cason and friedman 1996 or the survey by holt 1995 similarly our empirical results show that the limit order market a market design similar to

trading halts and market activity an analysis of volume at the open and the close this paper analyzes how the daily opening and closing of financial markets affect trading volume we model the desire to trade at the beginning and end of the day as a function of overnight return volatility nyse data from 1933 88 indicate that closing volume is positively related to expected overnight volatility while volume at the open is positively related to both expected and unexpected volatility from the previous night we interpret the symmetric response of trading at the open and the close to expected volatility as being due to investor heterogeneities in the ability to bear risk when the market is closed this desire of investors to trade prior to market closings indicates a cost of mandating marketwide circuit breakers

technical analysis and liquidity provision the apparent conflict between the level of resources dedicated to technical analysis by practitioners and academic theories of market efficiency is a long standing puzzle we explore a previously unexamined feature of technical analysis namely its relation to liquidity provision we demonstrate that support and resistance levels coincide with peaks in depth on the limit order book and moving average forecasts reveal information about the relative position of depth on the book furthermore we show that these relationships stem from technical rules locating depth already in place on the limit order book copyright 2004 oxford university press

does director affiliation lead to analyst bias this study examines the ability of security analysts to provide objective earnings forecasts for firms with which the analyst s brokerage firm has a director affiliation the affiliation that we examine is where the brokerage firm has on its board of directors a director or an upper management individual from the firm which an analyst at the brokerage firm provides coverage we find that affiliated analysts tend to provide earnings forecasts that are insignificantly different from unaffiliated analysts in terms of accuracy however we also find that forecasts provided by affiliated analysts tend to be significantly more pessimistic than those provided by their unaffiliated counterparts this pessimistic bias in their earnings forecast will more easily allow the covered firm to beat earnings expectations when earnings are realized we find that this bias surfaced after the global settlement decision an enforcement agreement between large investment banks and the securities and exchange commission sec

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

imperfect competition in financial markets an empirical study of island and nasdaq the competition between island and nasdaq at the beginning of the century offers a natural laboratory to study competition between and within trading platforms and its consequences for liquidity supply our empirical strategy takes advantage of the difference between the pricing grids used on island and nasdaq as well as of the decline in the nasdaq tick using the finer grid prevailing on their market island limit order traders undercut nasdaq quotes much more than they undercut one another the drop in the nasdaq tick size triggered a drop in island spreads despite the island tick already being very thin before nasdaq decimalization we also estimate a structural model of liquidity supply and find that island limit order traders earned rents before nasdaq decimalization our results suggest that perfect competition cannot be taken for granted even on transparent open limit order books with a very thin pricing grid

a taxonomy of automated trade execution systems abstract a taxonomy of automated trade execution systems in financial markets is developed over 50 automated market structures in 16 countries are analyzed these markets consist of computerized rules governing both allowable message types and the means by which such messages are translated into trades computerized market structures are classified by ordered sets of trade execution priority rules trade matching protocols and associated degree of automation of price discovery and transparency to include informational asymmetries between classes of market participants differences in systems across types of financial instruments geographical locations and over time are analyzed jel g15 d44

the asian financial crisis the role of derivative securities trading and foreign investors in korea abstract this paper is part of a larger research program pertaining to the role of derivatives during financial crisis and also part of the research pertaining to the causes of the asian financial crisis the korean market is studied because of two reasons 1 it is an important example of the asian financial meltdown and 2 there is a detailed data set available of all transactions by different types of protagonists including foreign investors the results in this paper indicate that futures markets and trading by foreign investors played a key role during the korean stock market turbulence in 1997

an empirical behavioral model of liquidity and volatility abstract we develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the london stock exchange this can be viewed as a very simple agent based model in which all components of the model are validated against real data our empirical studies of order flow uncover several interesting regularities in the way trading orders are placed and cancelled the resulting simple model of order flow is used to simulate price formation under a continuous double auction and the statistical properties of the resulting simulated sequence of prices are compared to those of real data the model is constructed using one stock azn and tested on 24 other stocks for low volatility small tick size stocks called group i the predictions are very good but for stocks outside group i they are not good for group i the model predicts the correct magnitude and functional form of the distribution of the volatility and the bid ask spread without adjusting any parameters based on prices this suggests that at least for group i stocks the volatility and heavy tails of prices are related to market microstructure effects and supports the hypothesis that at least on short time scales the large fluctuations of absolute returns r are well described by a power law of the form p r r r r with a value of r that varies from stock to stock

the fourth industrial revolution agricultural and rural innovation and implications for public policy and investments a case of india the indian government and public private partnerships are developing and disseminating a dizzying number of innovative networked solutions broadly known as the digital india initiative to increase the efficiency of safety nets and worker productivity and to improve life yet challenges to turn the power of information and other technologies into a farmer friendly technological revolution for india s 156 million rural households are considerable including 1 reliable up to date location specific message content for a diverse agriculture to help stratified households shift to productive knowledge intensive agriculture as a business government private sector and civil society have big roles to play 2 digital literacy i e teaching farmers how to choose and use apps even where the digital divide is absent apps are or soon to be in regional languages and 3 monitoring actual use and impacts on users lives by understanding the adoption and adaptation processes these challenges call for bottom up complementary investments in physical human and institutional capital and farmer friendly e platforms while forging ahead with many top down policy and institutional reforms currently underway in which progress is real and constraints holding back greater success are better understood this article is protected by copyright all rights reserved

decomposing liquidity along the limit order book abstract in this paper we estimate the asymmetric information and order processing components of liquidity at extended depths along the limit order book using data from the inet ecn we find that the asymmetric information component decreases as depth increases inactive stocks have more information asymmetry at the inside quotes but it decreases more rapidly along the book than for active stocks the order processing component of liquidity has fixed and variable constituents consistent with a fixed cost per order as well as a variable portion based on the size of the order

analysts conflicts of interest and biases in earnings forecasts analysts earnings forecasts are influenced by their desire to win investment banking clients we hypothesize that the equity bull market of the 1990s along with the boom in investment banking business exacerbated analysts conflicts of interest and their incentives to strategically adjust forecasts to avoid earnings disappointments we document shifts in the distribution of earnings surprises and related changes in the market s response to surprises and forecast revisions the evidence for shifts is stronger for growth stocks where conflicts of interest are more pronounced however shifts are less notable for analysts without ties to investment banking and in international markets

measuring agricultural knowledge and adoption understanding the trade offs in improving the precision of agricultural measures through survey design is crucial yet standard indicators used to determine program effectiveness may be flawed and at a differential rate for men and women the authors use a household survey from mozambique to estimate the measurement error from male and female self reports of their adoption and knowledge of three practices intercropping mulching and strip tillage despite clear differences in human and physical capital there are no obvious differences in the knowledge adoption and error in self reporting between men and women having received training unanimously lowers knowledge misreports and increases adoption misreports other determinants of reporting error differ by gender misreporting is positively associated with a greater number of plots for men recall decay on measures of knowledge appears prominent among men but not women findings from regression and cost effectiveness analyses always favor the collection of objective measures of knowledge given the lowest rate of accuracy for adoption was around 80 percent costlier objective adoption measures are recommended for a subsample in regions with heterogeneous farm sizes

trading systems in european stock exchanges current performance and policy options stock markets marco pagano and ailsa roell the deregulation of financial markets and the liberalization of international capital flows raises a number of challenging issues market participants and policy makers are treading largely uncharted territories this article offers some markers exploring the implications of economic principles and producing new evidence on european stock exchanges one vast set of issues concerns the design of market operations the article compares the merits both in theory and in practice of auctions versus market making of concentration versus fragmentation of trading of batch auctions versus continuous markets and of single versus dual capacity dealers policy conclusions are grounded on a detailed analysis of the experience accumulated on european and north american exchanges another theme runs through this article the implications for the relative competitiveness of european financial markets rapid changes have already occurred in the late 1980s while much wholesale trade has moved to london continental exchanges have grown at an accelerated pace we examine whether this is connected to innovations in trading systems and regulation the paper also attempts to foresee the geographical structure of europe s integrated stock markets at stake is the hierarchy of financial centres the potentially dangerous drift towards competitive deregulation and the scope for wholly computerized trading where market location becomes irrelevant

the behavior of stock prices around institutional trades all trades executed by 37 large investment management firms from july 1986 to december 1988 are used to study the price impact and execution cost of the entire sequence package of trades that we interpret as an order we find that market impact and trading cost are related to firm capitalization relative package size and most importantly to the identity of the management firm behind the trade money managers with high demands for immediacy tend to be associated with larger market impact financial economists have long studied the equity trading process and its impact on stock prices much prior empirical research isolates individual trades and analyzes the behavior of the stock price around each trade see for example kraus and stoll 1972a holthausen leftwich and mayers 1987 1990 keim and madhavan 1991 petersen and umlauf 1991 hausman lo and mackinlay 1992 and chan and lakonishok 1993 evaluating the behavior of stock prices around trades provides a means of discriminating among various hypotheses as to the elasticity of the demand for stocks yields an estimate of the cost of executing trades and a measure of the liquidity of a market and permits tests of different models of the determination of quotes and transaction prices for many institutional investors however even a moderately sized position in a stock may represent a large fraction of the stock s trading volume accordingly an investment manager s order is often broken up into several trades it is often misleading therefore to consider an individual trade as the basic unit of analysis in the study of trading activity and its effects on prices this paper uses the record of trades executed by 37 large investment manage

transitory price changes and price limit rules evidence from the tokyo stock exchange we compare the volatility of 24 hour returns computed from the opening and closing prices of a diverse sample of tokyo stock exchange tse stocks we find that volatility at the open is greater than volatility at the close only for the most actively traded tse stocks daytime and overnight return covariances suggest that the volatility patterns are explained by the effect of implicit bid ask spreads at the open and partial price adjustment at the close both of which are related to the intensity of trading our results challenge the view that open to open returns are more volatile than close to close returns for stocks in general and are consistent with the hypothesis that tse price limit rules have a significant impact on the dynamics of security prices

adverse selection and competitive market making empirical evidence from a limit order market this article presents a new methodology for testing economic restrictions on the price schedules offered in a limit order book that are based on i break even conditions for marginal limit orders and ii rational updating conditions for order book revisions over time using order flow data from the stockholm stock exchange i find strong evidence of insufficient depth in the limit order books relative to the theoretical predictions an extended model which allows the model parameters to depend on market conditions captures some of the systematic variation in the observed order book depth article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

the costs and determinants of order aggressiveness abstract this paper examines the costs and determinants of order aggressiveness aggressive orders have larger price impacts but smaller opportunity costs than passive orders price impacts are amplified by large orders small firms and volatile stock prices to minimize the implementation shortfall the optimal strategy is to enter buy sell orders at the bid ask aggressive buy sell orders tend to follow other aggressive buy sell orders and occur when bid ask spreads are narrow and depth on the same opposite side of the limit book is large small aggressive buys are more likely than sells to be motivated by information

who is afraid of reg fd the behavior and performance of sell side analysts following the sec s fair disclosure rules we examine regulation fd s impact on the accuracy and dispersion of sell side analysts earnings forecasts using a large sample of quarterly forecasts made over a nearly 10 year period surrounding fd s adoption we uncover two main sets of findings first individual and consensus forecasts become less accurate post fd particularly for early forecasts and for smaller companies second forecast dispersion increases post fd this effect is stronger for early forecasts and has increased with the passage of time these results which are quite robust to alternative empirical methodologies suggest that there has been a reduction in both selective guidance and forecast quality post fd

bias in european analysts earnings forecasts forecasting company earnings is a difficult and hazardous task in an efficient market where analysts learn from past mistakes there should be no persistent and systematic biases in consensus earnings accuracy previous research has already established how some single individual company characteristics systematically influence forecast accuracy so far however the effect on consensus earnings biases of a company s sector and country affiliation combined with a range of other fundamental characteristics has remained largely unexplored using data for 1993 2002 this article disentangles and quantifies for a broad universe of european stocks how the number of analysts following a stock the dispersion of their forecasts the volatility of earnings the sector and country classification of the covered company and its market capitalization influence the accuracy of the consensus earnings forecast

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

market behavior in a clearing house one of the most fundamental market mechanisms is the clearing house where orders are accumulated over time and the market is cleared periodically the issue addressed in this study is the statistical behavior of the market under this neutral mechanism in the framework of a tractable stochastic model which captures the underlying uncertainties and indivisibilities in the demand and supply schedules applying renewal theory we derive closed form results for the behavior of prices and quantities and pursue the implications of the possibility of no trade and the multiplicity of market clearing prices

self selection and analyst coverage this paper examines the relation between analysts information about a stock s future prospects and their decisions to issue investment recommendations and earnings forecasts for that stock and the implications of this relation for the observed distribution of recommendations and earnings forecast errors articles in the financial press have long argued that analysts are reluctant to issue unfavorable investment information perhaps because they fear jeopardizing potential investment banking

trading and liquidity on the tokyo stock exchange a bird s eye view the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity to the market specialists offer simultaneous and tight quotes to both buy and sell and supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions in contradistinction the tse has no exchange designated liquidity suppliers instead liquidity is provided through a public limit order book and liquidity is organized through restrictions on maximum price changes between trades that serve to slow down trading in this article we examine the efficacy of the tse s trading mechanisms at providing liquidity our analysis is based on a complete record of transactions and best bid and best offer quotes for most stocks in the first section of the tse over a period of 26 months we study the size of the bid ask spread and its cross sectional and intertemporal stability intertemporal patterns in returns volatility volume trade size and the frequency of trades and market depth based on the response of quotes to trades and the frequency of trading halts and warning quotes the trading mechanism for equities on the tokyo stock exchange tse stands in sharp contrast to the primary mechanisms used to trade stocks in the united states in the united states exchange designated specialists have affirmative obligations to provide continuous liquidity in the market and to maintain a private limit order book with the public s limit orders on the tse exchange designated intermediaries saitori log limit orders and match them to incoming market orders but provide no market making services in the united states specialists offer simultaneous and tight quotes to both buy and sell on the tse public limit orders constitute the available bids and offers in the united states specialists supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions 1 on the tse the market mechanism places limits on the magnitude of consecutive price

why so much error in analysts earnings forecasts wall street analysts tend to be too optimistic about the earnings prospects of companies they follow the average consensus 12 month eps growth forecast is 17 7 percent which is more than twice the actual growth rate in aggregate forecasts are 11 2 percent above actual earnings at the start of a year and are revised downward continuously in the course of the year for the full study period reported here the percentage of 12 month earnings estimates revised downward exceeded the percentage revised upward on average by 4 4 percent every month since 1993 however the quality of analyst forecasts seems to have improved this article provides an intuitive explanation of the change and suggests ways in which analysts can use the explanation to improve portfolio performance

liquidity based competition for order flow we present a microstructure model of competition for order flow between exchanges based on liquidity provision we find that neither a pure limit order market plm nor a hybrid specialist limit order market hm structure is competition proof a plm can always be supported in equilibrium as the dominant market i e where the hybrid limit book is empty but an hm can also be supported for some market parameterizations as the dominant market we also show the possible coexistence of competing markets order preferencing that is decisions about where orders are routed when investors are indifferent is a key determinant of market viability welfare comparisons show that competition between exchanges can increase as well as reduce the cost of liquidity active competition between exchanges for order flow in cross listed securities is intense in the current financial marketplace examples include rivalries between the new york stock exchange nyse crossing networks and ecns and between the london stock exchange the paris bourse and other continental markets for equity trading and between eurex and london international financial futures and options exchange liffe for futures volume while exchanges compete along many dimensions e g payment for order flow transparency execution speed liquidity and price improvement will in our view be the key variables driving competition in the future over time high cost markets should be driven out of business as investors switch to cheaper trading venues moreover market structure is increasingly singled out by regulators exchanges and other market participants as a major determinant of liquidity 1

auctions as algorithms abstract computerized auction systems are introduced as a new form of market institution characterized by communications technologies for passing messages between traders and a set of programmed rules that restrict the message space and process messages into transactions prices and quantities the stationary distributions of price quotations and transactions prices given order arrival rates conditioned on information available through the limit order book are derived for an automated continuous auction system with price and time priority rules the key to the analysis is the application of the theory of queues with preemptive priorities to the problem of two interactive queues the model then is used to characterize the structure of the electronic order book in terms of the distributions of the number of buy and sell orders in the system and the waiting time to trade execution the theoretical development is applied to a comparison of automated continuous and periodic single price auctions with respect to price volatility the magnitude of the bid ask spread and volume traded per unit of time

the dependence between hourly prices and trading volume this study provides evidence on joint characteristics of hourly common stock trading vol ume and returns on the new york stock exchange average volume traded shows signifi cant differences across trading hours of the day and across days of the week average returns differ across hours ofthe day and to some extent across days ofthe week there is a strong contemporaneous relation between trading volume and returns and also a rela tion between trading volume and returns lagged up to four hours furthermore the trading volume returns relation is steeper for positive returns than for nonpositive returns

do stylised facts of order book markets need strategic behaviour this paper studies the role of strategy and the order book market mechanism in price dynamics and the order o w behaviour to this end we analyse a zero intelligence agent model of a dynamic limit order market stylised facts of limit order markets are shown to be inuenced and in some cases governed by the market mechanism rather than strategic interaction positive correlation in order types for instance is the result of the market architecture and price movements may be predicted in the short term from analysing the state of the order book in contrast the absolute probabilities of order submission highlight the contribution of strategic behaviour

price limit performance evidence from the tokyo stock exchange price limit advocates claim that price limits decrease stock price volatility counter overreaction and do not interfere with trading activity conversely price limit critics claim that price limits cause higher volatility levels on subsequent days volatility spillover hypothesis prevent prices from efficiently reaching their equilibrium level delayed price discovery hypothesis and interfere with trading due to limitations imposed by price limits trading interference hypothesis empirical research does not provide conclusive support for either positions we examine the tokyo stock exchange price limit system to test these hypotheses our evidence supports all three hypotheses suggesting that price limits may be ineffective

the market microstructure of the european climate exchange abstract this paper analyzes the market microstructure of the european climate exchange the largest eu ets trading venue the ecx captures 2 3 of the screen traded market in eua and more than 90 in cer volume growth has averaged 277 in eua between 2005 and 2009 and 724 in cer since 2007 spreads range from 0 0188 to 0 0406 for eua and 0 0276 to 0 0796 for cer the median proportion of the spread due to adverse selection reaches 76 for eua and 75 for cer realized volatility bid ask spreads and adverse selection costs decline with verified emission releases market impact estimates imply that an average trade will move the eua market by 1 06 euro centimes and the cer market 1 45 the ecx is providing between 75 and 88 of price discovery for eua trading and between 64 and 72 for cer we find imbalances in the order book help predict returns for up to three days a simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact

predictable patterns after large stock price changes on the tokyo stock exchange this paper extends to japanese stocks recent research on short term stock price adjustment to new information using standard methodologies we find that stock returns of firms included in the nikkei 300 tend to be significantly positive after large price decreases this is similar to the pattern observed for american stocks in other research the pattern remains when returns are adjusted for market movements and exists independently of the october 1987 market break we find little evidence of significant patterns following large stock price increases we also find little evidence that non transaction prices explain the persistent significant returns observed following large price decreases on the tokyo stock exchange we conjecture that broker dealers and tse member firms respond to large price decreases not by trading for their own profit but rather by selectively supplying liquidity to their preferred retail customers we conclude that ordinary investors probably cannot earn economic profits from these statistically significant patterns

making cents of tick sizes the effect of the 2016 u s sec tick size pilot on limit order book liquidity abstract we use the 2016 u s sec tick size pilot to examine the effects of an increase in the minimum price variation on limit order book liquidity in nasdaq listed stocks on the nasdaq exchange for treatment stocks with an average pre pilot quoted spread less than 0 05 the tick size increase is binding and leads to a significant decrease in liquidity in the limit order book specifically the implied cost to trade at and away from the best bid and offer prices increases and the limit order book becomes less resilient the amount of time required for a deviation in liquidity to return to its long run mean for treatment stocks with an average pre pilot quoted spread of at least 0 05 the tick size increase is non binding and leads to either a slight decrease or no change in limit order book liquidity

continuous trading or call auctions revealed preferences of investors at the tel aviv stock exchange we use the move of israeli stocks from call auction trading to continuous trading to show that investors have a preference for stocks that trade continuously when large stocks move from call auction to continuous trading the small stocks that still trade by call auction experience a significant loss in volume relative to the overall market volume as small stocks move to continuous trading they experience an increase in volume and positive abnormal returns because of the associated increase in liquidity overall though a move to continuous trading increases the volume of large stocks relative to small stocks

or forum the cost of latency in high frequency trading modern electronic markets have been characterized by a relentless drive toward faster decision making significant technological investments have led to dramatic improvements in latency the delay between a trading decision and the resulting trade execution we describe a theoretical model for the quantitative valuation of latency our model measures the trading frictions created by the presence of latency by considering the optimal execution problem of a representative investor via a dynamic programming analysis our model provides a closed form expression for the cost of latency in terms of well known parameters of the underlying asset we implement our model by estimating the latency cost incurred by trading on a human time scale examining nyse common stocks from 1995 to 2005 shows that median latency cost across our sample roughly tripled during this time period furthermore using the same data set we compute a measure of implied latency and conclude that the median implied latency decreased by a

ict and agricultural productivity evidence from cross country data this article carries out agricultural production function estimations based on data for the period 1995 2000 on 81 countries to present empirical evidence on the relationship between the adoption of information and communication technology ict and agricultural productivity it is found that new ict has a significantly positive impact on agricultural productivity the evidence suggests that the adoption of modern industrial inputs in agricultural production relies on the information and communication infrastructure however the empirical evidence from this study also suggests that new ict could be a factor for the divergence between countries in terms of overall agricultural productivity not only do we find that the ict adoption levels of the richer countries are much higher than those of the poorer countries but also that returns from ict in agricultural production of the richer countries are about two times higher than those of the poorer countries a plausible explanation for the poorer countries relatively low productivity elasticity of ict is the lack of important complementary factors such as a substantial base of human capital

the basic unit of economic analysis individuals or markets a comment on markets come to bits by phil mirowski abstract mirowski has put forward an argument for viewing the economy as a set of interlocking markets i argue that he is right to shift attention from the individual to a higher level he further holds that there has been a shift to considering the informational problem as central to economics and that this can provide the framework for a new vision of markets as automata i see the decline of homo economicus as rather due to a dissatisfaction with the intrinsic value of that concept with the development of cognitive economics and a realisation that this notion can give us no hold on analysing aggregate behaviour however markets are indeed important and they have been largely ignored as a result of our preoccupation with the individual different market forms co exist in reality and it is necessary to analyse the reasons for this however to reduce them to computable algorithms may miss many of the other features which make them fascinating but intractable

an analysis of transactions data for the toronto stock exchange abstract using transactions data for all stocks traded on the toronto stock exchange this study shows that returns and number of shares traded have a u shaped pattern when plotted against time of the trading day these results confirm that the findings of wood mclnish and ord 1985 harris 1986 mclnish and wood 1988 and jain and joh 1989 for the new york stock exchange nyse also hold for both another exchange and another country and are not due to peculiarities of united states securities markets further evidence is provided to support the view of harris 1989 and terry 1986 that these relatively high end of day returns are due at least in part to an increase in the proportion of trades at the ask relative to trades at the bid

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

chronic bias in earnings forecasts whatever the source or explanation of bias in forecasts of company earnings if such bias persists it is potentially discoverable and exploitable by investors this research addresses 1 whether characterizing forecasts as if they were a homogeneous group with respect to bias is accurate or useful and 2 whether a long term record of forecast errors contains information useful in predicting subsequent errors we found that earnings forecasts are heterogeneous with respect to direction and degree of bias we also found evidence of extremes in optimism and pessimism and that extreme errors tend to persist in the same direction which suggests certain potentially profitable trading strategies

an analysis of intraday patterns in price clustering on the tokyo stock exchange abstract stock prices tend to cluster at round numbers a phenomenon observed in many markets using tick by tick transaction data this article studies price clustering on the tokyo stock exchange which is a computerized limit order market as for the intraday pattern the degree of price clustering is greatest at the market opening then it decreases during the first half hour and reaches a stable level it does not increase again near the market closing there is no clear difference in clustering between call auctions and continuous auctions

conflicts of interest and analyst behavior evidence from recent changes in regulation regulation fd made analysts less dependent on insider information and diminished analysts motives to inflate their forecasts the global research analyst settlement had an even bigger impact on analyst behavior the mean forecast bias declined significantly whereas the median forecast bias essentially disappeared these results are similar for all analysts

did analyst forecast accuracy and dispersion improve after 2002 following the increase in regulation this article examines the accuracy and dispersion of analyst earnings forecasts from october 1993 to september 2013 the authors found an improvement in these forecast properties in the short run following various regulations in the early 2000s over the extended period however forecast accuracy significantly declined and dispersion significantly increased the results are robust to various sensitivity tests and indicate that these regulations did not collectively improve the information environment despite the reduction in analyst conflicts of interest the problem seems to be largely due to the quality of financial reports

a temporal analysis of earnings surprises profits versus losses i show that median earnings surprise has shifted rightward from small negative miss analyst estimates by a small amount to zero meet analyst estimates exactly to small positive beat analyst estimates by a small amount during the 16 years 1984 to 1999 i show that a rightward temporal shift in median surprise from negative to positive describes earnings but neither profits nor losses median profit surprise shifts within the positive quadrant from zero to one cent per share median loss surprise shifts within the negative quadrant from extreme negative about 33 cents per share to zero i show that the median surprise for profits exceeds that for losses in every year i document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses but i find a greater frequency of profits that either meet or beat analyst estimates in every year i find a significant positive temporal trend in positive profits that are a little bit of good news and a significant negative temporal trend in managers who report losses that are an extreme amount of bad news my results are robust to the four internal validity threats i consider namely temporal changes in 1 analyst forecast accuracy 2 the mix of earnings of one sign preceded by earnings of another sign four quarters ago 3 the timeliness of the most recent analyst forecast and 4 the i b e s definition of actual earnings i find that managers of growth firms are relatively more likely than managers of value firms to report good news profits i show that when they do report positive profit surprises managers of growth firms are more likely to report a little bit of good news in every year

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

inefficiency in analysts earnings forecasts systematic misreaction or systematic optimism a rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts several studies document analysts tendency to systematically underreact to information underreaction is inconsistent with rationality other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic this study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts the evidence indicates that analysts underreact to negative information but overreact to positive information these results are consistent with systematic optimism in response to information the literature on financial analysts defines the phrase forecast inefficiency to mean forecasts that fail to accurately incorporate new information on a timely basis and or that are biased these forecasts have also been described as irrational or suboptimal prior studies report inefficiency in analysts forecasts finding that they are upwardly biased and inaccurately reflect available information some studies conclude from this that analysts underreact to information other studies conclude that analysts overreact if markets treat analysts forecasts as both rational and statistically optimal then inefficient forecasts could have important implications for the efficiency of pricing in securities markets in this paper we reexamine the apparent tendency of analysts to misinterpret earnings information the intent of this study is to discriminate between three hypotheses 1 that analysts systematically underreact to new earnings information 2 that analysts systematically overreact to new earnings information and 3 that analysts are systematically optimistic in their reactions for hypotheses 1 and 2 the direction of the misinterpretation i e underor overreaction is independent of the nature of the information received in contrast hypothesis 3 predicts that analysts are optimistic in interpreting

autocorrelation of daily index returns intraday to intraday versus close to close intervals abstract first order autocorrelation coefficients of 1 daily equally weighted open to open returns 2 daily equally weighted intraday to intraday returns terminating at each of 23 successive 15 minute intervals of the trading day beginning at 10 15 a m and 3 daily equally weighted and value weighted close to close returns interval 24 are examined a number of findings concerning the behavior of these autocorrelations are reported first order autocorrelation is shown to follow a crude u shaped pattern when plotted against the time of the trading day but there is no significant difference in the behavior of autocorrelations based on open to open returns and 24 hour returns terminating at 10 15 a m evidence that intraday patterns in autocorrelation cannot be explained fully by trading delays also is presented

the feasibility of an index contingent trading mechanism auction or call trading systems are used in many stock exchanges an essential problem in the application of these systems is that orders in one security cannot be conditioned on prices of other securities this paper proposes and analyzes the feasibility of an index contingent trading system in this system limit orders may be conditioned on an index any weighted average of the security prices that is determined simultaneously with the prices in addition to the asset price without any assumptions about traders behavior it is shown that under a reasonable restriction on the structure of the limit orders there is a unique solution vector of prices to any set of orders in all securities moreover the paper presents a quick and simple algorithm that converges to the solution this algorithm is based on an extension of the current mechanisms therefore it can be implemented easily in any computerized auction system

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade

risk aversion market liquidity and price efficiency a model of a noncompetitive speculative market is analyzed in which privately informed traders and market makers are risk averse market liquidity is found to be nonmonotonic in the number of informed traders their degree of risk aversion and the precision of their information it is also shown that increased liquidity trading leads to reduced price efficiency and that under endogenous information acquisition market liquidity may also be nonmonotonic in the variance of liquidity trades article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

is there too much hype about index based agricultural insurance abstract individual crop insurance has been largely abandoned in developing countries and replaced by insurance pilots based on weather indices these pilot schemes have encountered low demand research suggests that better off farmers may already be insured via income diversification their assets and social networks and may achieve profit maximising portfolios without formal insurance contracts they would be interested in such contracts only if they reliably reduced their exposure to risk at lower costs than their self insurance mechanisms conversely poor farmers are not able to self insure adequately have to trade off returns for reduced risk and could therefore benefit from a well designed insurance but they are cash credit constrained and therefore cannot advance the money before sowing time to buy insurance that pays out only after the harvest index insurance therefore cannot be scaled up even if a few farmers purchase it governments still will need to run relief programmes for the un