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

limit order submission strategies under asymmetric information abstract this paper provides evidence that informed traders dominate the response of limit order submissions to shocks in a pure limit order market in the market we study informed traders are highly sensitive to spreads volatility momentum and depth by contrast uninformed traders are relatively insensitive to all these market conditions the dominance of the informed over limit order submissions is magnified by contrasts between them and the uninformed in the use of aggressively priced limit orders

the price effects of liquidity shocks a study of the sec s tick size experiment abstract do stock prices of publicly listed companies respond to changes in transaction costs using the sec s pilot program that increased the tick size for approximately 1 200 randomly chosen stocks we find a stock price decrease between 1 75 and 3 2 for small spread stocks affected by the larger tick size relative to a control group we find that the increase in the present value of transaction costs accounts for a small percentage of the price decrease we study channels of price variation due to changes in expected returns information risk investor horizon and liquidity risk the evidence suggests that trading frictions affect the cost of capital

is the corn futures market noisier the impact of high frequency quoting the paper pioneers research on high frequency hf quoting noise in electronically traded agricultural futures markets hf quoting quickly cancelling posted limit orders and replacing them with n

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

a review of o rourke and williamson s globalization and history the evolution of a nineteenth century atlantic economy much of the comparative economic history of the nineteenth century focuses on the spread of the industrial revolution from britain incomes converged in this view as the transfer of superior technology raised incomes in the periphery in globalization and history kevin o rourke and jeffrey williamson challenge this technological approach arguing that neoclassical effects of trade and factor supply changes provide more insight increased trade stimulated by falling transportation costs and factor movements caused prices of locally scarce factors to fall and promoted factor price convergence

minimum price variations discrete bid ask spreads and quotation sizes exchange minimum price variation regulations create discrete bid ask spreads if the minimum quotable spread exceeds the spread that otherwise would be quoted spreads will be wide and the number of shares offered at the bid and ask may be large a cross sectional discrete spread model is estimated by using intraday stock quotation spread frequencies the results are used to project 1 16 spread usage frequencies given a 1 16 tick projected changes in quotation sizes and in trade volumes are obtained from regression models for stocks priced under 10 the models predict spreads would decrease 38 percent quotation sizes would decrease 16 percent and daily volume would increase 34 percent article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

liquidity adjusted intraday value at risk modeling and risk management an application to data from deutsche borse abstract this paper develops a high frequency risk measure the liquidity adjusted intraday value at risk livar our objective is to explicitly consider the endogenous liquidity dimension associated with order size by reconstructing the open limit order book of deutsche borse changes in the tick by tick ex ante frictionless return and actual return are modeled jointly the risk related to the ex ante liquidity premium is then quantified our model can be used to identify the impact of ex ante liquidity risk on total risk and to provide an estimation of the var for the actual return at a point in time in our sample liquidity risk can account for up to 32 of total risk depending on order size

so what orders do informed traders use we present a simple glosten milgrom type equilibrium model to analyze the decision of informed traders on whether to use limit or market orders we show that even after incorporating an order s price impact not only may informed traders prefer to use limit orders but the probability that they submit limit orders can be so high that limit orders convey more information than market orders we further show that the horizon of the private information is critical for this decision and is positively related to the use of limit orders our empirical analysis using torq suggests that informed traders do prefer limit orders to market orders and that limit orders are indeed more informative our model is in contrast to the literature that assumes that informed traders use market orders only and the literature that examines the limit order versus the market order decision of uninformed traders

designing payments for environmental services in theory and practice an overview of the issues abstract payments for environmental services pes have attracted increasing interest as a mechanism to translate external non market values of the environment into real financial incentives for local actors to provide environmental services es in this introductory paper we set the stage for the rest of this special issue of ecological economics by reviewing the main issues arising in pes design and implementation and discussing these in the light of environmental economics we start with a discussion of pes definition and scope we proceed to review some of the principal dimensions and design characteristics of pes programs and then analyze how pes compares to alternative policy instruments finally we examine in detail two important aspects of pes programs their effectiveness and their distributional implications pes is not a silver bullet that can be used to address any environmental problem but a tool tailored to address a specific set of problems those in which ecosystems are mismanaged because many of their benefits are externalities from the perspective of ecosystem managers pes is based on the beneficiary pays rather than the polluter pays principle and as such is attractive in settings where es providers are poor marginalized landholders or powerful groups of actors an important distinction within pes is between user financed pes in which the buyers are the users of the es and government financed pes in which the buyers are others typically the government acting on behalf of es users in practice pes programs differ in the type and scale of es demand the payment source the type of activity paid for the performance measure used as well as the payment mode and amount the effectiveness and efficiency of pes depends crucially on program design

cross sided liquidity externalities we study the empirical relevance of the participation externality between liquidity suppliers makers and demanders takers i e whether liquidity demand attracts or reduces liquidity supply and vice versa we use exogenous shocks to exchange fees and technology as experiments to identify cross sided complementarities between liquidity suppliers and demanders in the u s equity market we find that the externality is large and positive on average however the externality is negative in periods of high adverse selection we quantify the economic significance of the externality by evaluating an exchange s revenue after a fee change the internet appendix is available at https doi org 10 1287 mnsc 2016 2658 this paper was accepted by lauren cohen finance

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

tail expectation and imperfect competition in limit order book markets abstract perfect competition in liquidity provision in limit order markets is characterized by a tail expectation condition glosten 1994 in this paper we model imperfect competition in schedules by infinitely many liquidity suppliers quoting on a limit order book we show that there are zero rent mixed strategy equilibria featuring finite numbers of active liquidity suppliers none of the equilibria satisfies the competitive outcome not even on average considering a sequence of equilibria with the number of active liquidity suppliers becoming large we show that the aggregate stochastic marginal price schedule converges to the deterministic competitive marginal price schedule

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

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

upstream pollution downstream waste disposal and the design of comprehensive environmental policies abstract many policymakers are shifting their focus from media specific pollution problems to product specific life cycle environmental problems in this paper we develop a model of production and consumption that incorporates life cycle externalities and use it to solve for alternative policies to achieve a social optimum in general we find that no single instrument can solve multiple problems contrary to what some observers have suggested however we find that there are alternative ways of reaching the social optimum we also discover that an integrated approach to policy appears to be important no matter what policy options are adopted and finally we find that there is only a limited role for so called product life cycle assessments

decoupling waste generation from economic growth a cge analysis of the swedish case abstract over the past decades we have seen the quantities of solid waste increase in close relation to economic growth to tackle this problem of continuing waste growth the eu has on its agenda that waste generation should decouple from economic growth within the eu in the future sweden also has stated a target of non increasing future waste quantities the strength of the policy measures needed to attain this target is here illustrated by comparing the waste intensity outcomes in a decoupling scenario and a baseline scenario of the swedish economy 2006 2030 a computable general equilibrium cge model is used for linking waste generation to firms material input firms production and households consumption when projecting future quantities of hazardous and non hazardous waste in sweden we show that to offset the effect of economic growth on waste generation in the decoupling scenario the intensities of material related wastes must decrease at a yearly rate that is about twice the historically estimated reduction rate used in the baseline scenario the reduction in the intensities of waste related to firms production and households consumption must also be substantial compared to historical estimates

market sidedness insights into motives for trade initiation we infer motives for trade initiation from market sidedness we define trading as more two sided one sided if the correlation between the number of buyer and seller initiated trades increases decreases and assess changes in sidedness relative to a control sample around events that identify trade initiators consistent with asymmetric information trading is more one sided before merger news consistent with belief heterogeneity trading is more two sided before earnings and macro announcements with greater dispersion in analyst forecasts and after news with larger announcement surprises we examine the codeterminacy of sidedness bid ask spread volatility number of trades and order imbalance

the contribution of market makers to liquidity and efficiency of options trading in electronic markets this paper examines the contribution of market makers to the liquidity and the efficiency of the options market in a unique setup of an order driven computerized trading system in which market makers and other participants operate under equitable conditions the main findings are 1 liquidity increased a 60 increase in trading volume and a 35 decrease of bid ask spreads 2 the efficiency of shekel euro options trading improved deviations from put call parity decreased significantly by 12 and skewness decreased by about 30 we also find that the net cost to the exchange is out weighted by the benefit to the trading public and that the presence of market makers encouraged trading between other participants far beyond their own trading 2005 elsevier b v all rights reserved

waste management policies for industrial symbiosis development case studies in european countries industrial symbiosis is emerged as a self organizing business strategy among firms that are willing to cooperate to improve their economic and environmental performance the adoption of such cooperative strategies relates to increasing costs of waste management most of which are driven by policy and legislative requirements development of is depends on an enabling context of social informational technological economical and political factors the power to influence this context varies among the agents involved such as the government businesses or coordinating entities governmental intervention as manifested through policies could influence a wider range of factors and we believe this is an area which is under researched this paper aims to critically appraise the waste policy interventions from supra national to sub national levels of government a case study methodology has been applied to four european countries i e denmark the uk portugal and switzerland in which is emerged or is being fostered the findings suggest that there are commonalities in policy instruments that may have led to an is enabling context the paper concludes with lessons learnt and recommendations on shaping the policy context for is development

does information risk affect the implied cost of equity capital an analysis of pin and adjusted pin using a unique dataset of korean listed companies for which trade initiators are correctly identifiable we estimate bias free pin probability of informed trading that is no longer subject to the trade misspecification problem and test whether it is related to expected returns unlike prior studies we find that bias free adjpin the adjusted pin purged of a liquidity component is positively related to implied cost of equity our findings suggest that the errors in pin variables hamper a proper identification of pin pricing in prior studies

eighths sixteenths and market depth changes in tick size and liquidity provision on the nyse using limit order data provided by the nyse we investigate the impact of reducing the minimum tick size on the liquidity of the market while both spreads and depths quoted and on the limit order book declined after the nyse s change from eighths to sixteenths depth declined throughout the entire limit order book as well the combined e ect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better o however traders who submitted

can transparent markets survive abstract this paper investigates whether transparent markets can survive when faced with direct competition from less transparent markets we first construct a game theoretic model in which in equilibrium the low transparency dealers capture early order flow and use the resulting informational advantage to quote narrower spreads and earn more profits than their more transparent competitors we then conduct a laboratory experiment that tests and supports all of these predictions a second experiment shows that most dealers choose to be of lower transparency when they are allowed to do so however the informational advantage of low transparency decreases as there are more such dealers while the high transparency dealers get increasing benefit from informed traders who attempt to broadcast deceptive trades as a result a small number of transparent dealers persist in our markets

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

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

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

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

econometric models of limit order executions we develop and estimate an econometric model of limit order execution times using survival analysis and actual limit order data we estimate versions for time to first fill and time to completion for both buy and sell limit orders and incorporate the effects of explanatory variables such as the limit price limit size bid offer spread and market volatility execution times are very sensitive to the limit price but are not sensitive to limit size hypothetical limit order executions constructed either theoretically from first passage times or empirically from transactions data are very poor proxies for actual limit order executions r 2002 elsevier science b v all rights reserved jel classification g23

liquidity resiliency and market quality around predictable trades theory and evidence abstract we extend the theory of strategic trading around a predictable liquidation by considering the role of market resiliency our model predicts that even a monopolist strategic trader improves market quality and increases liquidator proceeds if trades temporary price impacts are quickly reversed and that competition among strategic traders strictly improves market quality we provide related empirical evidence by studying prices liquidity and individual account trading activity around the large and predictable roll trades undertaken by a large exchange traded fund etf the evidence indicates narrower bid ask spreads greater order book depth and improved resiliency on roll dates we find that a larger number of individual trading accounts provide liquidity on roll dates and do not find evidence of the systematic use of predatory strategies on balance the theory and evidence imply that traders supply liquidity to rather than exploit predictable trades in resilient markets

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

informed traders and limit order markets abstract we consider a dynamic limit order market in which traders optimally choose whether to acquire information about the asset and the type of order to submit we numerically solve for the equilibrium and demonstrate that the market is a volatility multiplier prices are more volatile than the fundamental value of the asset this effect increases when the fundamental value has high volatility and with asymmetric information across traders changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value implying that asset betas estimated from high frequency data will be incorrect

a closing call s impact on market quality at euronext paris abstract the paris bourse currently euronext paris refined its trading system to include electronic call auctions at market closings in 1996 for its less liquid continuous b stocks and in 1998 for its more actively traded continuous a stocks this paper analyzes the effects of the innovation on market quality our empirical analysis of price behavior for two samples of firms 50 b stocks and 50 a stocks for two different calendar dates 1996 and 1998 indicates that introduction of the closing calls has lowered execution costs for individual participants and sharpened price discovery for the broad market we further observe that market quality is improved at market openings albeit to a lesser extent we suggest that a positive spillover effect explains the closing call s more pervasive impact

household behavior under alternative pay as you throw systems for solid waste disposal in 1994 residents of marietta georgia participated in a pay as you throw solid waste demonstration project rather than pay a fixed monthly fee for collection half of the resi dents paid a fee per reusable trash can and half paid for each nonreusable trash bag collected data from both a sample of households and city wide totals indicate that the programs signifi cantly reduced waste set outs even after account ingfor increases in unpriced recycling the bag program caused larger reductions 36 than the subscription can program 14 rough esti mates of the program indicate both savings for residents and social welfare increases jel q20

the submission of limit orders or market orders the role of timing and information in the reuters d2000 2 system abstract recent work in the market microstructure literature suggests that the speed with which orders arrive in the market impacts traders order submission decisions in this study we use an asymmetric autoregressive conditional duration acd model to empirically investigate the influence on the submission of limit and market orders of changes in the time between the past submissions of different types of orders changes in the slope of the limit order book and changes in price uncertainty we find that the expected time between the arrivals of successive orders in the foreign exchange market depends on the previous type of order submitted and the slope on both sides of the order book price uncertainty volatility plays a secondary role after accounting for the impact of changes in the slope of the order book lastly we find that there are fundamental changes in the level of information contained in the submission of orders at the opening and closing of markets

competition signaling and non walking through the book effects on order choice abstract we investigate the effects of competition and signaling in a pure order driven market and examine the trading patterns of agents when walking through the book is not allowed our results suggest that the variables capturing the cost of a large market order are not informative for an impatient trader under this market mechanism we also document that the competition effect is not present only at the top of the book but persistent beyond the best quotes moreover it dominates the signaling effect for both a limit order and a market order trader finally we show that institutional investors order submission strategies are characterized by only a few pieces of the limit order book information this is consistent with informed traders placing orders based on their own private valuations rather than the state of the book

factors influencing willingness to accept different waste management policies empirical evidence from the european union abstract improving waste management strategies with more collaborative participation and responsibility of different public and private agents is a matter of increasing concern for academia and policy makers based on data from 28 european countries the present study unlike other previous studies analyzing the influence of individual drivers for waste generation or recycling evaluates different options for waste management government based fair consumer and producer responsibility for this the influence of individual and socio demographic characteristics age gender education level and occupational status contextual variables rural or urban country of origin and the environmental awareness of 23 976 individuals are considered being a woman being well educated having a good job and living in a rural or small town increase the probability of being a fair consumer while men and people living in a large town are more willing to entrust this responsibility to firms the government based solution is only chosen by low educated people finally individuals with the highest environmental awareness and effort prefer to pay while those who are less environmentally conscious prefer government action the findings show that factors explaining individual acceptance of these different waste management policies wmp are essential for implementing proactive and preventive approaches to enhance responsibility and involvement of all stakeholder groups consumers firms and institutions

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