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

vertical control of price and inventory this paper offers a simple approach to the theory of decentralizing inventory and pricing decisions along a supply chain we consider an upstream manufacturer selling to two outlets which compete as differentiated duopolists and face uncertain demand demand spillovers between the outlets arise in the event of stockouts the price mechanism in which each outlet pays a two part price and chooses price and inventory virtually never coordinates incentives efficiently contracts that can elicit first best decisions include resale price floors or buy back policies retailer held options to sell inventory back to the manufacturers

vertical antitrust policy as a problem of inference the legality of nonprice vertical practices in the u s is determined by their likely competitive effects an optimal enforcement rule combines evidence with theory to update prior beliefs and specifies a decision that minimizes the expected loss because the welfare effects of vertical practices are theoretically ambiguous optimal decisions depend heavily on prior beliefs which should be guided by empirical evidence empirically vertical restraints appear to reduce price and or increase output thus absent a good natural experiment to evaluate a particular restraint s effect an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive

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

the competitive effects of resale price maintenance the competitive effects of resale price maintenance rpm are theoretically diverse rpm can cause allocation distortions or promote productive efficiencies in the distribution process moreover extant cross sectional empirical evidence is incapable of distinguishing among the potentially disparate effects of rpm this paper conducts hypothesis tests of the alternative theories of rpm the empirical framework relates estimates of the effects of rpm for a cross section of observations to necessary conditions of the alternative models this analysis indicates that rpm is used both to foster cartels and promote efficiencies in the distribution process this result is consistent with the growing body of case study analysis that suggests that rpm is used for a variety of reasons this result also questions the current per se illegal status of rpm in the antitrust laws evidence is also provided concerning the strategic interaction between manufacturers and dealers in the distribution process and the use of financial data in analyzing propositions in industrial organization

resale price maintenance an empirical analysis of uk firms compliance empirical evidence on resale price maintenance rpm is scarce this paper provides novel empirical evidence based on a unique database of rpm complaints lodged in the uk to the office of fair trading oft between 2007 and 2009 we describe the characteristics of the commodity being traded and of the relevant upstream and downstream firms and their sectors we then present an econometric analysis to assess how the probability of compliance to the oft request to withdraw the rpm can be affected by the specific features of the relevant economic context in which this restraint has taken place

state regulation of takeovers and shareholder wealth the case of new york s 1985 takeover statutes past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets jarrell and bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit on average from the higher premiums paid in successful acquisitions this article uses the event study method to measure the net effect of two takeover statutes passed by the new york state legislature in 1985 the results support the conclusion of jarrell and bradley that despite the higher premiums paid to successfully acquired target shareholders ex post these laws on average harm shareholders ex ante

vertical control and price versus nonprice competition this paper considers a manufacturer distributing a product through retailers who compete in price and service which reduces the time it takes to purchase a good the mix of these instruments that maximizes collective profit is determined by the tastes of consumers on the product margin whereas decentralized retailers consider as well the tastes of consumers on the interretailer margins given search or travel costs consumers with low time costs are overrepresented on the interretailer margins in considering customers on the wrong margin retailers are therefore biased toward price competition this distortion that can be corrected with vertical restraints

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

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

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

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

the time frequency dependence of unemployment on real input prices a wavelet coherency and partial coherency approach abstractwhile the dependence of unemployment on real oil price and real interest rate is an important issue that has been addressed only in the time dimension little is known about the movements o

vertical restraints and the law evidence from automobile franchising abstract after a 2002 european commission regulation prohibited the use of dealer exclusive territories automobile franchise contracts in italy introduced price ceilings and standards on verifiable marketing and service inputs such as advertising and salespeople the contracts also imposed quantity floors a practice already in use before the regulatory change the introduction of standards suggests that consistent with a view of vertical restraints as coordination mechanisms manufacturers used exclusive territories to induce desired dealer services and once the use of exclusive territories was prohibited they switched to alternative contractual devices to achieve this goal the introduction of price ceilings despite free intrabrand competition also suggests that car manufacturers tried to prevent some dealers from gaming the quantity floors by selling to other dealers customers while charging monopolistic prices at their own locations

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

resale price maintenance an economic assessment of the federal trade commission s case against the corning glass works this article examines the economic explanations for the use of resale price maintenance rpm by the corning glass works using empirical evidence developed from the federal trade commission s case challenging the practice three classes of rpm theories are tested the supplier and dealer anticompetitive theories and the class of principle agent theories the article uses both ex ante and ex post tests to distinguish the theories including tests based on structural evidence as well as data on sales advertising and stock market reactions for the company and its competitors around critical events in the case the evidence most convincingly rejects the anticompetitive theories and points toward a principle agent explanation in which rpm helped increase sales of corning s products the case is of interest in part because the simple products at issue in the case are not the types of products most often associated with potential efficiency explanations for rpm

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

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

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