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

monetary policy and uncertainty in an empirical small open economy model this paper explores optimal policy design in an estimated model of three small open economies australia canada and new zealand within a class of generalized taylor rules we show that to stabilize a weighted objective of output consumer price in ation and nominal interest variation optimal policy does not respond to the nominal exchange this is despite the presence of local currency pricing and due in large part to observed exchange rate disconnect in these economies optimal policies that account for the uncertainty of model estimates as captured by the parameters posterior distrbution similarly exhibit a lack of exchange rate response in contrast to brainard 1967 the presence of parameter uncertainty can lead to more or less aggressive policy responses depending on the model at hand

prices and quantities unsustainable consumption and the global economy abstract the ecological unsustainability of current consumption patterns is now well documented one aspect of this problem which has not been sufficiently addressed is the growth of excess consumption driven by falling goods prices the index of department store prices have fallen substantially since the early 1990s in large part because global capital mobility and excess global labor supply has allowed firms to depress wages and avoid paying environmental costs consumers have responded by purchasing increasing numbers of these artificially cheap goods the example of apparel is discussed in some detail and data from other goods categories are presented these trends suggest that achieving sustainable consumption in the us is not only a technical issue but will also involve fundamental changes in the global political economy to eliminate the artificially low prices of imported goods

third market reforms the overlooked goal of the sec s order handling rules in 1997 the securities and exchange commission enacted significant reforms in u s markets several studies document that the new order handling rules increased competition for nasdaq stocks but the reforms were designed with an additional goal in mind to increase quote competition for the trading of nyse listed securities on nasdaq i e third market trading an evaluation of the reforms in the third market indicates that they did not achieve this objective instead both quote quality and quoting frequency were diminished due primarily to elimination of the excess spread rule this suggests that more significant changes are needed to increase inter exchange competition

valuing the attributes of renewable energy investments increasing the proportion of power derived from renewable energy sources is becoming an increasingly important part of many countries s strategies to achieve reductions in greenhouse gas emissions however renewable energy investments can often have external costs and benefits which need to be taken into account if socially optimal investments are to be made this paper attempts to estimate the magnitude of these external costs and benefits for the case of renewable technologies in scotland a country which has set particularly ambitious targets for expanding renewable energy the external effects we consider are those on landscape quality wildlife and air quality we also consider the welfare implications of different investment strategies for employment and electricity prices the methodology used to do this is the choice experiment technique renewable technologies considered include hydro on shore and off shore wind power and biomass welfare changes for different combinations of impacts associated with different investment strategies are estimated we also test for differences in preferences towards these impacts between urban and rural communities and between high and low income households

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

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

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

bayesian interval robust optimization for sustainable energy system planning in qiqihar city china abstract old industrial bases in northeastern china have been experiencing a series of problems such as energy scarcity economic slack and environmental pollution due to lack of scientific planning of energy systems effective energy system management is desirable for avoiding occurrence of these problems in the following decades under the national policy of revitalizing these industrial bases this task is challenged by system complexity data unavailability and inaccurate demand forecasting which can hardly be resolved in existing studies for improving energy system management in qiqihar city a representative industrial base in northeastern china under these challenges a large scale and fine resolution bayesian interval robust energy system optimization bireso approach is developed in this study in detail the structure characteristics problems and complexities of the energy system in this city are identified and analyzed based on these efforts a series of optimized energy system management schemes are generated through construction of a bireso model and development of a solution algorithm the obtained solutions can be ensured to remain robust when input data changes through controlling the degree of solution conservatism in accordance with probabilistic bounds on constraint violation furthermore bayesian estimation method was employed for effectively achieving dynamic forecast of energy demands the tradeoff among energy security economic development and environmental conservation under multiple uncertainties is revealed and the optimal balance among them is identified a scenario analysis approach is used to quantify the effects of economic growth on energy system schemes based on several developed scenarios results show that the bireso approach is capable of providing scientific support for energy supply planning renewable energy development technological advancement facility expansion energy allocation pollution control economic impacts assessment and other energy related activities in qiqihar city

are the economic costs of stabilising the atmosphere prohibitive abstract macro economic studies of the costs of reducing co2 emissions generally estimate the global cost of stabilising the atmospheric concentrations of co2 in the range 350 550 ppm in trillions of usd this creates the impression that the cost of co2 reductions is so large that it threatens economic development but presented in another way a completely different picture emerges there is widespread agreement amongst the more pessimistic macro economic studies that stringent carbon controls are compatible with a significant increase in global and regional economic welfare even if the cost of co2 abatement rises to 5 of global income per year by the end of this century this reduction is minor compared with the tenfold increase in global income that is expected since income is assumed to grow by a couple of percent per year the trillion usd cost could also be expressed as a few years delay in achieving an order of magnitude higher income levels similar observations can also be made as regards near term abatement targets such as the kyoto protocol a more widespread recognition of the fact that carbon abatement policies will only marginally affect economic growth is likely to increase the willingness to introduce carbon abatement policies

crisis and competition in expert organizational decision making credit rating agencies and their response to turbulence in emerging economies firms often delegate elements of strategic decisions to outside experts who promise objective assessments which are especially valuable in unstable environments however experts themselves may be prone to skewed decision making as the stability of their own industry environment changes and as their positioning within the industry shifts we examine this possibility in the context of expert credit rating agencies agencies and their risk ratings of emerging market sovereign borrowers ratings published from 1987 to 1998 a period that includes both industry stability 1987 1996 and industry turbulence set off by financial crises in several emerging market countries 1997 1998 after controlling for macroeconomic and related objective risk factors linked to the sovereigns themselves we find several points 1 agency ratings during crisis induced industry turbulence are negatively skewed indicating undue pessimism among these experts in line with decision making perspectives predicting negative reaction by experts in an effort to retain legitimacy with salient stakeholders in this case investors and public regulators 2 this negative shift is greater for incumbent firms and regionally focused firms possibly because of the loss of previous informational advantages and 3 this negative shift during crisis induced turbulence is greater as industry rivalry among these experts increases in particular market segments possibly indicating the development of competitive bandwagons among experts together our results suggest that objective assessments by expert organizations are vulnerable to substantial distortion from the confluent effects of industry instability and expert positioning within the industry particularly positioning affecting rivalry among experts ironically experts may be most likely to mislead clients in unstable industry environments when experts command greater attention and should show greater fidelity to disinterested objectivity

order characteristics and stock price evolution an application to program trading abstract this paper is an econometric analysis of the information content of automated orders arriving at the nyse the model captures the joint behavior of automated orders and also the return on the stock index future and the futures spot basis the results indicate that orders contain information useful in predicting stock returns beyond the information contained in the reported trades furthermore program and index arbitrage orders contain information beyond that available from the futures return and basis suggesting that these orders are not merely passive conveyors of common factor information nonprogram program and index arbitrage orders have roughly similar price impacts

sustainable energy prices and growth comparing macroeconomic and backcasting scenarios how do results from the sustainability research world of backcasting relate to the macroeconomic scenarios used for policy evaluation and planning the answer is that they don t mostly they come

energy backcasting a proposed method of policy analysis abstract there have recently emerged a number of analyses which suggest that there exists a large potential for soft energy policy paths it is difficult to illustrate this argument using conventional forecasting techniques therefore these analyses tend to use an alternative method called energy backcasting this involves setting policy goals and then determining how those goals could be met as yet however little attention has been paid to the theoretical aspects of backcasting techniques in this article a specific backcasting method is proposed which it is argued allows consideration of many factors obscured in traditional energy supply and demand forecasts

program trading and intraday volatility program trading and intraday changes in the s p 500 index are correlated future prices and to a lesser extent cash prices lead program trades index arbitrage trades are followed by an immediate change in the cash index which ultimately reverses slightly no reversal follows nonarbitrage trades the cumulative index changes associated with buy and sell trades and with arbitrage and nonarbitrage trades all are similar price decompositions suggest that the results are not due to microstructure effects program trades in this 1989 1990 sample do not seem to have created major short term liquidity problems the results are stable within the sample many practitioners regulators and public commentators have expressed concerns about potential destabilizing effects of program trading they argue that program trades especially index arbitrage programs increase intraday volatility and decrease

stock index futures and index arbitrage in a rational expectations model this article analyzes the role of stock index futures and index arbitrage in a rational expectations economy with competitive stock and futures markets a simple model is developed with three types of agents who besides having different trading motives have unequal access to markets among these agents only index arbitrageurs can trade on both markets and thus engage in arbitrage the article characterizes the impact of index arbitrage on equilibrium prices volatilities and welfare it is shown that index arbitrage is a risk reallocating and price correcting mechanism its impact on price stability is shown to be dependent on the relative variability of aggregate supply in the respective markets index arbitrage also transmits information across markets copyright 1991 by university of chicago press

an analysis of the implications for stock and futures price volatility of program trading and dynamic hedging strategies the notion that a real security is redundant when it can be synthesized by a dynamic trading strategy ignores the informati onal role of real securities markets portfolio insurance uses a dyna mic strategy to synthesize a european put the absence of trading in an appropriate real put option prevents the transmittal of informatio n to market participants about the future price volatility associated with current dynamic hedging strategies less information is transmi tted to potential liquidity providers it will therefore be more di fficult for the market to absorb the trades implied by the dynamic he dging strategies and the stocks future price volatility will rise copyright 1988 by the university of chicago

an examination of changes in specialists posted price schedules new york stock exchange specialists disseminate information to market participants by displaying price schedules consisting of bid prices ask prices bid depths and ask depths we examine how specialists update these price schedules in a simultaneous equations model we find that changes in the best prices and depths on the limit order book have a significant impact on the posted price schedule while the effects of transactions and order activity are secondary furthermore we show that specialists revise prices and depths differently but find no evidence that they revise the price schedule in response to changes in inventory article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a direct test of methods for inferring trade direction from intra day data this study directly tests the ability of several competing methods to identify market buy and sell orders using intra day quote and trade prices and identifies factors that affect the accuracy of the methods lee and ready s 1991 algorithm performs about the same as the tick test but the performance of both methods is worse than expected the results show that the use of either algorithm to classify trades can lead to significantly biased estimates of effective spreads and signed volume but the tick test provides better estimates of effective spreads and signed volume than lee and ready s method i introduction the use of intra day prices in empirical studies of securities markets is increasingly common and studies frequently require trades be identified as buyer or seller initiated unfortunately most data sets do not identify trade direction methods have however been proposed that allow trade direction to be inferred from adjacent prices and quotes the accuracy of these methods and the implica tions for microstructure research are still unresolved issues in large part because trade direction is unobservable in most financial data sets this study directly tests the ability of several competing methods to iden tify market buy and sell orders using intra day quote and trade prices the tests are conducted using the torq database a unique data set the new york stock exchange makes available to researchers that contains information on trades quotes and orders using the tick tests and lee and ready s lr hereafter 1991 method to classify trades as buys or sells and comparing the results to the direction of the actual orders i directly test the accuracy of the classification algorithms the tests also identify the factors that affect the accuracy of the clas sification methods additional tests demonstrate that using these algorithms can lead to biased inferences in two of their most common applications estimating effective spreads and signed volume trading test results also show that the tick

information and index arbitrage a random cash futures basis is derived in a dynamic multimarket learning game with sequential information shocks and strategic arbitrageurs who trade to exploit gaps in the basis statistical properties of the authors theoretical basis are derived both with and without index arbitrage the authors find that basis volatility a measure of intermarket mispricing may initially increase even as individual prices become more precise and that arbitrage reduces basis volatility the model is also used to analyze regulatory issues such as the possible impact of circuit breakers on the quality of the trading process copyright 1994 by university of chicago press

us long term energy intensity backcast and projection energy intensity of the economy is often modeled as being determined by the combined effect of a fixed price elasticity of demand and an exogenously specified fixed technical change parameter denoted as the autonomous energy efficiency improvement aeei typically the aeei rate is set to 0 5 1 5 improvement per annum here we study historic aggregate energy intensity trends for the us from 1954 to 1994 we show that the historic trends are inconsistent with an autonomous model of improved energy efficiency especially when the model is used to inform policies that impact energy prices as an alternative we propose a model of price induced efficiency in which aggregate energy intensity trends respond to changes in energy prices beyond price elasticity of demand e our exercise reveals that the aggregate price elasticity of energy demand of the us economy has declined by roughly 15 over the past four decades but beyond this decline bringing our simulations and historical data into close correspondence requires to change sign before and after 1974 before 1974 after accounting for price elasticity of demand the economy was growing less energy efficient after 1974 after accounting for the price elasticity of demand the economy was growing more energy efficient furthermore since 1984 the rate of energy efficiency gain has been declining when projections of long term energy use are compared those with a price induced energy efficiency formulation generate significantly more price sensitive energy use and emissions trajectories when in the business as usual scenario energy prices are expected to be rising climate policies involve lower shadow carbon prices with than with aeei formulations in scenarios where energy prices are relatively flat energy intensity rises leading to co2 emissions far higher than standard business as usual projections utilizing aeei assumptions

stealth trading which traders trades move stock prices usingaudit trail data for a sample of nyse firms we show that medium size trades are associated with a disproportionately large cumulative stock price change relative to their proportion of all trades and volume this result is consistent with the predictions of barclay and warner s 1993 stealth tradinghypothesis we find that the source of this disproportionately large cumulative price impact of medium size trades is trades initiated by institutions this result is robust to various sensitivity checks our findings appear to confirm street lore that institutions are informed traders 2001 elsevier science s a all rights reserved

what s not there odd lots and market data we investigate odd lot trades in equity markets odd lots are increasingly used in algorithmic and high frequency trading but are not reported to the consolidated tape or in databases such as taq in our sample the median number of odd lot trades is 24 but in some stocks odd lots are 60 or more of trading odd lot trades contribute 35 of price discovery consistent with informed traders using odd lots to avoid detection omitting odd lot trades leads to inaccuracies in order imbalance measures and makes sentiment measures unreliable excluding odd lots from the consolidated tape raises important regulatory issues

a note on execution costs for stock index futures information versus liquidity effects this paper examines execution costs and the impact of trade size for stock index futures using price volume transaction data from the london international financial futures and options exchange consistent with subrahmanyam rev financ stud 4 1991 11 we find that effective half spreads in the stock index futures market are small compared to stock markets and that trades in stock index futures have only a small permanent price impact this result is important as it helps to better understand the success of equity index products such as index futures and exchange traded funds we also find that there is no asymmetry in the post trade price reaction between purchases and sales for stock index futures across various trade sizes this result is consistent with the conjecture in chan and lakonishok j financ econ 33 1993 173 that the asymmetry surrounding block trades in stock markets is due to the high cost of short selling and the general reluctance of traders to short sell on stock markets c 2004 elsevier b v all rights reserved

money in an estimated business cycle model of the euro area this article examines the role of money in a small scale dynamic general equilibrium model of the euro zone estimated by maximum likelihood the model allows for both intertemporal and intratemporal non separability in preferences we find first that real balances do not affect the marginal utility of consumption second money demand shocks mainly help to forecast real balances while real shocks explain the bulk of price output and interest rates fluctuations third the calculation of the natural rate of interest reveals that the evolution of the interest rate is mostly accounted for by the real sources of fluctuations

dilemma of the silver standard economies the case of china exchange rate commitments implied in the silver standard originally anchored china s monetary policy and the inflation rate in the early republican period it was believed that china s free silver standard acted as a natural check on the excessive issuing of notes by warlords and local governments this consensus view however overlooks the fact that the silver standard was inherently unstable because it left no room for monetary policy to stabilize output and inflation this article employs a formal structural model to show that a fiat currency unlinked to fluctuations in the price of silver that allows government to implement self adjusting monetary policies would further stabilize china s output and inflation

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

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