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CAPITAL MARKETS: MARKET MICROSTRUCTURE ABSTRACTS"The Effects of Stock Lending on Security Prices: An Experiment"
STEVEN N. KAPLAN, University of Chicago - Booth School of Business, National Bureau of Economic Research (NBER) Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending (recall) period, returns to stocks randomly made available for lending were not lower (not greater) than returns to stocks randomly withheld from lending. Stocks randomly made available for lending experienced no differences in volatility, bid-ask spreads, or skewness than stocks randomly withheld from lending during either the lending or recall period. We find some evidence that loan supply increases volatilities and spreads for stocks with high short interest and expected loan spreads.
ELIZABETH STONE, Stanford University The Securities Exchange Commission (SEC) implemented the first phase of a 'penny pricing' pilot in the exchange-traded equity options market in February 2007. The initial phase of this trial required the six United States options exchanges to reduce the minimum bid-offer spread from five or ten cents to a penny for the options corresponding to thirteen underlying equity securities. The catalyst for this pricing change was the improved electronic capabilities of the exchanges. Over the course of the preceding decade, the exchanges invested in the development of electronic trading systems that allowed for more efficient quoting and trading of options securities. The SEC's mandated pricing change effectively redistributes the gains of innovation from the exchanges' market makers to individual investors. his paper analyses the market impact of the Penny Pilot and highlights the SEC's central role in shaping the options market's innovations and competitive environment. Beyond a reduction in bid-offer spreads, the pricing pilot has stimulated a variety of changes in trading dynamics and market structure. These repercussions include thinner markets, changes in market maker fee structures, the introduction of alternative trading venues, and incentives for the exchanges to prioritize further technological innovation. "Measuring Price Discovery: The Variance Ratio, the R2 and the Weighted Price Contribution"
JOS VAN BOMMEL, Universidad Cardenal Herrera - CEU In this paper we analyze the statistical properties of three popular measures of price discovery used in empirical market micro structure research. We find that the variance ratio is a consistent estimator for the informativeness of trades or time periods if the price process follows a martingale. The R2 of unbiasedness regressions is consistent for all price processes, also if they exhibit autocorrelation or have a drift. However, the R2 is, like the variance ratio, biased for small samples. We find that weighted price contribution (WPC) is an unbiased estimator for driftless martingales. We characterize the bias of the WPC if the underlying process is autocorrelated and/or has a drift, and propose three WPC variants to adjust for these biases. | ||||||||||
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Solicitation of Abstracts
This journal publishes working and accepted paper abstracts covering a range of topics, including bid-ask spreads, the microstructure of different markets, and the role of inventory costs and asymmetric information on trading of risky assets.
Distribution ServicesIf your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com Distributed by:Advisory BoardCapital Markets: Market Microstructure EDWARD I. ALTMAN GEERT BEKAERT DENNIS R. CAPOZZA DON CHEW J. DAVID CUMMINS DOUGLAS W. DIAMOND EUGENE F. FAMA STEPHEN FIGLEWSKI KENNETH R. FRENCH STUART I. GREENBAUM CAMPBELL R. HARVEY MICHAEL C. JENSEN JONATHAN M. KARPOFF KENNETH LEHN STANLEY R. PLISKA CHARLES I. PLOSSER KATHERINE SCHIPPER ALAN SCHWARTZ G. WILLIAM SCHWERT WILLIAM F. SHARPE RENE M. STULZ ROSS L. WATTS
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