Market liquidity : theory, evidence, and policy /

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The way in which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on liquidity and price discovery.

Detalles Bibliográficos
Clasificación:Libro Electrónico
Autor principal: Foucault, Thierry
Otros Autores: Pagano, Marco, Röell, Ailsa, 1955-
Formato: Electrónico eBook
Idioma:Inglés
Publicado: New York : Oxford University Press, ©2013.
Temas:
Liquidity (Economics)
Securities.
Capital market.
Liquidité (Économie politique)
Marché financier.
BUSINESS & ECONOMICS > Finance.
Kapitalmarkt
Liquidität
Wertpapier
Acceso en línea:Texto completo
Tabla de Contenidos:
  • 0.1 What is This Book About? 1
  • 0.2 Why Should We Care? 4
  • 0.3 Some Puzzles 5
  • 0.4 The Three Dimensions of Liquidity 8
  • 0.4.1 Market Liquidity 8
  • 0.4.2 Funding Liquidity 9
  • 0.4.3 Monetary Liquidity 10
  • Part 1 Institutions
  • 1 Trading Mechanics and Market Structure 15
  • 1.1 Introduction 15
  • 1.2 Limit Order Markets and Dealer Markets 17
  • 1.2.1 Limit Order Markets 17
  • 1.2.2 Dealer Markets 23
  • 1.2.3 Hybrid Markets 27
  • 1.2.4 Market Transparency 28
  • 1.3 Does Market Structure Matter? 31
  • 1.4 Evolution of Market Structure 32
  • 1.4.1 Who Makes the Rules? 32
  • 1.4.2 Competition between Exchanges 34
  • 1.4.3 Automation 37
  • 1.5 Further Reading 44
  • 1.6 Exercises 44
  • 2 Measuring Liquidity 46
  • 2.1 Introduction 46
  • 2.2 Measures of the Spread 49
  • 2.2.1 The Quoted Spread 49
  • 2.2.2 The Effective Spread 50
  • 2.2.3 The Realized Spread 53
  • 2.3 Other Measures of Implicit Trading Costs 55
  • 2.3.1 Volume-weighted Average Price 55
  • 2.3.2 Measures Based on Price Impact 56
  • 2.3.3 Non-trading Measures 58
  • 2.3.4 Measures Based on Return Covariance 59
  • 2.4 Implementation Shortfall 65
  • 2.5 Hands-on Estimation of Transaction Costs 68
  • 2.6 Further Reading 68
  • 2.7 Appendix 69
  • 2.8 Exercises 72
  • 3 Order Flow, Liquidity, and Securities Price Dynamics 77
  • 3.1 Introduction 77
  • 3.2 Price Dynamics and the Efficient Market Hypothesis 81
  • 3.3 Price Dynamics with Informative Order Flow 84
  • 3.3.1 The Glosten-Milgrom Model 85
  • 3.3.2 The Determinants of the Bid-Ask Spread 87
  • 3.3.3 How Do Dealers Revise their Quotes? 92
  • 3.3.4 Price Discovery 94
  • 3.3.5 The Implications for Price Movements and Volatility 98
  • 3.4 Price Dynamics with Order-Processing Costs 101
  • 3.4.1 Bid-Ask Spread with Order-Processing Costs 101
  • 3.4.2 Price Dynamics with Order-Processing and Adverse-Selection Costs 102
  • 3.5 Price Dynamics with Inventory Risk 106
  • 3.5.1 A Two-Period Model 108
  • 3.5.2 A Multi-Period Model 112
  • 3.5.3 The dynamics of prices and inventories 115
  • 3.6 The Full Picture 120
  • 3.7 Further Reading 122
  • 3.8 Exercises 123
  • 4 Trade Size and Market Depth 132
  • 4.1 Introduction 132
  • 4.2 Market Depth under Asymmetric Information 134
  • 4.2.1 Learning from Order Size 135
  • 4.2.2 Perfectly Competitive Dealers 137
  • 4.2.3 The Informed Trader's Order Placement Strategy 140
  • 4.2.4 Imperfectly Competitive Dealers 144
  • 4.3 Market Depth with Inventory Risk 148
  • 4.3.1 Perfectly Competitive Dealers 148
  • 4.3.2 Imperfectly Competitive Dealers 151
  • 4.4 Further Reading 153
  • 4.5 Appendix A 154
  • 4.6 Appendix B 156
  • 4.7 Exercises 157
  • 5 Estimating the Determinants of Market Illiquidity 163
  • 5.1 Introduction 163
  • 5.2 Price Impact Regressions 165
  • 5.2.1 Without Inventory Costs 166
  • 5.2.2 With Inventory Costs 170
  • 5.3 Measuring the Permanent Impact of Trades 176
  • 5.4 Probability of Informed Trading (PIN) 179
  • 5.5 Further Reading 184
  • 5.6 Exercises 184
  • Part 2 Market Design and Regulation
  • 6 Limit Order Book Markets 191
  • 6.1 Introduction 191
  • 6.2 A Model of the Limit Order Book (LOB) 193
  • 6.2.1 The Market Environment 193
  • 6.2.2 Execution Probability and Order Submission Cost 196
  • 6.2.3 Limit Order Trading with Informed Investors 198
  • 6.3 The Design of Limit Order Book Markets 204
  • 6.3.1 Tick Size 204
  • 6.3.2 Priority Rules 207
  • 6.3.3 Hybrid LOB Markets 209
  • 6.4 The Make or Take Decision in LOB Markets 213
  • 6.4.1 Risk of Being Picked Off and Risk of Non-Execution 214
  • 6.4.2 Bid-Ask Spreads and Execution Risk 217
  • 6.4.3 Bid-Ask Spreads and Volatility 220
  • 6.4.4 Indexed Limit Orders, Monitoring, and Algorithmic Trading 223
  • 6.4.5 Order Flow and the State of the LOB 225
  • 6.5 Further Reading 230
  • 6.6 Appendix 232
  • 6.7 Exercises 232
  • 7 Market Fragmentation 236
  • 7.1 Introduction 236
  • 7.2 The Costs of Fragmentation 241
  • 7.2.1 Information Effects 242
  • 7.2.2 Risk-sharing Effects 246
  • 7.2.3 Competition among Liquidity Suppliers 248
  • 7.2.4 Fragmentation and the Broker-Client Relationship 251
  • 7.3 Liquidity Externalities 253
  • 7.3.1 Liquidity Begets Liquidity 254
  • 7.3.2 Low-liquidity Traps 256
  • 7.4 The Benefits of Fragmentation 256
  • 7.4.1 Curbing the Pricing Power of Exchanges 256
  • 7.4.2 Sharper Competition among Liquidity Providers 259
  • 7.4.3 Trade-throughs 265
  • 7.5 Regulation 268
  • 7.5.1 Regulation NMS 268
  • 7.5.2 MiFID 271
  • 7.6 Further Reading 275
  • 7.7 Exercises 275
  • 8 Market Transparency 278
  • 8.1 Pre-trade Transparency 279
  • 8.1.1 Quote Transparency and Competition between Dealers 280
  • 8.1.2 Quote Transparency and Execution Risk 282
  • 8.1.3 Order Flow Transparency 284
  • 8.2 Post-trade Transparency 287
  • 8.3 Revealing Trading Motives 292
  • 8.4 Why are Markets so Opaque? 296
  • 8.4.1 Rent Extraction and Lobbying 297
  • 8.4.2 Opacity can Withstand Competition 298
  • 8.4.3 The Bright Side of Opacity 299
  • 8.5 Further Reading 301
  • 8.6 Exercises 303
  • Part 3 Implications for Asset Prices, Financial Crises, and Corporate Policies
  • 9 Liquidity and Asset Prices 307
  • 9.1 Introduction 307
  • 9.2 Illiquidity and Asset Prices 308
  • 9.2.1 The Illiquidity Premium 308
  • 9.2.2 Clientele Effects 313
  • 9.2.3 Evidence 314
  • 9.2.4 Asymmetric Information, Illiquidity, and Asset Returns 318
  • 9.2.5 Illiquidity Premia in OTC Markets 320
  • 9.3 Liquidity Risk and Asset Prices 322
  • 9.4 Liquidity and Limits to Arbitrage 325
  • 9.4.1 Risk of Early Liquidation as a Limit to Arbitrage 328
  • 9.4.2 Limited Speculative Capital as a Barrier to Arbitrage 331
  • 9.4.3 Implications for Market Making and Liquidity Crises 336
  • 9.5 Correlated Order Flow and Noise Trader Risk 339
  • 9.6 Further Reading 341
  • 9.7 Appendix The Derivation of the Search Model 343
  • 9.8 Exercises 347
  • 10 Liquidity, Price Discovery, and Corporate Policies 350
  • 10.1 Introduction 350
  • 10.2 Market Liquidity and Corporate Investment 351
  • 10.3 Market Liquidity and Corporate Governance 354
  • 10.4 Price Discovery, Corporate Investment, and Executive Compensation 360
  • 10.4.1 Stock Prices and Investment Allocation 361
  • 10.4.2 Stock Prices and Executive Compensation 368
  • 10.5 Corporate Policies and Market Liquidity 372
  • 10.5.1 Listing and Cross-listing 373
  • 10.5.2 Designated Market Makers 375
  • 10.5.3 Disclosure Policy 376
  • 10.5.4 Capital Structure 380
  • 10.6 Further Reading 382
  • 10.7 Exercises 386.

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