Information and trading patterns in financial markets
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2004.
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| Format: | Thesis |
| Language: | eng |
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Massachusetts Institute of Technology
2005
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| Online Access: | http://hdl.handle.net/1721.1/17845 |
| _version_ | 1826202977129463808 |
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| author | Wang, Albert, 1977- |
| author2 | Dimitri Vayanos. |
| author_facet | Dimitri Vayanos. Wang, Albert, 1977- |
| author_sort | Wang, Albert, 1977- |
| collection | MIT |
| description | Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2004. |
| first_indexed | 2024-09-23T12:29:05Z |
| format | Thesis |
| id | mit-1721.1/17845 |
| institution | Massachusetts Institute of Technology |
| language | eng |
| last_indexed | 2024-09-23T12:29:05Z |
| publishDate | 2005 |
| publisher | Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/178452019-04-11T13:58:50Z Information and trading patterns in financial markets Wang, Albert, 1977- Dimitri Vayanos. Sloan School of Management. Sloan School of Management. Sloan School of Management. Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2004. Includes bibliographical references. This thesis consists of three chapters, each with implications on information and trading patterns in financial markets. Chapter 1: In most financial markets, dealers are given trading advantages meant to encourage liquidity provision. However, it is unclear if these advantages truly induce such trading. I test a unique dataset containing weekly trades and transaction prices of all dealers from the Taiwan Stock Exchange. Standard market-making models, such as Kyle (1985) and Grossman and Miller (1988), imply market maker trades and contemporaneous returns are negatively correlated. I find a strong positive correlation, implying that dealers do not provide liquidity. I develop a unique profit decomposition and find that dealers earn significant excess returns, in aggregate driven by information profits. Chapter 2: I explore cross-sectional returns earned with respect to trading strategies of dealers on the Taiwan Stock Exchange. First, I document the wide variation in dealer trading strategies, as measured by the correlation of their trades with stock returns, as well as the variation in total returns as well as information and market-making components of return. I find no characteristics that provide significant explanatory power for total returns, but several that significantly affect the individual components of returns. Information returns are strongly increasing in the correlation between contemporaneous dealer trades and stock returns. Market-making returns are decreasing in dealer size, number of stocks actively traded, and the aforementioned correlation. These results suggest that a policy of small dealers trading exclusively in a few stocks would be optimal to encourage market-making profits. Ironically, small dealers would be unable to absorb (cont.) large liquidity imbalances. Chapter 3 (joint with Kin Wai Chan and Charles Chang): We explore how financial firms trade on in-house, US equity recommendations. We match the quarterly trades of financial firms with their own recommendations and document their trading patterns around recommendations. We find that net trade is generally more positive around upgrades than downgrades, and significantly so in the same quarter and quarter after the recommendation change. These empirical relations suggest that by and large, financial firms actually do "put their money where their mouths are". by Albert Wang. Ph.D. 2005-06-02T18:54:05Z 2005-06-02T18:54:05Z 2004 2004 Thesis http://hdl.handle.net/1721.1/17845 56571648 eng M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582 125 p. 5864317 bytes 5877507 bytes application/pdf application/pdf application/pdf Massachusetts Institute of Technology |
| spellingShingle | Sloan School of Management. Wang, Albert, 1977- Information and trading patterns in financial markets |
| title | Information and trading patterns in financial markets |
| title_full | Information and trading patterns in financial markets |
| title_fullStr | Information and trading patterns in financial markets |
| title_full_unstemmed | Information and trading patterns in financial markets |
| title_short | Information and trading patterns in financial markets |
| title_sort | information and trading patterns in financial markets |
| topic | Sloan School of Management. |
| url | http://hdl.handle.net/1721.1/17845 |
| work_keys_str_mv | AT wangalbert1977 informationandtradingpatternsinfinancialmarkets |