Finance

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Browsing Finance by Subject "Business"

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    ESSAYS ON MARKET MICROSTRUCTURE AND HIGH FREQUENCY TRADING
    (2014) Li, Wei; Kyle, Albert S.; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation includes two chapters on topics related to market microstruc- ture and high frequency trading. In the first chapter, I explore the effects of speed differences among front-running high frequency traders (HFTs) in a model of one round of trading. Traders differ in speed and their speed differences matter. I model strategic interactions induced when HFTs have different speeds in an extended Kyle (1985) framework. HFTs are assumed to anticipate incoming orders and trade rapidly to exploit normal-speed traders' latencies. Upon observing a common noisy signal about the incoming order flow, faster HFTs react more quickly than slower HFTs. I find that these front-running HFTs effectively levy a tax on normal-speed traders, making markets less liquid and prices ultimately less informative. Such negative effects on market quality are more severe when HFTs have more heterogeneous speeds. Even when infinitely many HFTs compete, their negative effects in general do not vanish. I analyze policy proposals concerning HFTs and find that (1) lowering the frequency of trading reduces the negative impact of HFTs on market quality and (2) randomizing the sequence of order execution can degrade market quality when the randomizing interval is short. Consistent with empirical findings, a small number of HFTs can generate a large fraction of the trading volume and HFTs' profits depend on their speeds relative to other HFTs. In the second chapter, I study the effects of higher trading frequency and front-running in a dynamic model. I find that a higher trading frequency improves the informativeness of prices and increases the trading losses of liquidity driven noise traders. When the trading frequency is finite, the existence of HFT front-runners hampers price efficiency and market liquidity. In the limit when trading frequency is infinitely high, however, information efficiency is unaffected by front-running HFTs and these HFTs make all profits from noise traders who do not smooth out their trades.
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    Two Essays on Recent Innovations in Finance: Microfinancing and Floating Rate Convertibles
    (2010) Padhi, Michael Stanley; Phillips, Gordon; Business and Management: Finance; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    The first essay provides theory concerning the risk-taking incentives of microfinance borrowers in varying cases: individual liability, group liability without social sanctions, and group liability with social sanctions. The results provide insight into how a community's social capital and a country's credit rights interact to induce recipients of microfinance programs to take risk. Consistent with recent anecdotal evidence that suggests a "dark side" to microfinance, the results show that communal ties among joint liability borrowing groups may not lead to higher repayment rates and may have worse welfare effects on the recipients by making the poorest group members unwilling to take the risks necessary to grow a business. The second essay considers floating rate convertibles (FRCs). FRCs are a category of PIPE securities that receive negative associations in both the academic and professional literature. This study sheds light on the managerial relationship to the decision to issue FRCs and to the variation in market response to these issues. One main result of the study identifies influence of the CFO relative to the CEO as significant in the decision to issue FRCs and in the market's immediate reaction to the issuance. Another main result is that FRC issuing firms with CFOs without prior public equity issuance experience have significantly negative long run abnormal returns, whereas FRC issuing firms with experienced CFOs do not.