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1 – 10 of over 3000Babu G. Baradwaj, Yingying Shao and Michaël Dewally
The purpose of this study is to conduct an empirical investigation on how country-specific characteristics such as the quality of the institutional environment and the…
Abstract
Purpose
The purpose of this study is to conduct an empirical investigation on how country-specific characteristics such as the quality of the institutional environment and the restrictiveness of capital control policy affect domestic financial sector’s ability to provide liquidity to the economy.
Design/methodology/approach
This study uses panel regressions on international banking data across 102 countries from Bankscope.
Findings
The results show that strong institutions and looser capital control in a country enhance the banks’ role as the liquidity provider to the economy. The study also finds that institutional quality and capital control have a dynamic effect that influences the creation of liquidity. Better institutions benefit the creation of liquidity in either under normal economic conditions or during economic downturn. Loosened capital control, as a result of financial openness, facilitates liquidity creation under normal economic conditions.
Originality/value
This study complements the research on the role of country-level institutions in financial and economic development and suggests a liquidity channel through which a country’s institutions can further economic growth. The study also provides evidence on the impact of a country’s control of capital flows on the role of banking sector in domestic economy.
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There is limited discussion in the literature of the problems associated with constructing stress tests. The Credit Crunch has revealed that attention simply to haircuts to asset…
Abstract
Purpose
There is limited discussion in the literature of the problems associated with constructing stress tests. The Credit Crunch has revealed that attention simply to haircuts to asset values and resulting margin calls is insufficient. The purpose of this paper is to explore additional avenues for stress testing.
Design/methodology/approach
The paper is largely discursive.
Findings
Stress tests must look into the debt position of the firm, as well as its position and credit exposures. Not only the volume of debt but its maturity structure, callability and the indentures attached to it are extremely important.
Research limitations/implications
The paper is geared more toward management and practitioners than to academic researchers. Implications for the analysis of corporate strategy are significant.
Social implications
Stress testing is essential to the confident continuance of firms.
Originality/value
So much of the work in this area is proprietary and so little has been published on it.
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The study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.
Abstract
Purpose
The study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.
Design/methodology/approach
Berger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.
Findings
The results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.
Research limitations/implications
The empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.
Originality/value
To the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.
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Zhiqiang Ye, Zhi Zhang and Songlian Tang
The purpose of this paper is to test the relationship between stock dividends policy and liquidity of ex ante announcement to improve the traditional stock dividends liquidity…
Abstract
Purpose
The purpose of this paper is to test the relationship between stock dividends policy and liquidity of ex ante announcement to improve the traditional stock dividends liquidity hypothesis.
Design/methodology/approach
The authors examine a sample of 2,088 which matching stocks between having stock dividends policy and having no dividends policy during 1999-2012 in Chinese listed firms. Using the multiple liner regression, the authors empirically tests the relationship between the possibility, payout ratio and timing choice of stock dividends and the liquidity of ex ante announcement.
Findings
The authors find that the possibility of stock dividends policy has negative relationship with liquidity, and the relationship of stock dividends and liquidity of ex ante announcement is influenced by the time choice of stock dividends.
Originality/value
This paper study the reason of stock dividends policy from the perspective of liquidity and improve the traditional stock dividends liquidity hypothesis.
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Matt Brigida and William R. Pratt
This paper aims to investigate the quickness, and test the accuracy, of liquidity taking high-frequency traders (HFT). This gives us important insights into a class of market…
Abstract
Purpose
This paper aims to investigate the quickness, and test the accuracy, of liquidity taking high-frequency traders (HFT). This gives us important insights into a class of market participant who has come to be very influential in present markets.
Design/methodology/approach
The authors use the weekly natural gas (NG) storage report for the test because the information contained in the release often has a large effect on prices. Moreover, the NG market is heavily traded and liquid, and prone to high volatility. These factors make trading in this market attractive to HFT. The authors test for the profitability of those who trade in the first milliseconds after the report’s release; and for information leakage prior to the report.
Findings
The authors find those who trade within the first 50 ms accurately incorporate the information contained in the storage report into prices, and earn the majority of profits. In fact, HFT profits are decreasing in the time it takes them to trade after the announcement (measured to 200 ms). Further tests find no evidence of informed trading prior to the release of the report, and so the HFT reaction to the report incorporates the information contained therein into prices.
Originality/value
This is one of the few analyzes of the profitability of liquidity-taking HFT, and the only analysis that uses millisecond NG data. The data used is the exchanges original FIX/FAST messages.
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Andrew Lepone, Reuben Segara and Brad Wong
This study investigates whether broker anonymity impairs the ability of the market to detect informed trading in the lead up to takeover announcements. Our research represents the…
Abstract
This study investigates whether broker anonymity impairs the ability of the market to detect informed trading in the lead up to takeover announcements. Our research represents the first study in this area to analyse the effects of broker anonymity in the context of significant information asymmetry. Results indicate that informed traders are less detected, and therefore better off when broker identifiers are concealed. This finding has important policy implications for exchange officials deciding whether or not to reveal broker identifiers surrounding trades, especially considering that almost all prior research suggests that broker anonymity is correlated with improved liquidity.
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The purpose of this paper is to examine the changes in the price impact of trades in the major Korean stock market following the introduction of disclosure to all traders of the…
Abstract
Purpose
The purpose of this paper is to examine the changes in the price impact of trades in the major Korean stock market following the introduction of disclosure to all traders of the top five brokers on the buy-side and the top five brokers on the sell-side of trades in real time for each stock in the KOSDAQ market.
Design/methodology/approach
The paper uses several alternative metrics for the price impact of trades. The study applies estimation methodology that accounts for the potential endogeneity of other market quality proxies, which are used as control variables in price impact regressions, by utilizing two-stage-least-square methods with fixed effect specification.
Findings
This study finds that the permanent price impact (information effect) of both buyer- and seller-initiated trades increases, which indicates that information is disseminated quicker in a transparent market. Uninformed trades have a larger permanent price impact than informed trades on both the buy and sell sides. The liquidity price effects are found to be mixed for buys and sells.
Research limitations/implications
The study supports the current policy of the Korean Exchange to publicly display the five most active broker IDs on both the buy and sell sides, as it attracts both informed and liquidity traders, leading to faster price discovery in a more transparent market. However, a future study which analyzes the change in the market quality in both local markets would provide a complete picture of the effects of the policy.
Originality/value
Earlier studies documenting the effect of broker ID disclosure on market quality used effective spreads, market depth or order book imbalance as market quality measures. This study contributes to the existing literature by examining the changes in direct measures of the private information effect and liquidity effect of trades in a stock market – the Korean Stock Exchange – when the other part of the exchange (the KOSDAQ stock market) shifts to public broker ID transparency at the same transparency level.
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The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order…
Abstract
Purpose
The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order flow among trading venues in, respectively, Europe and the USA.
Design/methodology/approach
The paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and the US securities markets.
Findings
Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the European Union ones, in strengthening competition for order flow among trading venues.
Research limitations/implications
Regulatory factors can only partly explain the current structure of the European and US securities markets. Technology and heterogeneity in traders' demand are other important factors that concur in shaping the European and US markets.
Practical implications
The degree of competition for order flow among trading venues depends on how regulations define the best execution duty, the availability of updated and consolidated pre‐trade (i.e. quotations) and post‐trade (i.e. transactions) information and the efficiency of post‐trading infrastructures.
Originality/value
The paper addresses issues not yet investigated and provides valuable insights for financial intermediaries, incumbent and prospective exchanges as to the competition in the securities industry, and to regulators as to the likely impact of the new regulations.
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Conghua Wen, Fei Jia and Jianli Hao
Using intraday data, the authors explore the forecast ability of one high frequency order flow imbalance measure (OI) based on the volume-synchronized probability of informed…
Abstract
Purpose
Using intraday data, the authors explore the forecast ability of one high frequency order flow imbalance measure (OI) based on the volume-synchronized probability of informed trading metric (VPIN) for predicting the realized volatility of the index futures on the China Securities Index 300 (CSI 300).
Design/methodology/approach
The authors employ the heterogeneous autoregressive model for realized volatility (HAR-RV) and compare the forecast ability of models with and without the predictive variable, OI.
Findings
The empirical results demonstrate that the augmented HAR model incorporating OI (HARX-RV) can generate more precise forecasts, which implies that the order imbalance measure contains substantial information for describing the volatility dynamics.
Originality/value
The study sheds light on the relation between high frequency trading behavior and volatility forecasting in China's index futures market and reveals the underlying market mechanisms of liquidity-induced volatility.
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This study aims to explore the failures of Tunisian secondary corporate bond market liquidity to understand the determinants of corporate bond market liquidity at large.
Abstract
Purpose
This study aims to explore the failures of Tunisian secondary corporate bond market liquidity to understand the determinants of corporate bond market liquidity at large.
Design/methodology/approach
We adopted a qualitative approach to studying the Tunisian Stock Exchange. Dealers’ perceptions were collected through semi-structured face-to-face interviews; the data was recorded, transcribed and thematically analysed.
Findings
Secondary corporate bond market failures are due, in part, to microstructural choices – especially the use of an over-the-counter market as a trading venue. The absence of a corporate bond yield curve, a narrow investor base, market participants’ lack of financial education and authorities’ attitudes are equally responsible.
Research limitations/implications
This study is useful to researchers, policymakers and practitioners, as it identifies microstructural and other factors affecting the Tunisian secondary corporate bond market. We interviewed only Tunisian dealers while ignoring other categories of market participants. Furthermore, a focus group discussion could have improved our understanding of the determinants of the Tunisian secondary corporate bond market.
Originality/value
This paper aimed to qualitatively discuss several issues related to the Tunisian secondary corporate bond market. To date, little academic research has addressed this topic in the illiquid and non-transparent corporate bond markets.
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