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The purpose of this paper is to test if the empirical relationship between the size of trades and market liquidity can be pooled across different block sizes on the London Stock Exchange (LSE).

The authors use pooling and non-pooling econometric tests in a panel framework.

When the authors differentiate between various block sizes, the authors find that for trades in excess of 50,000 shares, there is a positive association between the size of the trade and the bid-ask spread, due to a lack of liquidity in the financial market. The results provide strong evidence that an upstairs market may be required in order to provide liquidity for large block trades on the LSE.

This is the first study to directly test if the LSE requires an upstairs market to provide liquidity for large trade transactions.

The purpose of this paper is to test and model non-linearities in block price deviations when they are executed outside the bid-ask quotes. The author conducts an empirical analysis on 662,312 transactions that were traded outside the bid-ask quotes in 2014 on the London Stock Exchange.

The tests reject the linearity hypothesis and the paper shows that the exponential smooth transition autoregressive model is capable of capturing the non-linear behaviour of block price misalignments.

The findings imply that when the deviation of block prices from their quoted value is small (large), trading will occur slowly (rapidly) to restore equilibrium, suggesting that trading costs eliminate continuous trading and that the block trade market is efficient.

The purpose of this paper is to re-model block price deviations from the bid-ask quotes. The major contribution is that the paper presents new empirical evidence, which explicitly allows for the possibility that block price misalignments from the bid-ask quotes can be characterized by a non-linear mean reverting process. The author demonstrates that the presence of transaction costs induces non-linear adjustments of block trade prices.

This paper aims to investigate pre-disclosure information leakage by block traders and market reactions to disclosures of off-hours block trading compared to off-market trading.

Stock responses were analyzed based on timely disclosures regarding Korean firms’ decisions to dispose of their own shares to improve their financial structures.

The results showed that pre-disclosure abnormal returns were generated in off-hours block trading. In contrast, on disclosure days, the returns for off-hours block trading were significantly lower than those for off-market trading. It was consistent with prior studies, indicating that block traders were related to information leakage and caused moral hazard problems.

The comparison between off-hours block trading and off-market trading provides important insights regarding block traders’ behavior. This study’s findings on the leakage of information from block traders indicate the need for firms to exercise caution when using block traders.

The purpose of this paper is to investigate how insiders’ trades are executed and whether and how outside investors can mimic outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature.

The authors design a metric for measuring insiders’ trade execution quality: the trading alpha. The authors run regression analysis to control for trade difficulty, insider reputations and the corporate role ranks of insiders and document the existence of the abnormal trading alpha. The authors further form portfolios based on the abnormal trading alpha and document a significant abnormal return that is robust to both standard asset pricing factors model and the stock characteristics adjustments.

Outperforming insiders at the aggregate level resemble value investors who trade on long-term fundamental information, trade patiently and earn rents from providing liquidity. Outside investors can mimic the outperforming insiders and reap significant abnormal portfolio returns.

Data limitations on insider trades and their association/interaction with their brokers prevent us from having a conclusive investigation of the trading skill hypothesis. The authors hope to further research along the lines of the trading skill hypothesis as compared to investment style hypothesis with more detailed data about the brokers used by insiders.

The findings can be applied for money management profession in that outsider investors can monitor the trading execution and construct portfolios based on the adjusted abnormal trading alpha. The resulting portfolio has been documented to be highly profitable after risk adjustments using standard asset pricing factors as well as stock characteristics.

Professional money managers and outsider investors should be able to benefit from the findings in this paper and use the proposed trading alpha metric to construct and rebalance real-time investment portfolios.

Outperforming insiders at the aggregate level resemble value investors who act on long-term fundamental information, trade patiently and earn rents from providing liquidity. From the perspective of investment implications, outside investors can mimic the outperforming insiders and reap substantial portfolio returns that withstand the erosion from adjustments for both the standard factors and stock characteristics in the asset pricing literature.

The London Stock Exchange is currently preparing for the largest changes in its trading practices since the Big Bang. It is already known that the Exchange is proposing to retain its practice of delaying the publication of large trades so as to encourage the execution of such trades, even though this delayed publication also creates an undesirable information imbalance. However, in reality, what matters to market makers is the effect of a large trade on their inventory position, not the size of the trade itself. It is shown that delaying trade publication on the basis of size and inventory delays the publication of far fewer trades than does the current regime, while still offering protection to market participants who provide liquidity by unbalancing their inventory to accommodate large trades.

The case is presented by a senior marketing major (Tim), who did a business internship in the new products area of a fictitious consumer package goods firm. The case is presented as a journal Tim kept while interning. It is based on the author’s own journal, kept while working as a business professor intern in a firm similar to that in the case. Although names have been disguised, most of the activities, practices and problems described in the case are based on the author’s internship experience. Tim is simultaneously involved in two major new product projects. First is the early exploratory research done for new vegetable‐based food products. Second is a snack product which is ready to be moved from a controlled store test to test markets. Tim is also involved in other activities: a new business committee meeting, an industry forum, and a strategic plans presentation meeting. Tim works fairly closely with the new products manager, people in other areas of the firm such as marketing research and research and development, as well as with the firm’s ad agency. The case also describes informational interviews Tim conducted with various functional managers in the company involved with new products, and it gives students a feel for all of the nitty gritty implementation details involved in new product work.

The purpose of this paper is to examine the empirical relationship between trades undertaken by informed agents (managers) and the proxies for informed trades computed by bid-ask spread decomposition models.

An econometric application of spread decomposition models to data from the London Stock Exchange, with an examination of whether the model predictions are co-integrated with actual outcomes.

The authors find overwhelming evidence of non-stationary behaviour between the actual and predicted informed trade prices. The findings suggest that there is a clear need for an alternative to extant spread decomposition models perhaps incorporating findings from behavioural finance.

Given the importance of stock market liquidity and the extensive use of spread decomposition models in predicting informed trades, the authors believe that the research conducted in the paper is an important contribution to the market microstructure literature.

The purpose of this paper is to describe and critique the swing in international policy from encouraging lower income countries to erect local stock exchanges in the 1990s to discouraging them on efficiency grounds after the US securities markets collapsed in 2001.

Surveys existing literature and data about stock exchanges in emerging market countries for evidence justifying a supportive policy approach to local exchanges in lower income countries.

Basic indicators of stock exchange performance in lower income countries from the World Development Indicators database reveal positive trends alongside the less auspicious indicators emphasized by international organizations opposed to stock exchange development in lower income countries. A survey of finance and development literature generally, and work on capital markets specifically, provides evidence of and rationale for the public benefits of stock exchange development, particularly in emerging market countries. Review of governance structures of stock exchanges in low and middle income countries finds the public interest reflected in government participation in stock exchange boards and in their predominantly non‐profit status. Existing research on stock exchange trading systems provides a rationale for specific policy choices to encourage stock market performance and also highlights areas for further policy‐relevant research.

Provides evidence and rationale to bolster the case for public support of local stock exchange development in low and middle income countries in the face of opposition to such efforts from international development agencies like the World Bank.

The Looking Glass simulation was developed by behavioural scientists at the Centre for Creative Leadership, North Carolina. Looking Glass, Inc is one of the best known examples of a realistic behavioural simulation. Such simulations allow managers to be studied and trained in situations closely approximating their natural environment. A condensed version of an article which follows one manager through the simulation is presented, giving an insight into the process of self‐assessment and self‐discovery that can take place.

An agent-based market simulation is utilized to examine the impact of high frequency trading (HFT) on various aspects of the stock market. This study aims to provide a baseline understanding of the effect of HFT on markets by using a paradigm of zero-intelligence traders and examining the resulting structural changes.

A continuous double auction setting with zero-intelligence traders is used by adapting the model of Gode and Sunder (1993) to include algorithmic high frequency (HF) traders who retrade by marking up their shares by a fixed percentage. The simulation examines the effects of two independent factors, the number of HF traders and their markup percentage, on several dependent variables, principally volume, market efficiency, trader surplus and volatility. Results of the simulations are tested with two-way ANOVA and Tukey’s post hoc tests.

In the simulation results, trading volume, efficiency and total surplus vary directly with the number of traders employing HFT. Results also reveal that market volatility increased with the number of HF traders.

Increases in volume, efficiency and total surplus represent market improvements due to the trading activities of HF traders. However, the increase in volatility is worrisome, and some of the surplus increase appears to come at the expense of long-term-oriented investors. However, the relatively recent development of HFT and dearth of appropriate data make direct calibration of any model difficult.

The simulation study focuses on the structural impact of HF traders on several aspects of the simulated market, with the effects isolated from other noise and problems with empirical data. A baseline for comparison and suggestions for future research are established.