Andrew Lepone

Impact of a Tick Size Reduction on Liquidity: Evidence from the Sydney Futures Exchange

This paper examines the impact of a reduction in the minimum price increment on liquidity and execution costs in a futures market setting. In 2006, the Sydney Futures Exchange halved the minimum tick in the 3 Year Commonwealth Treasury Bond Futures. Results indicate that bid-ask spreads are significantly reduced after the change. Quoted depth, both at the best quotes and visible in the limit order book, is significantly lower after the tick reduction. Further analysis reveals that execution costs are significantly reduced after the change. We conclude that a tick size reduction improves liquidity and reduces execution costs in a futures market setting.

Market Behavior of Institutional Investors around Bankruptcy Announcements

This paper examines, using proprietary ASX data containing institutional holdings, if institutional investors exit en mass prior to announcements of financial distress. Evidence indicates that while some institutional investors exit the stock, the withdrawal is gradual, commencing approximately 115 days prior to event. This is driven by active institutional investors reacting to the release of the financially distressed companies’ last publicly released financial reports. There is no significant decline in institutional holdings before announcements; most institutional investors hold financially distressed shares through to failure. There is evidence that the lack of disclosure drives the increase in information asymmetry prior to company failure.

Unequal Access to Analyst Research

This study examines the relationship between equity analysts and information asymmetry, and the extent of leakages in analyst recommendations. Literature suggests that analysts reduce information asymmetry by bringing privately held information to the market, and through superior analysis of publicly available information. However, we find that investor access to analyst reports is far from even, and show evidence consistent with the leakage of analyst recommendations. We find that leakages provide annualised cumulative abnormal returns of approximately 6.30% for upgrades and 12.53% for downgrades over a four-week period, after a generous provision of 1% (round trip) for transaction costs. In our examination of broker/analyst size, we find evidence of greater leakage from the smaller brokers on stock downgrades, but not upgrades. We suggest that smaller brokers are less likely to have an established relationship with company management, are less reliant on them as a source of future information, and are therefore less hesitant to leak downgrades.

The Impact of auctions on residential sale prices : Australian evidence

This study re-examines the variation in selling prices between the auction and private treaty method of sales. Using sales data from five major Australian capital cities over a four year period, we estimate a hedonic pricing model. Results indicate that for house sales, auctions lead to greater selling prices across all cities examined. However, results for unit sales reveals that this auction premium is only evident in two cities where auctions are less prevalent. Further analysis reveals that self-selection (where a particular method of sale is selected to maximise the selling price) is evident across the sample. After controlling for this self-selection bias using a two-stage model, houses sold via auction generally command a higher price. This suggests that the auction method of selling provides a price premium over the private treaty method of sale.

Does broker anonymity hide informed traders

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.

The Determinants of Execution Costs in Short-Term Money Markets

Prior research attributes the observed negative relation between execution costs and trade size in opaque markets to two factors - information asymmetry and broker‐client relationships. We provide evidence that a traders ex ante transaction price information and the relationship traders have with their brokers are both significant determinants of a traders execution costs in an opaque market; however, traders who establish strong relationships with their brokers will achieve a greater reduction in execution costs than traders with ex ante transaction price information. We also find evidence that trade size has little explanatory power after controlling for a traders ex ante transaction price information and broker‐client relationships.

The Impact of Closing Call Auction on Liquidity and Price Discovery Process: An Analysis on the Stock Exchange of Hong Kong

In 2008 The Hong Kong stock exchange introduced a closing call auction, which was subsequently removed in March 2009 after instances of market manipulation1. This paper examines the impact of the introduction and suspension of the closing call auction on market quality. Our empirical analysis finds that the introduction of the closing calls leads to an increases in transaction costs. The percentage of daily volume traded in the closing call auction is high, and the price discovery process is improved. Overall, the suspension of the closing call auction leads to a decrease in market quality.

Chapter 14 Price behaviour surrounding block transactions in stock index futures markets: International evidence

This chapter examines the price impact of large trades in futures markets across 14 stock index futures contracts in 11 different international markets. On the balance, we find that part of the initial price effect of futures trades is temporary. These initial price effects are partially reversed, implying that they incur a liquidity premium; though there is some variation in this finding across markets. We also find strong evidence that large buyer- and seller-initiated trades have positive and negative permanent effects on prices, implying they convey information. We conclude, similar to research based on equities markets, that traders in futures markets are informed.