Andros Gregoriou

Modelling non-linear behaviour of block price deviations when trades are executed outside the bid-ask quotes

Purpose - 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. Design/methodology/approach - 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. Findings - 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. Originality/value - 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.

Retirement in a global labour market: a call for abolishing the fixed retirement age

Purpose n n n n– The purpose of this paper is to explore potential benefits and possible pitfalls of the removal of the default retirement age. n n n n nDesign/methodology/approach n n n n– A human capital and labour market perspective provide theoretical lenses for exploring the potential implications for individuals, organizations and societies. The paper employs financial costing analysis to demonstrate. n n n n nFindings n n n n– The paper uses the UK case to illustrate anticipated managerial and societal outcomes. The main finding from the discussion and the financial analysis is that indeed the current system is unsustainable. n n n n nOriginality/value n n n n– The paper offers areas where lessons about age management can be learnt from other experiences of flexible retirement strategies such as enhancing older workers human capital. The idea is of global nature and relevance and forms a “wake-up call” for decision makers at national level.

Price Discovery and Trading after Hours: New Evidence from the World’s Largest Carbon Exchange

We investigate the impact of after-hours trading on magnitude and timing of price discovery over the close-to-close period on the world’s largest carbon trading platform, the European Climate Exchange (ECX). Low volume trading in carbon financial instruments can lead to relatively high levels of price discovery but the generated pricing has low efficiency levels. This is associated with high levels of informed trades and low levels of liquidity trades. Our results show higher trading volume per minute and greater price efficiency for after-hours when compared with regular trading hours. As a result of a higher proportion of informed trades, adverse selection costs for trades during the after-hours are significantly larger than those for trades during the regular trading-day.

Euro Area Inflation Differentials: Unit Roots and Nonlinear Adjustment

This article examines the time-series properties of inflation differentials in 12 economic and monetary union (EMU) countries. The evidence from standard linear unit root tests indicates that inflation differentials are highly persistent in the majority of countries. However, when one allows for the possibility that inflation differentials can be characterized by a nonlinear mean reverting process, one finds evidence of stationarity in all cases. The empirical results suggest that once nonlinearity is accounted for, inflation differentials do not consistently intensify real divergence in the euro area.

Price Impact of Block Trades: The Curious Case of Downstairs Trading in the EU Emissions Futures Market

Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of €21 billion worth of block trades during 2008–2011 in the European carbon market. We find that wider bid-ask spreads and volatility are characterised by a smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day, specifically the four-hour period between 11 a.m. and 3 p.m., than during the first or final hours. Purchase block trades induce a relatively smaller price impact on price run-up, while sell block trades exhibit a larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus, we provide the first evidence of the curious bent to block trading in the European Union emissions trading scheme.

The liquidity effects of revisions to the CAC40 stock index

This article explores liquidity effects following CAC40 index revisions over the time period 1997 to 2001. We find evidence of a sustained increase (decrease) in the liquidity of the added (deleted) stocks. Furthermore, the improvement (reduction) in the liquidity of the stocks is due to a decrease (increase) in the direct cost of trading as opposed to a reduction (enhancement) in the asymmetric information cost of transacting. The empirical findings support the information cost, liquidity explanation. This is because investors demand a smaller (larger) risk premium for investing in stocks with more (less) available information.

Aggregate and regional house price to earnings ratio dynamics in the UK

This paper examines the time-series properties of house price to earnings ratio (HPER) in the UK using aggregate and regional data. Specifically, we utilise a series of unit root tests to examine the null hypothesis of nonstationary HPERs. These include linear tests as well as a nonlinear test and also a test which accounts for abrupt structural change. The results are against the notion of stationary HPERs. This implies that house prices may permanently diverge from earnings.

Stock Price and Volume Effects Associated with Changes in the Composition of the FTSE Bursa Malaysian KLCI

We examine the stock price and volume effects associated with changes in the composition of the FTSE Bursa Malaysia Kuala Lumpur Composite Index (KLCI), over the time period of 2005–2012. We find evidence to support the price pressure hypothesis for both additions to and deletions from the KLCI. This is because significant stock price and trading volume effects in the pre index revision period are entirely reversed after the announcement of the news. Our empirical findings can be explained by the market microstructure literature. Significant changes in liquidity cause trading volume and stock prices to reverse back to their original level before the index revisions took place.

The Influence of Banking Centralization on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy

Ashton J. K. and Gregoriou A. The influence of banking centralization on depositors: regional heterogeneities in the transmission of monetary policy, Regional Studies. This study examines whether regionally and nationally branching banks set deposits interest rates differently. This assessment of the UK retail deposit market between 1992 and 2008 indicates that regional banks set deposit interest rates in a manner distinct to nationally branching banks. Changes in the market interest rate to retail rates are characterized by a non-linear mean-reverting process. Deposit interest rates offered by regional banks are lower, slower to respond to wholesale interest rate increases, and swiftly respond to wholesale interest rate falls, relative to national banks. This evidence is consistent with distinct monetary conditions existing in UK regions.

Earnings announcements and the components of the bid-ask spread: Evidence from the London Stock Exchange

Purpose - The purpose of this paper is to investigate the impact of the components of the bid-ask spread around earnings announcements on the London Stock Exchange using intraday data obtained from the ICV Marketeye database. The paper finds that the information asymmetry cost component significantly increases around the earnings announcements, while the inventory holding and order processing cost components significantly decrease around the same period. Specifically, the economic magnitude of the increase in the asymmetric cost component implies that earnings announcements significantly increase the total bid-ask spread, even when they result in decreased inventory holding and order processing costs. Design/methodology/approach - Liquidity in financial markets around earnings announcements in the London Stock Exchange obtained by bid-ask spread decompositions. Findings - This paper investigates the impact of earnings announcements on the components of the bid-ask spread on the London Stock Exchange using intraday data. The fundamental conclusion from the empirical findings is that the bid-ask spread increases once the earnings have been announced, because the market makers increased concerns about asymmetric information is more pronounced, than the lower inventory and order processing costs due to the higher levels of trading volume. This empirical finding also holds when the earnings announcements are partitioned into positive and negative surprises. Originality/value - This is the first paper to decompose the bid-ask spread around earnings announcements on the London Stock Exchange. The paper uses a unique intraday dataset.