Antoine Giannetti

Price Movements, Information, and Liquidity in the Night Trading Market

Night trading provides an ideal laboratory to assess the behavior of stock markets when institutional liquidity providers are less active. The evidence indicates that extreme positive (winner) and negative (loser) stock-price movements during night sessions are followed by reversals the next day. The reversals are more pronounced following extreme stock-price movements that are associated with less trading volume and lower liquidity. Within-the-night sample reversals are less pronounced for stocks of companies issuing earnings announcements. Copyright 2006 by the Eastern Finance Association.

On investing in the long run when stock returns are mean-reverting

How risky is it to invest in the stock market in the long run? Under the random walk hypothesis for stock returns, it has been shown that risk is increasing with the investment time horizon. Using the insights of variance ratios literature, this paper shows that, if stock returns are mean-reverting in the long run, then such a conclusion may be reversed. As a practical consequence, portfolio insurance cost would decrease with time horizon.

The dynamics of leveraged ETFs returns: a panel data study

Leveraged exchange-traded funds (LETFs) are limited liability securities that allow investors to take daily constant leverage bets on a reference index. This work proposes a new empirical design to investigate the dynamics of quarterly LETFs returns. Rather than relying on fund-by-fund overlapping regressions, as in existing literature, the paper exploits a large panel of non-overlapping data covering the whole universe of Proshares, the US primary LETFs provider. Overall, it is found that the variables prescribed by theory broadly explain cross-sectional variability. It is also found that inverse LETFs and more generally, leveraged funds operating in asset classes like international equity, bonds and commodities underperform theoretical predictions. This underperformance is mainly attributed to frictions in the process of implementing the required daily leverage.

A Robust Bayesian Analysis of The Stock Market's Response to Macroeconomic News

This paper explores the quality of the information that macroeconomic news convey to the stock market as forward looking signals of future business conditions. We introduce a novel robust Bayesian semi-parametric analysis of investors’ correspondence functions (i.e., signal-to-price mappings) in the stock market and a feasible ex ante measure of the level of ambiguity in Survey responses anticipating macroeconomic announcements. Using both survey and vector autoregressive (VAR)-based data we show that macroeconomic announcements are relatively ambiguous signals of future economic fundamentals in the stock market, potentially explaining some of previous controversial results in the literature.

Optimal use of futures contracts for the competitive firm

Standard futures hedging policies are based on the so-called optimal hedge ratio which implicitly ignores the competitive environment in which the firm operates. The purpose of this study is to derive an optimal hedging policy for a firm facing random production costs and a downward sloping demand curve for its product. In this context, the study shows that the optimal number of futures contracts is positively related to the elasticity of the firms demand function.