Ivalina Kalcheva

Computerization of the Equity, Foreign Exchange, Derivatives, and Fixed-Income Markets

We survey empirical studies on the development and effects of increased computerization across equity, foreign exchange, derivatives, and fixed-income markets. While the changes in the trading process due to computerization in less liquid markets such as the corporate bond market have been modest, there have been dramatic changes in certain derivatives markets, foreign exchange, and particularly in equity markets. In many instances, previous research has found positive effects of computerization on measures of market quality, but our survey highlights that human intermediation is still prominent and beneficial in certain areas.

Liquidity-based Trading Fees and Exchange Volume

We study the effect of liquidity-based trading fees charged by the U.S. stock exchanges, on market outcomes for the period 2008-2010. Our exchange-level analysis reveals that an exchanges trading volume is decreasing in its net fee, relative to the net fee of other exchanges. Further, an increase in the take fee decreases trading volume relatively more than an increase in the make fee. At the exchange level, these changes in trading volume are not accompanied by changes in quoted or net-of-fees spreads.

Short sales and the weekend effect—Evidence from a natural experiment

Price pressure induced by the short-seller׳s systematic unwinding and rewinding short positions around the weekend allegedly contributes to the weekend effect. On the Hong Kong Stock Exchange, short-selling was prohibited before 1994 and was allowed only for some stocks after 1994. Exploiting this natural experiment, we find a strong weekend effect during the pre-1994 period and during the post-1994 period for both stocks that are allowed to be sold short and those that are not. Moreover, the difference in the weekend effects between the two groups is economically and statistically indistinguishable. These results are inconsistent with the above-mentioned hypothesis.

Short-Selling, Uptick Rule, and Market Quality: Evidence from High-Frequency Data on Hong Kong Stock Exchange

Much empirical research has been conducted concerning the effect of short-selling on market quality and volatility. However, the evidence is inconclusive and still a matter of debate. Using intraday data in a pure order-driven market we show that allowing for short-selling decreases the adverse selection costs for less-visible firms, firms with less analyst coverage, larger adverse-selection cost component of the bid-ask spread, low price per share, and high relative tick size (given the same market capitalization). Allowing for short-selling also decreases (increases) intraday volatility for less- (more-) visible stocks. In addition we document that with the uptick rule in place (not in place) there is not statistically significant difference in liquidity (intraday volatility) between stocks that are allowed for short-selling and those that are not.

Innovation: The Interplay Between Demand-Side Shock and Supply-Side Environment

We study the interaction between supplyand demand-side factors and its effect on innovation. Employing a quasi-natural experiment, we show that a shift in demand has an impact on innovation and this effect is conditional on an enabling supply-side environment. Specifically, we exploit a shift in product demand generated by Medicare approvals for reimbursement coverage of medical devices. Using a triple-difference approach, we find that innovation is significantly greater for medical device firms that experience a positive shock to demand due to the Medicare approvals when the firms are exposed to a more favorable supply-side environment. The highest level of innovation is accomplished when all three of our supply-side factors: venture capital (industry), universities (academia), and National Institutes of Health grants (government) are concentrated in one place. These findings show that (i) a positive interaction between supplyand demand-side factors fosters innovation, and (ii) the trilateral intersection of industry, academia, and government creates the highest level of innovation.

Institutionalization of Capital and the Changing Role of Public Equity Markets: International Evidence

We study the relation between institutionalization of capital and the reliance on public markets by corporations and investors. Country-level evidence indicates that capital under institutional management (ownership by mutual funds, pension funds, and insurance companies) is negatively related to the levels and growth rates of numbers of publicly listed companies and also negatively related to the levels and growth rates of aggregate market capitalization and trading activity on public equity markets. The results indicate that, as economies mature and direct ownership of equity by retail investors declines, financial systems move in the direction of being less public market-centric to more institution-centric.

On the Road to Innovation: The Role of Venture Capital

We study the interaction between supply- and demand-side factors and its effect on innovation. Employing a quasi-natural experiment, we show that a shift in demand has an impact on innovation and this effect is conditional on an enabling supply-side environment. Specifically, we exploit a shift in product demand generated by Medicare approvals for reimbursement coverage of medical devices. Using a triple-difference approach, we find that innovation is significantly greater for medical device firms that experience a positive shock to demand due to the Medicare approvals when the firms are exposed to a more favorable supply-side environment. The highest level of innovation is accomplished when all three of our supply-side factors: venture capital (industry), universities (academia), and National Institutes of Health grants (government) are concentrated in one place. These findings show that (i) a positive interaction between supply- and demand-side factors fosters innovation, and (ii) the trilateral intersection of industry, academia, and government creates the highest level of innovation.