Reza Saidi

Positive feedback trading in emerging capital markets

Positive feedback trading can induce autocorrelation in stock returns and increase volatility. If large numbers of market participants engage in positive feedback trading strategies asset prices may deviate substantially and persistently from fundamental values. Recent studies show evidence of positive feedback trading (i.e. selling during market declines and buying during market advances) in developed stock markets. The paper presents evidence that positive feedback trading activity is also present in emerging capital markets but mostly during market declines. During such periods stock return autocorrelations become negative and volatility rises. Volatility is in all cases higher during market declines suggesting that feedback trading may be partially responsible.

Are joint bidding and competitive common value auction markets compatible?—some evidence from offshore oil auctions☆

Abstract In this paper we consider whether joint bidding for oil leases in U.S. Department of the Interior Outer Continental Shelf (OCS) auctions has been compatible with the maintenance of competition in these auctions. In 1975 eight major oil companies were banned from being co-bidders on any joint bids, apparently due to concern that joint bidding was fostering collusion. Focusing on eight major companies, five of which were banned from joint bidding in 1975, we present evidence which strongly suggests that joint bidding was consistent with more competitive rather than less competitive behavior.

Number of bids, number of bidders and bidding behavior in outer-continental shelf oil lease auction markets

Abstract Theoretical models of auction bidding markets typically treat number of bids and number of bidders as equivalent measures. When joint bidding opportunities exist, this assumption will often not hold. In cases such as offshore oil auctions, joint bidding is an extremely common occurrence. Our analysis of these auctions suggests that the actual number of bidding participants is more closely related with variables of interest (winning bids, average bid per acre, etc.) than is the simple number of bids. We argue that analyses such as that presented here are important in developing theoretical models that are useful in explaining or predicting actual bidding auction outcomes.

The integration of the Pakistani equity market with international equity markets: an investigation

This paper investigates the integration of the equity market in Pakistan with those in other countries. In this context, seven major equity markets, that is, the markets of USA, UK, France, Germany, Japan, Hong Kong, and Singapore were selected for the analysis. The integration was examined through co-integration analysis using weekly country indices from January 1988 to December 1993. The analysis provides little evidence of integration of the Pakistani market with international markets. The low level of integration qualifies the Pakistani market as an attractive diversification tool for international portfolio managers. Copyright

Feedback Trading in Exchange-Rate Markets: Evidence from within and across Economic Blocks

This paper examines the pattern of autocorrelation of exchange rates in the EU, ASEAN, and NAFTA. We find no feedback trading within blocks among developed financial markets’ currencies, but it exists for less developed financial markets. Across blocks, no feedback trading is found. ASEAN currencies are an exception on both counts. When present, feedback trading is a destabilizing factor, and it takes place during rising volatility. Finally, the prevalence of negative feedback trading suggests that, in spite of the recent addition of new players into the market, such as mutual funds and hedge funds, the foreign exchange market is mainly influenced by informed players and/or central banks which intervene to protect their currencies.

Evidence of forward discount determinants and volatility behavior

This paper studies the components of the forward discount dynamics in Germany from 1972 to 1996. By using two different frequencies in the analysis, we find that an ARCH structure fits the monthly data well, while an EGARCH structure gives a better description of daily forward discount volatility. Results also suggest that foreign central bank reserves and portfolio investment are significant in the determination of the forward discount trend over the whole period. The causality, however, varies over time. Sign size, and persistence effects on the volatility of the forward discount are all significant, and thus, provide important information to both policy makers and operators in the market. There is also evidence that the volatility of the forward discount dropped after the Plaza Accord.

The Greek three‐pillar functional system in the presence of the European Union Banking Directives

This paper examines wealth effects and changes in the systematic risk associated with the return structure of the “three‐pillar” functional system in Greece, resulting from the introduction of the eight major European Union Banking Directives over the period 1990‐94. The findings indicate that the systematic risk for the insurance and investment firms dramatically increased, while the systematic risk for commercial banks slightly increased through the passage of the Free Capital Movement Directive. Evidence was also found to show that the Free Capital Movement Directive created significant wealth effects for the investment firms, but insignificant wealth effects for banks. In addition, a marginal wealth effect was created for the insurance firms. Conversely, the results suggest that the Solvency Ratios and Own Funds Banking Directives produced no wealth effects for the banks, significant wealth effects for the insurance firms, and insignificant wealth effects for the investment firms. The wealth effects of the rest of the EU Banking Directives on the functional “three‐pillar” Greek financial system were neutral.

Asymmetries in the conditional mean and conditional variance in the exchange rate: evidence from within and across economic blocks

The paper tests the hypothesis that both the conditional mean and the conditional variance of exchange rates are asymmetric functions of past information. This hypothesis is tested by estimating an Asymmetric Threshold GARCH model for fifteen currencies. The empirical evidence suggests that both the conditional mean and the conditional variance respond asymmetrically to past information, with an AR(1) structure within blocks and an ARMA(1,1) structure for the EU currencies against the dollar. It is found that the conditional mean is an asymmetric function of past innovations, rising proportionately more during appreciation periods within and across blocks. This implies that, on average, the market incorporates positive news (depreciations) more quickly than negative news (appreciations). The conditional variance is an asymmetric function of past innovations as well, rising proportionately more during depreciations within blocks and appreciation periods across blocks. Furthermore, asymmetries in the conditional mean are linked to asymmetries in the conditional variance because the more rapid adjustment of the market to depreciations causes greater volatility during these periods. This, in turn, causes within blocks a slower speed of adjustment in the variance to devaluations than to appreciations. Finally, greater efficiency in currency markets is found within blocks than across blocks.

A reconsideration of measurements of money left on the table - an analysis of OCS auctions over the period 1954–77

The analysis focusses on whether continuing information on market performance resulted in observable adaptations in behaviour by market participants in Outer Continental Shelf oil lease auctions. We suggest that one common measure of overbidding, money left on the table (MLOT), suffers from at least three easily identifiable deficiencies: failure to take account of plot size, failure to consider significant differences in plot value, and failure to take inflation into account. We set forth alternative measures and use deflated data in our empirical analysis. While we find a narrowing over time, relative overbidding remains large even in late periods