Roberto Pascual

Adverse selection costs, trading activity and price discovery in the NYSE: An empirical analysis

This paper studies the role that trading activity plays in the price discovery process of a NYSE-listed stock. We measure the expected information content of each trade by estimating its permanent price impact. It depends on observable trade features and market conditions. We also estimate the time required for quotes to incorporate all the information content of a particular trade. Our results show that price discovery is faster after risky trades and also at the extreme intervals of the session. The quote adjustment to trade-related shocks is progressive and this causes risk persistency and unusual short-term market conditions.

Evaluating Trade Classification Algorithms: Bulk Volume Classification versus the Tick Rule and the Lee-Ready Algorithm

We compare bulk-volume classification (BVC) proposed by Easley, Lopez de Prado, and O’Hara (2012b) to the traditional tick rule (TR) for a sample of equity trades executed on NASDAQ’s INET platform. Applying BVC leads to substantial time savings when a researcher uses pre-compressed data like Bloomberg and to smaller time savings when a researcher uses TAQ. Notably, this efficiency comes at a significant loss of accuracy. Specifically, misclassification increases by 7.4 to 16.3 percentage points (or 46% to 291%) when switching from TR to BVC. Additionally, TR produces more accurate estimates of order imbalances and of order flow toxicity (VPIN).

The Relative Contribution of Ask and Bid Quotes to Price Discovery

Using 2000–2010 data for 84 stocks listed in the Spanish Stock Exchange (SSE) and 2009–2010 data for 240 stocks listed in the New York Stock Exchange (NYSE), we provide robust evidence of daily asymmetries in the contribution of ask and bid quotes to price discovery. Asymmetries happen in 47.7% (62.8%) of the stock-day observations in our SSE (NYSE) sample, being larger in average among small cap stocks. These asymmetries are not driven by noise. Ask (bid) quotes lead in days with excessive buyer (seller) initiated trading, but the relationship weakened over time and with the advent of high-frequency trading.

Carbon Credits: Who is the Leader of the Pack?

We provide the first intraday analysis on the contribution to price discovery of two emissions carbon credits: European Union Allowances (EUAs) and Certified Emission Reductions (CERs). We find that EUAs lead price discovery but CERs play a growing role and, therefore, should not be ignored.

Shackled High Speed Traders? Latency Reduction and Short Sale Bans

We examine the market quality effects of technology upgrades juxtaposed with short-sale bans. Between 2011 and 2013, the Spanish Stock Exchange introduced a smart trading platform (SIBE-Smart) and colocation to facilitate high-speed trading, and they also imposed two short-sale bans. We find that the SIBE-Smart introduction, which occurs between the two short-sale bans, leads to reduced market quality. The introduction of colocation, which occurs during the second short-sale ban, improves market liquidity although it does not attract additional high-speed trading. Our results highlight how the effects of latency-reducing infrastructure improvements depend on, and differ across, different regulatory regimes.

Modeling the Probability of Informed Trading in the European Carbon Market

We provide evidence of informed trading in the European carbon market. We adapt Easley et al.’s (1996) PIN methodology to the particularities of this market by isolating the trading activity on the two carbon offsets: European Union Allowances (EUAs) and Certified Emission Reductions (CERs). We find that the PIN regularly increases before the publication of the yearly verified-emission reports. CERs exhibit lower average PIN than EUAs. While the PIN of CERs has increased over time, together with its share in total trading activity, EUAs’ PIN has remained pretty stable. Our findings suggest that CERs must not be avoided in any decision or analysis made by researchers, regulators or traders interested in the European carbon market.

La contribución de la Bolsa de Nueva York en el proceso de formación de precios de los principales ADRs españoles

RESUMEN Este trabajo estudia la contribución de la negociación en la Bolsa de Nueva York en el proceso de formación de precios de las principales acciones españolas negociadas en ese mercado. Con este fin, y teniendo en cuenta la existencia de un período diario en el que los dos mercados negocian simultáneamente, se utilizan Modelos de Corrección de Error para todas las empresas españolas cotizadas en la Bolsa de Nueva York durante el período 1994–2001. Los resultados obtenidos sugieren que la negociación en Nueva York tiene una contribución significativa en el proceso de formación de precios de las acciones analizadas.

The Control Role of the Board of Directors: What Have We Learned?

The control role of the Board of Directors is aimed at monitoring the decisions and actions undertaken by managers in order to protect stockholders’ interests. Considerable theoretical and empirical research has analyzed whether directors’ behavior is consistent with their fiduciary responsibility, but this research has reported inconsistent findings. This paper offers a comprehensive review of both theoretical and empirical literature on the control role of the board and suggests several guidelines for future research.