Vito Mollica

The Impact of Limit Order Anonymity on Liquidity: Evidence from Paris, Tokyo and Korea

This paper examines the impact of broker anonymity on bid-ask spreads in order driven markets. Previous theoretical research predicts that limit order anonymity results in deeper and more liquid markets. This paper examines this proposition using three natural experiments provided by Euronext Paris, the Tokyo Stock Exchange and the Korea Stock Exchange. Euronext Paris and the Tokyo Stock Exchange removed broker identifiers from limit orders on April 23, 2001 and June 30, 2003, respectively. In contrast, the Korea Stock Exchange introduced broker identifiers for limit order books on October 25, 1999. The results provide evidence that altering limit order anonymity has an impact on liquidity. Consistent with expectations, liquidity is enhanced by increased anonymity and adversely affected by decreased anonymity.

Accrual-based earnings management in state owned companies: Implications for transnational accounting regulation

Purpose - – Opposition to transnational calls for the adoption of accrual-based accounting in the public sector may stem from arguments that it is associated with poor earnings quality. The purpose of this paper is to determine whether state owned enterprises (SOEs) operating under accrual-based accounting manage their earnings, whether it is more prevalent Design/methodology/approach - – This paper measures earnings management for a large sample of unlisted Italian SOEs and POEs using a framework developed by Stubben (2010). The authors use regression analysis to estimate the variables which predict abnormal accruals including firm size, leverage and profitability. Findings - – The authors find no evidence that the level of state ownership (SO) is positively correlated with accrual-based earnings management. The authors also provide evidence that earnings management by SOEs decreases with firm size and increases with profitability. Research limitations/implications - – While the study is the first to examine earnings management in a public sector accrual accounting environment for a sample of European firms, namely Italian firms, the authors call for more research into this issue examining public entities in other European Union (EU) member states or public entities other than SOEs. Practical implications - – The EU recently introduced a new transnational accounting directive in which it prescribes the preparation of financial statements based on accrual accounting for all European public sector entities, arguing that it reduces the window dressing that is allowed by cash accounting. Since Italian SOEs already prepare their accounts on an accruals-basis, by analysing their accounting behaviour the authors are able to determine the variables which predict when earning management is more likely to occur in a public sector accrual accounting environment, and therefore the authors provide guidance which may be useful in shaping the transition process from cash accounting to accrual accounting by identifying the types of entities whose accounts should be subject to greater regulatory scrutiny. A better understanding of the relation between SO and earnings management will provide insight into public sector corporate governance and aid in the acceptance of transnational regulation that would otherwise significantly alter current accounting practices and possibly be opposed at a national level. Originality/value - – Earnings management in a public sector accrual accounting environment had been analysed only for Chinese listed companies. The authors extend previous analysis to a sample of European (Italian) SOEs which are unlisted. The authors also extend previous work by determining the characteristics of firms which manage their earnings.

The Impact of auctions on residential sale prices : Australian evidence

This study re-examines the variation in selling prices between the auction and private treaty method of sales. Using sales data from five major Australian capital cities over a four year period, we estimate a hedonic pricing model. Results indicate that for house sales, auctions lead to greater selling prices across all cities examined. However, results for unit sales reveals that this auction premium is only evident in two cities where auctions are less prevalent. Further analysis reveals that self-selection (where a particular method of sale is selected to maximise the selling price) is evident across the sample. After controlling for this self-selection bias using a two-stage model, houses sold via auction generally command a higher price. This suggests that the auction method of selling provides a price premium over the private treaty method of sale.

Asymmetry in the permanent price impact of block purchases and sales : theory and empirical evidence

This paper extends previous research which has examined the market impact of large transactions in bull and bear markets by examining the information effects of trades. Previous research has demonstrated that the information effects of buy trades are greater than the information effects of sell trades. We develop a theoretical model which predicts that this difference is greater in bear markets than bull markets, consistent with the (almost counter-intuitive) proposition that buy trades are relatively more informed in bear markets. Using a sample of trades executed on the NYSE in bull and bear market periods, we find evidence consistent with our primary theoretical model

Do Spot Oil Benchmarks Drive Directional Trading in Brent Futures

We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark’s relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

Do Unregulated Spot Oil Benchmarks Drive Directional Trading in Brent Futures

We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark’s relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

Anticipatory trading in brent futures: Evidence from the unregulated dated brent benchmark

We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark’s relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

Transaction fees and trading strategies in financial markets

The article examines the impact of transaction costs on the trading strategy of informed institutional investors in a sequential trading market where traders can choose to transact a large or a small amount of stock. The analysis shows how the trading strategy of informed investors and the price impact of their trades depends on market conditions. The main prediction of the model is that institutional buyers are, on average, more aggressive than institutional sellers in bearish markets and less aggressive in bullish markets. Hence, the price impact is higher for purchases when market conditions are bearish, while it is higher for sales when market conditions are bullish. However, this asymmetry vanishes during strongly bearish or bullish phases, when information-based orders stop because the informational advantage of institutional investors becomes too small with respect to the transaction costs.

Determinants of Bid-Ask Spreads in Time-Series Analysis: A Note

This study empirically examines the determinants of bid-ask spreads using a time series approach. Consistent with cross-sectional models in the literature, time-series analysis shows that bid-ask spreads for most ASX300 stocks exhibit a negative relationship with trading activity and a positive relationship with price volatility. Partitioning the stocks based on their market capitalisation, we find bid-ask spreads for smaller sized stocks are more sensitive to changes in trading activity and less sensitive to price volatility vis-a-vis high-valued stocks.