Limit Up–Limit Down: an effective response to the “Flash Crash”?

2016 ◽  
Vol 24 (4) ◽  
pp. 420-429 ◽  
Author(s):  
Viktoria Dalko
Keyword(s):  
High Frequency ◽  
Price Volatility ◽  
Effective Response ◽  
Content Type ◽  
Flash Crash ◽  
Price Momentum ◽  
Legal Enforcement ◽  
The Us ◽  
Contemporary Reality ◽  
Practical Implications

Purpose The purpose of this paper is to assess the US Securities and Exchange Commission’s new regulation, Limit Up–Limit Down (LULD), against the background of manipulative high-frequency trading (HFT). Design/methodology/approach This paper examines the background of HFT and related manipulative tactics by reviewing 43 articles of empirical research. It also examines areas in which LULD is effective and those in which LULD fails. The assessment of LULD is completed with a comparison between computerized regulation and legal enforcement in the contemporary reality of electronic trading platforms. Findings The paper points out the effectiveness of LULD in regulating wild price volatility as well as its insufficiency when facing orderly but fast price momentum ignited by manipulative HFT such as “spoofing”. Practical implications The findings may provide assistance to lawmakers and regulators to improve LULD regulation. Originality/value This paper is the first attempt to assess LULD regulation against a comprehensive background of manipulative HFT. The paper is of value to other researchers concerned about the instability to the equity market that manipulative HFT can create. The paper is also of interest to policymakers in designing effective regulation in the high-frequency era.

OCIE issues risk alert on the most frequently identified advisory fee and expense compliance issues

2018 ◽  
Vol 19 (4) ◽  
pp. 1-3
Author(s):  
Robert Van Grover
Keyword(s):  
Design Methodology ◽  
Best Practice ◽  
Investment Management ◽  
Content Type ◽  
Informed Decisions ◽  
Policies And Procedures ◽  
The Us ◽  
Investment Advisers ◽  
Practical Implications

Purpose To summarize and interpret a Risk Alert issued on April 12, 2018 by the US SEC’s Office of Compliance Inspections and Examinations (OCIE) on the most frequent advisory fee and expense compliance issues identified in recent examinations of investment advisers. Design/methodology/approach Summarizes deficiencies identified by the OCIE staff pertaining to advisory fees and expenses in the following categories: fee billing based on incorrect account valuations, billing fees in advance or with improper frequency, applying incorrect fee rates, omitting rebates and applying discounts incorrectly, disclosure issues involving advisory fees, and adviser expense misallocations. Findings In the Risk Alert, OCIE staff emphasized the importance of disclosures regarding advisory fees and expenses to the ability of clients to make informed decisions, including whether or not to engage or retain an adviser. Practical implications In light of the issues identified in the Risk Alert, advisers should assess the accuracy of disclosures and adequacy of policies and procedures regarding advisory fee billing and expenses. As a matter of best practice, advisers should implement periodic forensic reviews of billing practices to identify and correct issues relating to fee billing and expenses. Originality/value Expert guidance from experienced investment management lawyer.

The dependence structure in volatility between Shanghai and Shenzhen stock market in China

2016 ◽  
Vol 6 (3) ◽  
pp. 264-283 ◽  
Author(s):  
Mingyuan Guo ◽  
Xu Wang
Keyword(s):  
Stock Market ◽  
High Frequency ◽  
Estimation Method ◽  
Garch Model ◽  
Price Volatility ◽  
Market Volatility ◽  
High Frequency Data ◽  
Dependence Structure ◽  
Frequency Data ◽  
Content Type

Purpose – The purpose of this paper is to analyse the dependence structure in volatility between Shanghai and Shenzhen stock market in China based on high-frequency data. Design/methodology/approach – Using a multiplicative error model (hereinafter MEM) to describe the margins in volatility of China’s Shanghai and Shenzhen stock market, this study adopts static and time-varying copulas, respectively, estimated by maximum likelihood estimation method to describe the dependence structure in volatility between Shanghai and Shenzhen stock market in China. Findings – This paper has identified the asymmetrical dependence structure in financial market volatility more precisely. Gumbel copula could best fit the empirical distribution as it can capture the relatively high dependence degree in the upper tail part corresponding to the period of volatile price fluctuation in both static and dynamic view. Originality/value – Previous scholars mostly use GARCH model to describe the margins for price volatility. As MEM can efficiently characterize the volatility estimators, this paper uses MEM to model the margins for the market volatility directly based on high-frequency data, and proposes a proper distribution for the innovation in the marginal models. Then we could use copula-MEM other than copula-GARCH model to study on the dependence structure in volatility between Shanghai and Shenzhen stock market in China from a microstructural perspective.

Recent civil and criminal enforcement action involving high frequency trading

2015 ◽  
Vol 16 (1) ◽  
pp. 5-12 ◽  
Author(s):  
Matthew Rossi ◽  
Greg Deis ◽  
Jerome Roche ◽  
Kathleen Przywara
Keyword(s):  
High Frequency ◽  
Design Methodology ◽  
High Frequency Trading ◽  
Content Type ◽  
Enforcement Action ◽  
The Past ◽  
Trading Patterns ◽  
Federal Prosecutor ◽  
Enforcement Activity ◽  
Practical Implications

Purpose – To alert high frequency trading firms to the increased regulation and prosecution of manipulative trading practices during 2014 and early 2015. Design/methodology/approach – Reviews four significant proceedings against high frequency trading firms (and/or individuals employed by such firms) and other developments from the relevant government agencies as a possible preview of the enforcement and prosecution of high frequency trading practices in 2015. Provides advice to high frequency trading firms on how to decrease the risk of regulatory or criminal actions against them in this changing environment. Findings – Although the focus on high frequency trading has only recently begun to intensify, firms should be aware of the increased enforcement activity of the past year. These actions, both regulatory and criminal, have already resulted in large penalties and have helped initiate a strengthening of rules and regulations regarding manipulative trading practices, of which firms need to be aware and stay current. Practical implications – High frequency trading firms should be aware of the recent regulatory and criminal actions in order to better evaluate their own practices and controls, to ensure that their trading patterns do not resemble manipulative practices, and to avoid similar actions. Originality/value – Practical guidance from experienced litigators and securities regulatory lawyers, including a former SEC Assistant Chief Litigation Counsel and a former federal prosecutor, that consolidates and describes several recent actions and developments in one piece.

The SEC turns up the heat on private equity expense allocations

2016 ◽  
Vol 17 (2) ◽  
pp. 35-38
Author(s):  
Samuel Lieberman ◽  
John T. Araneo
Keyword(s):  
Financial Services ◽  
Private Equity ◽  
Equity Fund ◽  
Content Type ◽  
Private Equity Fund ◽  
Fund Managers ◽  
Compliance Programs ◽  
Raising Awareness ◽  
The Us ◽  
Practical Implications

Purpose To discuss the US Securities and Exchange Commission’s (“SEC’s”) increasing focus on disclosure and conflict-of-interest problems arising from how private equity fund (“PE Fund”) managers allocate expenses between management and fund investors. Design/methodology/approach This article summarizes the background of this focus on expense allocations and, drawing from the recent SEC enforcement actions focused on this issue, and identifies the types of both expenses and disclosures that have caught SEC attention. Findings After spending the first two or three years post Dodd-Frank raising awareness of these issues, the SEC has begun to impose large fines over expense-allocation conflicts and disclosure issues. Practical implications It is imperative for PE Fund managers to retain counsel to review their fund offering documents, expense allocation practices, and compliance programs to ensure consistency with the SEC’s recent decisions on these issues. Originality/value Practical guidance from experienced financial services lawyers.

Virtual currency in sanctioned jurisdictions: stepping outside of SWIFT

2019 ◽  
Vol 20 (2) ◽  
pp. 39-44 ◽  
Author(s):  
Katherine Kirkpatrick ◽  
Christine Savage ◽  
Russell Johnston ◽  
Matthew Hanson
Keyword(s):  
Best Practices ◽  
Design Methodology ◽  
Virtual Currency ◽  
Content Type ◽  
The Us ◽  
Expert Analysis ◽  
Practical Implications ◽  
Foreign Assets

Purpose To understand and analyze sanctions evasion and enforcement via virtual currencies. Design/methodology/approach Discusses various jurisdictions’ attempts to further the use of virtual currency to facilitate and maximize access to international funds; analyzes the aspects that make virtual currency uniquely suited to evade sanctions; suggests best practices for industry participants to be sure to account for the differences in crypto asset structure and related risks. Findings The US Treasury Department’s Office of Foreign Assets Control (OFAC) has explicitly stated that despite virtual currency’s anonymity, industry participants are still responsible for policing and enforcing client compliance. Although sanctioned jurisdictions are thinking creatively about ways around SWIFT, the use of virtual currency to skirt sanctions presents certain challenges. Practical implications Virtual currency industry participants should understand OFAC’s specific guidance regarding compliance obligations in the cryptocurrency space, and should implement best practices and conservative measures to avoid unknowingly running afoul of sanctions laws. Originality/value Expert analysis and guidance from experienced investigations and sanctions lawyers.

scholarly journals Variance risk premia for agricultural commodities

2019 ◽  
Vol 79 (3) ◽  
pp. 286-303
Author(s):  
Wenwen Xi ◽  
Dermot Hayes ◽  
Sergio Horacio Lence
Keyword(s):  
Risk Premium ◽  
Price Volatility ◽  
Risk Premia ◽  
Content Type ◽  
Risk Premiums ◽  
Variance Risk Premium ◽  
Revenue Insurance ◽  
Risk Neutral ◽  
Variance Risk ◽  
Practical Implications

Purpose The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance. Design/methodology/approach The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums. Findings There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity. Practical implications Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced. Originality/value The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.

Forecasting stock returns in Saudi Arabia and Malaysia

2018 ◽  
Vol 17 (2) ◽  
pp. 259-279 ◽  
Author(s):  
Abdelmonem Oueslati ◽  
Yacine Hammami
Keyword(s):  
Saudi Arabia ◽  
Stock Returns ◽  
Equity Premium ◽  
Return Predictability ◽  
Excess Returns ◽  
Content Type ◽  
Forecasting Method ◽  
The Us ◽  
Diffusion Index ◽  
Practical Implications

Purpose This paper aims to investigate the performance of various return forecasting variables and methods in Saudi Arabia and Malaysia. The authors document that market excess returns in Saudi Arabia are predicted by changes in oil prices, the dividend yield and inflation, whereas the equity premium in Malaysia is predicted only by the US market excess returns. In both countries, the authors find that the diffusion index is the best forecasting method and stock return predictability is stronger in expansions than in recessions. To interpret the findings, the authors perform two tests. The empirical results suggest irrational pricing in Malaysia and rationally time-varying expected returns in Saudi Arabia. Design/methodology/approach The authors apply the state-of-the-art in-sample and out-of-sample forecasting techniques to predict stock returns in Saudi Arabia and Malaysia. Findings The Saudi equity premium is predicted by oil prices, dividend yield and inflation. The Malaysian equity premium is predicted by the US market excess returns. In both countries, the authors find that the diffusion index is the best forecasting method. In both countries, predictability is stronger in expansions than in recessions. The tests suggest irrational pricing in Malaysia and rationality in Saudi Arabia. Practical implications The empirical results have some practical implications. The fact that stock returns are predictable in Saudi Arabia makes it possible for policymakers to better evaluate future business conditions, and thus to take appropriate decisions regarding economic and monetary policy. In Malaysia, the results of this study have interesting implications for portfolio management. The fact that the Malaysian market seems to be inefficient suggests the presence of strong opportunities for sophisticated investors, such as hedge and mutual funds. Originality/value First, there are no papers that have studied the return predictability in Saudi Arabia in spite of its importance as an emerging market. Second, the methods that combine all predictive variables such as the diffusion index or the kitchen sink methods have not been implemented in emerging markets. Third, this paper is the first study to deal with time-varying short-horizon predictability in emerging countries.

The global entrepreneurship index as a benchmarking tool? Criticisms from an efficiency perspective

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Edmundo Inacio Junior ◽  
Eduardo Avancci Dionisio ◽  
Bruno Brandão Fischer ◽  
Yanchao Li ◽  
Dirk Meissner
Keyword(s):  
Resource Constraints ◽  
Data Availability ◽  
Data Envelopment ◽  
Content Type ◽  
Country Level ◽  
The Us ◽  
Global Entrepreneurship ◽  
National Systems ◽  
Practical Implications ◽  
Entrepreneurial Dynamics

PurposeBased on an efficiency analysis of the Global Entrepreneurship Index (GEI), the purpose was to demonstrate that the Key Performance Indicators’ analysis leads to a misinterpretation of the dynamics of National Systems of Entrepreneurship (NSEs). This might hamper the formulation of sound initiatives in other economies, with relevant implications for developing countries.Design/methodology/approachThis study categorized GEI indicators into output and input indicators. Following this procedure, each dimension was analyzed separately and then compared to each other, considering countries’ productivity rates. The main focus is given to the case of the US, the usual benchmark for NSEs and leader in the GEI Index. Lastly, a taxonomy of NSEs according to their efficiency levels was developed.FindingsThe findings of the analysis demonstrates that innovation-driven economies with lower positions in GEI ranking often have higher productivity rates when compared to economies with higher positions in GEI ranking. Specifically, the US appears not to be a good benchmark in terms of NSE efficiency.Research limitations/implicationsThe study’s approach is limited in scope by data availability on NSEs and the use of GEI, a representation of aggregate patterns of country-level entrepreneurial dynamics. More refined data are needed in order to clarify some insights from this research.Practical implicationsThe perception of systemic efficiency should be considered more thoroughly when designing dedicated entrepreneurship-oriented policies in other countries that aim at establishing a more vibrant entrepreneurial system while facing resource constraints.Social implicationsSimplistic views of systemic aspects may hamper the formulation of sound entrepreneurship-oriented initiatives with particularly relevant implications for public policy in laggard economies.Originality/valueThe value of this article relies on applied a simple metric – efficiency ratio – order than, e.g. data envelopment analysis to portray a key issue related to the interpretation of supranational rankings related to the entrepreneurship ecosystem make mainly by policymakers and scholars that is: pick the 1st one, follow the leader.

SEC adopts rules and interpretive guidance designed to enhance and clarify the obligations of financial professionals

2019 ◽  
Vol 20 (4) ◽  
pp. 35-44
Author(s):  
Michael R. Rosella ◽  
Vadim Avdeychik ◽  
Justin R. Capozzi
Keyword(s):  
Historical Context ◽  
Legal Counsel ◽  
Legal Analysis ◽  
Best Interest ◽  
Extensive Experience ◽  
Content Type ◽  
The Us ◽  
Investment Advisers ◽  
Definition Of ◽  
Practical Implications

Purpose This article provides an overview of the US Securities and Exchange Commission’s (SEC) recent approval of a package of rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers. Design/Methodology/Approach The article provides legal analysis for and historical context of the requirements of the SEC’s adopted rules, Regulation Best Interest and Form CRS in addition to the two separate interpretations under the Investment Advisers Act of 1940, the Standard of Conduct for Investment Advisers; and the Broker-Dealer Exclusion from the Definition of Investment Adviser. Findings The SEC’s adopted regulatory package does not adopt a uniform fiduciary standard for broker-dealers and investment advisers but instead promulgates legal requirements and mandated disclosures in order to conform to the SEC’s perceived expectations for reasonable investors. Practical implications Investment advisers and broker-dealers should consult with their legal counsel in assessing how and to what extent the new regulatory package is applicable to them. Originality/Value This article provides practical guidance from lawyers who have extensive experience with the Investment Company Act, Investment Advisers Act, and the Securities Acts.

Decoupling stock price momentum from accounting fundamentals

2020 ◽  
Vol 32 (4) ◽  
pp. 519-541
Author(s):  
Irfan Safdar
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Momentum Effect ◽  
Complete Understanding ◽  
Delayed Reaction ◽  
Content Type ◽  
Price Momentum ◽  
Price Performance ◽  
The Us ◽  
Term Performance

Purpose What explains patterns in stock prices is an important question. One such pattern, price momentum, is a well-known capital markets anomaly where recent stock price performance appears to continue into the future. This momentum is frequently thought to reflect delayed reaction by investors to unspecified information (i.e. underreaction). This study aims to provide a useful insight regarding momentum: potential mispricing related to accounting fundamentals appears to conceal longer-term reversals in price momentum. Controlling for these fundamentals reveals that price momentum reverses, indicating that investor overreaction is a potentially important source of stock price momentum. The evidence presented in this study emphasizes the importance of decoupling momentum and accounting fundamentals to achieve a more complete understanding of what explains stock price momentum. Design/methodology/approach This study explores this question by examining the longer-term performance of momentum stocks in the US market after decoupling it from performance related to accounting fundamentals using returns to fundamentals-based factors as controls in time series regressions. Findings This study finds evidence of clear reversals in the remaining price momentum. These reversals provide a new insight into the momentum effect because they imply that the component of price momentum not traceable to accounting fundamentals reflects investor overreaction rather than underreaction. Originality/value The findings indicate that the underlying nature of the information driving price movements is important to achieving a complete understanding of what explains price momentum. To the best of the author’s knowledge, no other study has examined the behavior of stock price momentum while controlling for accounting fundamentals.

Sign in / Sign up

Export Citation Format

Share Document