Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation

A model of insider trading in continuous time in which a risk-neutral insider possesses long-lived imperfect information on a risk asset is studied. By conditional expectation theory and filtering theory, we turn it into a model with insider knowing complete information about the asset with a revised risky value and deduce its linear Bayesian equilibrium consisting of optimal insider trading strategy and semistrong pricing rule. It shows that, in the equilibrium, as the degree of insider observing the signal of the risky asset value is more and more accurate, market depth, trading intensity, and residual information are all decreasing and the total expectation profit of the insider is increasing and that the information about the asset value incorporated into the equilibrium price, which has nothing to do with the volatility of noise trades, is increasing as time goes by, but not all information of asset value is incorporated into the price in the final disclosed time due to the incompleteness of insider’s observation, though the market depth is still a time-independent constant. Some simulations are illustrated to show these features. However, it is an open question of how to make maximal profit if the insider is risk-averse.

Volatility and Depth in Commodity and FX Futures Markets

Prior theory suggests a positive relation between volatility and market depth, while past empirical research finds contrasting results. This paper examines the relation between the volatility and the limit order book depth in commodity and foreign exchange futures markets during a turbulent time using the generalized method of moments (GMM). Results indicate a negative relation between volatility and depth and suggest that the depth in the limit order book decreases as volatility increases. Findings help to understand how market participants provide liquidity in response to shifts in prices.

The Relation between Intraday Limit Order Book Depth and Spread

Prior studies that examine the relation between market depth and bid–ask spread are often limited to the first level of the limit order book. However, the full limit order book provides important information beyond the first level about the depth and spread, which affects the trading decisions of market participants. This paper examines the intraday behavior of depth and spread in the five-deep limit order book and the relation between depth and spread in a futures market setting. A dummy-variables regression framework is employed and is estimated using the generalized method of moments (GMM). Results indicate an inverse U-shaped pattern for depth and an increasing pattern for spread. After controlling for known explanatory factors, an inverse relation between the limit order book depth and spread is documented. The inverse relation holds for depth and spread at individual levels in the limit order book as well. Results indicate that market participants actively manage both the price (spread) and quantity (depth) dimensions of liquidity along the five-deep limit order book.

Impact of efficiency indicators and its related aspects on the market return: An applied study on Palestine Stock Exchange

The study deals with the efficiency of the Palestine Stock Exchange (PSE) indicators that explain the market return. The data published in the Palestine Exchange and the Palestinian Monetary Authority during 2010–2018 have been analyzed. The multiple regression method has been employed to determine the correlation between efficiency indicators and market return. However, the findings, on the one hand, determined that there was no statistically significant effect of efficiency indicators measured by the stock turnover rate and the market capital ratio. On the other hand, they demonstrated the impact of market concentration on market return, which shows a widespread weakness in the efficiency indicators. Therefore, PSE does not enjoy the required levels of efficiency even at the weak level. The study explored the absence of liquidity indicators required for market depth, speed of market response, and market concentration. Thus, the stock prices at the PSE become randomly moving, volatile, and unstable. Consequently, the outcomes of the aforementioned findings recommended the necessity to take the essential measures that activate the elements of market efficiency to reflect the available returns according to the scientific method. The paper also recommends that there should be incentives that motivate and encourage institutions to raise their capital and put their securities into the stock exchange to enhance their role in achieving economic development. However, it should be mentioned that the increasing number of companies leads to an increase in investments as it contributes to the expansion of the market. AcknowledgmentSpecial thanks to Palestine Technical University for their continued and valuable support.

Market Fragmentation

We model a simple market setting in which fragmentation of trade of the same asset across multiple exchanges improves allocative efficiency. Fragmentation reduces the inhibiting effect of price-impact avoidance on order submission. Although fragmentation reduces market depth on each exchange, it also isolates cross-exchange price impacts, leading to more aggressive overall order submission and better rebalancing of unwanted positions across traders. Fragmentation also has implications for the extent to which prices reveal traders’ private information. While a given exchange price is less informative in more fragmented markets, all exchange prices taken together are more informative. (JEL D47, D82, G14)

The Treasury Market Flash Event of February 25, 2021

The Treasury market flash event of February 25, 2021 underscores the pivotal role of high-speed liquidity provision in the most liquid electronic parts of the Treasury market. We find evidence that the sharp drop in prices that day was accompanied by a sudden drop in market depth and a brief deterioration in high-speed liquidity provision amid elevated transaction volumes, albeit to a much lesser extent than during the episode of severe illiquidity in March 2020. Similar to some previous episodes accompanied by moderately elevated economic and financial market uncertainty, market depth has recovered steadily since February 25 at a pace comparable to that observed following other such episodes, while high-speed liquidity provision appears to have rebounded fairly quickly. That said, market depth has taken over a month to partially recover, which suggests that Treasury market liquidity has been more heavily reliant on high-speed replenishment to meet trading demand and may remain fragile.

Palestinian Stock Exchange Analyzing the performance of the Palestine Stock Exchange and enhancing its role in attracting foreign investments

The study aimed to analyze the performance of the Palestine Stock Exchange and its role in attracting foreign investments. The study used the descriptive and analytical approach. The study reached a set of recommendations, the most important of which is the necessity to provide the investment environment by providing the legislative, economic, legal, and security environments, such as the companies' law, competition, etc. As well as providing sound economic and financial policies to achieve long-term development by encouraging and motivating companies that not listed on the Palestine Stock Exchange to list their shares. That is to increase market depth and enhance its confidence although the law forces them to do so. The study also found a slight development in its performance despite achieving high returns, as the profitability rate was recorded at 300% in the year 2009, and the market value and trading volume increased by more than 45%. As for the Jerusalem index, it has witnessed an increase since 2004. It fluctuated slightly after 2004.

Assessment of the Development Level of the Russian Financial Market at the Stages of Economic Growth

The article examines the development of the Russian economy in its modern capitalist period. The authors emphasize that when analyzing the dynamics of GDP, there are five stages that have significant differences: growth rates, models that stimulate growth, sources of financing for economic growth, and other reasons, the totality of which determines the ‘face’ of each of the selected stages. The authors substantiate the necessity and possibility of using the potential of the financial market to stimulate economic growth. At the same time, considerable attention is paid to the justification of the impact of indicators that characterize the financial market within the framework of the institutional (financial institutions) and instrumental (financial instrument markets) approaches. The authors highlight five stages of Russia’s economic growth: economic (transformational) decline (1991–1998), rapid recovery economic growth (1999–2007), decaying recovery economic growth (2008–2012), stagnant economic growth (2013–2019). The article shows the importance of the financial market for the implementation of the main tasks at each stage from the standpoint of expert assessment of indicators of the development level of the financial market: depth (the importance of institutions and financial market instruments relative to macroeconomic indicators), availability of services provided by institutions and financial instrument markets, stability (the ability of financial institutions to continue providing services in the event of force majeure and financial market volatility), efficiency (the attractiveness of the market for business). The authors of the article believe that in 2020, a new fifth stage of Russia’s economic growth began, the potential of which can be revealed through the use of financial boost tools. At present, Russia is in a unique situation of a combination of a crisis based on both a demand model and a supply model. The authors propose specific measures to use the potential of these models. The combination of the measures used will reveal new opportunities for the development of the economy and society. These opportunities can be obtained by using the ideology of the strategy of accelerated financial development of the economy – financial boost.

Market Depth, Leverage, and Speculative Bubbles

We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households optimally decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders’ degree of leverage, and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.