The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy

To dampen trading frenzy in the stock market, the Chinese government tripled the stamp tax for stock trading on May 30, 2007. The greatly increased trading cost triggered a migration of the trading frenzy from the stock market to the warrant market, which was not subject to the stamp tax. This migration exacerbated a price bubble in the warrant market. Our analysis of investor account data uncovers not only large inflows of new investors to the warrant market but also greatly intensified trading by existing warrant investors. This episode exemplifies the so-called “whack-a-mole” game in financial regulations.

The Night and Day of Amihud’s (2002) Liquidity Measure

Amihud’s stock (il)liquidity measure averages daily ratios of the absolute close-to-close return to dollar volume, including overnight returns. Our modified measure uses open-to-close returns matching return and trading volume measurement windows. It is more strongly correlated with trading-cost measures (by 8%–37%) and better explains cross-sections of returns, doubling estimated liquidity premiums. Using nonsynchronous trading near close, we show overnight returns are primarily information driven: including them in Amihud’s proxy for price impacts of trading magnifies measurement error, understating liquidity premiums. Our modification helps wherever Amihud’s measure is required. Our measures are publicly available for 1964–2019 and can be updated.

The Game Equilibrium of Scientific Crowdsourcing Solvers Based on the Hotelling Model

Scientific crowdsourcing, which can effectively obtain wisdom from solvers, has become a new type of open innovation to address worldwide scientific and research problems. In the crowdsourcing process, the initiator should satisfy his own research needs by selecting a proper solver from the crowd, and the solver must have multiple competitions in order to obtain scientific research tasks from the initiator. The participants in the scientific crowdsourcing are based on the knowledge flow to realize the value added of knowledge. This paper discusses a few factors, including knowledge utility, knowledge transfer cost, knowledge distance, and knowledge trading cost, which all affect the solvers to achieve game equilibrium and win tasks in scientific crowdsourcing. By referring to the concept of Hotelling model, this paper constructs a game model with the solvers as the participants, and analyses solvers’ behaviours in scientific crowdsourcing and their profit impacts by each of the key elements. The results show that from a crowdsourcing solver’s point of view, increasing knowledge utility, controlling knowledge transfer cost, shortening knowledge distance to the initiator, and leveraging with a knowledge trading cost are four effective approaches to wining the competition of a scientific crowdsourcing task. The research conclusions provide a theoretical basis and practice guidance for crowdsourcing solvers to participate in scientific crowdsourcing from the perspective of the knowledge flow process.

Apa yang Mempengaruhi Investor Sukuk Negara dalam Menentukan Liquidity Premium?

Sukuk Negara diterbitkan sebagai upaya diversifikasi pembiayaan APBN sekaligus untuk pengembangan pasar keuangan syariah. Sejak 2008, selain Surat Utang Negara (SUN), Pemerintah memiliki alternatif instrumen pembiayaan APBN yang menyasar investor syariah. Namun dari hasil pengamatan, untuk tenor yang sama Sukuk Negara memiliki rata-rata expected return (yield) lebih tinggi dibandingkan SUN. Penelitian ini bertujuan menganalisis faktor-faktor yang mempengaruhi investor dalam menentukan liquidity premium Sukuk Negara terhadap SUN. Dimensi likuiditas seperti trading cost dan market depth serta terms Sukuk Negara seperti time to maturity dan kupon digunakan untuk menganalisis pengaruh tersebut. Hasil penelitian terhadap seri PBS003 dan PBS004 menunjukkan bahwa dimensi trading cost berpengaruh terhadap kedua seri tersebut. Namun untuk PBS003, terlihat bahwa dalam jangka panjang (t-5) investor lebih mengharapkan volatilitas pasar. Faktor likuiditas dalam memperhitungkan risiko menjadi pertimbangan investor dalam jangka pendek (t-3). Adapun dimensi market depth berpengaruh signifikan terhadap liquidity premium PBS004 namun tidak signifikan terhadap PBS003. Dimensi kedalaman pasar 4 bulan sebelumnya (t-4) signifikan memengaruhi liquidity premium PBS004. Tidak adanya market maker diduga menjadi salah satu penyebab lag dari dimensi kedalaman pasar. Terms Sukuk Negara signifikan mempengaruhi keputusan investor dalam menentukan liquidity premium.

Cluster Analysis for Evaluating Trading Strategies

In this article, we introduce a new methodology to empirically identify the primary strategies used by a trader using only post-trade fill data. To do this, we apply a well-established statistical clustering technique called k-means to a sample of progress charts, representing the portion of the order completed by each point in the day as a measure of a trade’s aggressiveness. Our methodology identifies the primary strategies used by a trader and determines which strategy the trader used for each order in the sample. Having identified the strategy used for each order, trading cost analysis can be performed by strategy. We also discuss ways to exploit this technique to characterize trader behavior, assess trader performance, and suggest the appropriate benchmarks for each distinct trading strategy.

Position adjusted turnover ratio and mutual fund performance

Purpose The purpose of this study is to examine the impact of position adjusted turnover ratio on mutual fund performance. Design/methodology/approach The author calculates position adjusted turnover ratio in the same three steps as Edelen et al. (2013). Position adjusted turnover ratio is intended to be a trading cost proxy that captures both fund trading volume and per-trade costs. A metric of eight Morningstar performance measures is utilized. Findings Results show that funds with a higher position adjusted turnover ratio tend to have a lower risk-adjusted performance, such as indicated by both Sharpe and Sortino ratios, and even though these funds may have a higher annualized return. Research limitations/implications The sample selection process is subject to a survival bias. Also, this study utilizes Morningstar performance measures rather than the widely used factors models. Practical implications This study examines the impact of invisible costs from fund trading. These findings encourage fund managers to take strategic steps to reduce the overall invisible cost impact to improve fund performance. Originality/value Few studies have investigated fund trading cost measured by position adjusted turnover ratio and its impact on fund performance. Further, this study contributes to current literature by using eight Morningstar fund performance variables, which are practitioner-oriented and are accessible by investors.