The aim of this research was to establish the nexus between liquidity and the viability of quoted non-financial establishments in Ghana. Panel data deduced from the published annual reports of 15 e...

https://journals.sagepub.com/doi/pdf/10.1177/2158244020950363

Liquidity and Firms’ Financial Performance Nexus: Panel Evidence From Non-Financial Firms Listed on the Ghana Stock Exchange:

We use experimental asset markets to analyze trading under different transparency and information settings. We find that both liquidity and informed traders use undisclosed orders to compete for liquidity provision. In opaque markets, traders increase aggressiveness to improve execution probability. Without information friction, opacity enhances liquidity, especially toward the end of trading, and is beneficial for liquidity traders. Under informed trading, adverse selection drives market outcomes mainly around news announcements. Monopolistic insiders exploit opacity at the expense of large liquidity traders. Opacity does not affect informational efficiency with a monopolistic insider, but value discovery is faster with shared informational rents.

Pre-Trade Transparency and Informed Trading: Experimental Evidence on Undisclosed Orders

This paper proposes an experimental study to analyze trading in opaque limit order books under di¤erent informational settings with a particular focus on the sources of hidden liquidity. Previous literature attributes hidden liquidity either to large liquidity traders or informed trading. We design an asset market experiment in light of recent theory treating private information in isolation. Hence we analyze the implications of reducing pre-trade transparency under symmetric and asymmetric information. We nd that both private information and liquidity concerns play an important role in hidden liquidity provision. However, we do not nd major di¤erences between transparent and opaque markets across various market quality indicators, especially when informed traders are present. Di¤erences in traderscharacteristics partly explain the heterogeneity in hidden liquidity supply. Our results suggest that even though some informed traders opt for undisclosed orders, the current trend towards darker trading venues cannot be explained only on informational grounds. (J.E.L Classication: C91, C92, G28)

Pre-Trade Transparency and Informed Trading an Experimental Approach to Hidden Liquidity

In a context of growing uncertainty about the future of Europe's capital markets, the review of a fundamental piece of legislation such as the Markets in Financial Instruments Directive (MiFID) offers a significant opportunity to strengthen the role of the internal market and to regain investors' confidence, which has been so badly shaken by the financial crisis. MiFID has unquestionably changed the landscape of European (secondary) capital markets: leading to a more competitive environment, huge investments in technologies and greater investor protection. At the same time it has brought the EU and the US markets closer together. 
To contribute to this important review, ECMI and CEPS formed a Task Force of senior representatives of European financial markets – including asset managers, stock exchanges, multilateral trading facilities, investment banks and commercial banks – to debate policy options and examine their implications for market integrity and stability, market efficiency and investor protection.

This timely and well-documented report finds that the review of MiFID should clarify intended scopes, fill gaps in the legal text and harmonise supervisory practices among member states. It should make sure that the benefits of a new competitive environment are spread along the value chain and passed on to final users, both retail and wholesale investors, as appropriate.

MiFID 2.0: casting new light on Europe's capital markets. Report of the ECMI-CEPS Task Force on the MiFID Review. CEPS Task Force Report, 18 February 2011

Notwithstanding the financial slowdown and severity of the Coronavirus pandemic during 2020, several retail investors ventures directly to the secondary equities market, setting off gigantic purchasing. A review of SEBI data indicates that over 6 million new dematerialization accounts between April and September 2020 are about 125 percent growth on year on year basis. At the same time, data reported by AMFI shows net outflows from equity funds by retail investors. These data points indicate that retail investors may have opted to invest using direct stock investments instead of relying on the equity mutual fund manager. Equity Investment is a dynamic process requiring and require considering different variables in selecting and, more importantly, avoiding stocks. The cornerstone of wealth creation is to invest in stores at a price considerably smaller than their intrinsic value. The very foundation of creating long-term wealth using equities is deeply embedded. One is buying businesses at a price substantially below its intrinsic value (intrinsic value indicates the entity's future cash flows after estimating the number of accounting risk, macro-economic, managerial, and behavioral risk determinants). This Literature review, therefore, is organized to cover Behavioral, Accounting, Macro-economic, Volatility, and Management theories and Forecasting and ML techniques for clustering, predictions, and classification to support risk decisions using different models, e.g., ARIMA, LSTM, VAR, Facebook Prophet, ARCH and GARCH family models, etc. The literature review also establishes that the concept of risk is highly subjective and is perceived by different investors differently; it is not always entirely objective and outside the beliefs, cognitive and socio-cultural considerations requiring careful assessment before making investment decisions. However, examining the critical risk indicators would allow investors to make a more informed decision. The research gap and identified agenda for further review were defined and assessed using valuable ABCD and SWOT management frameworks. Consequently, the literature investigation findings are analyzed by offering recommendations for creating a comprehensive research agenda pertinent to long-term equity investors in the Indian Equity market.

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Literature Survey and Research Agenda of Risk Determinants in Indian Equities and Machine Learning

The Indian securities market regulator intervened in June 2010 with a regulatory amendment in the listing requirement that mandated all the listed firms other than PSUs (government‐owned companies) to have a minimum public shareholding of 25%. The affected firms were given a 3‐year window to comply with the regulation. This study examines the impact of the new regulation on the affected firms’ value. We explore the relationship between improvement in firms’ value and stock liquidity. This regulatory intervention offers a natural experiment to examine direct causality between stock liquidity and firms’ value. The findings of the empirical analysis confirm the existence of a direct causal relationship between stock liquidity and firm value, stemming from an improved operating performance.

Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India

This paper investigates, from a market design perspective and in the context of informed trading and liquidity supply, the trade-offs or positive associations between pre-trade transparency and the different dimensions of market quality in the rapidly proliferating electronic order-book markets. Specifically, this research makes at least three major contributions. First, we examine which clientele of market participants are informed, and how their information level interfaces with their preference to restrict pre-trade transparency when they supply liquidity and preference to restrict pre-trade transparency when they demand liquidity. Second, we examine a wide spectrum of market quality proxies, not just spreads, volatility and volume as the extant literature has done, but also the depth of the order book and the resiliency of this depth, and very importantly, the efficiency of the information dissemination process prices in terms of price discovery, the variance of pricing errors and the speed with which prices revert to their information-efficient values. And finally, we examine how market quality and the equilibrium level of pre-trade transparency are endogenously determined in the context of the trading interests of different clienteles of market participants, and the extent of information flows and asymmetries.

Hiding Behind the Veil: Pre-Trade Transparency, Informed Traders and Market Quality

Purpose – The purpose of this paper is to study the empirical relationship between order imbalance and returns in the backdrop of structural changes in the Indian market.Design/methodology/approach – The study makes use of hypothesis testing and dummy variable regression to investigate the relationship between order imbalance and returns during the period 1999‐2005, which saw definitive change in the structure of the Indian markets.Findings – Order imbalance (buying or selling pressure) has significantly reduced post the structural reforms at the daily as well as intra‐day intervals across trade, as well as value measures of order imbalance. After controlling for the number of transactions, order imbalance and return correlations have fallen in the post‐2002 period as compared to the pre‐2002 period, at daily as well as intra‐day intervals. Further, after controlling for past high and low returns, order imbalance exhibits day of the week effect in the pre‐2002 period while no such effect is seen in the po...

Order imbalance and returns: evidence from India

The paper explores the lead-lag relationship between the variables of order imbalance and return in futures and spot markets. Order imbalance is defined as the difference between buyer and seller initiated trades. Using tick test, the trades have been classified as buyer and seller initiated. The paper finds positive correlation between the variables of order imbalance in the futures market and the returns in the spot market. This relationship is further explored using a VAR framework for daily as well as a shorter interval of 120 min. The results reveal that even after controlling for lagged futures and spot returns, the futures market imbalance has a significant effect on spot market returns.

Order Imbalance and Returns: Evidence of Lead-Lag Relationship

This study investigates whether volatility demand information in the order flow of Indian Nifty index options impacts the magnitude of variance risk premium change. The study further examines whether the sign of variance risk premium change conveys information about realized volatility innovations. Volatility demand information is computed by the vega-weighted order imbalance. Volatility demand of options is classified into different categories of moneyness. The study presents evidence that volatility demand of options significantly impacts the variance risk premium change. Among the moneyness categories, volatility demand of the most expensive options significantly impacts variance risk premium change. The study also finds that positive (negative) sign of variance risk premium change conveys information about positive (negative) innovation in realized volatility.

Kiran Kumar Kotha

Papers

Stock Liquidity and Firm Value: Evidence from a Policy Experiment in India

Hiding Behind the Veil: Pre-Trade Transparency, Informed Traders and Market Quality

Order imbalance and returns: evidence from India

Order Imbalance and Returns: Evidence of Lead-Lag Relationship

Options Order Flow, Volatility Demand and Variance Risk Premium