GRESSE Carole

We measure the extent to which consolidated liquidity in modern fragmented equity markets overstates true liquidity due to a phenomenon that we call Ghost Liquidity (GL). GL exists when traders place duplicate limit orders on competing venues, intending for only one of the orders to execute, and when one does execute, duplicates are cancelled. Employing data from 2013 for 91 stocks trading on their primary exchanges and three alternative platforms where order submitters are identified consistently across venues, we find that simply measured consolidated liquidity exceeds true consolidated liquidity due to the existence of GL. On average, for every 100 shares passively traded by a multi-market liquidity supplier on a given venue, around 19 shares are immediately cancelled by the same liquidity supplier on a different venue. Yet the average weight of GL in total consolidated depth, at around 4%, does not outweigh the liquidity benefits of fragmentation. GL is most pronounced for traders with a speed advantage such as high-frequency traders, in stocks exhibiting greater market fragmentation, in stocks where the tick is more likely to be binding, and on non-primary exchanges. Furthermore, GL decreases when the fraction of traders using smart order routing is large. Finally, we show that an increase in GL leads to the execution costs of slow and algo traders increasing, while those of HFTs are unaffected.

Using data from a peer-to-business crowdlending platform that exploits an auction-driven system to fund corporate loans, we show that non-professional investors are subject to a geographical-proximity bias. They are more likely to win the auctions of borrowers located close to their place of residence notwithstanding that they are not better informed about their creditworthiness. Unexpectedly, this behavioral bias distorts the loan rate discovery processby increasing the cost of funding for borrowers. This adverse effect results from the greaterability of local investors to submit winning bids at an early stage. This ability is gained from their experience in previous auctions of geographically close borrowers. This suggests that the familiarity feeling stemming from geographical closeness strengthens investor attention,and thereby improves lenders’ knowledge about the dynamics of the order flow in local borrowers’ auctions.

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We measure the extent to which consolidated liquidity in modern fragmented equity markets overstates true liquidity due to a phenomenon that we call Ghost Liquidity (GL). GL exists when traders place duplicate limit orders on competing venues, intending for only one of the orders to execute, and when one does execute, duplicates are cancelled. We employ data from 2013, covering 91 stocks trading on their primary exchanges and three alternative platforms and where order submitters are identified consistently across venues, to measure the incidence of GL and to investigate its determinants. On average, for every 100 shares pending on an order book, slightlymore than 8 shares are immediately cancelled by the same liquidity supplier on a different venue.This percentage is significantly greater for HFTs than for non-HFTs and for those trading as principal. Overall, GL represents a significant fraction of total liquidity, implying that simply measured consolidated liquidity greatly exceeds true consolidated liquidity.

No summary available.

We measure the extent to which consolidated liquidity in modern fragmented equity markets overstates true liquidity due to a phenomenon that we call Ghost Liquidity (GL) . GL exists when traders place duplicate limit orders on competing venues, intending for only one of the orders to execute, and when one does execute, duplicates are cancelled. We employ data from 2013, covering 91 stocks trading on their primary exchanges and three alternative platforms and where order submitters are identified consistently across venues, to measure the incidence of GL and to investigate its determinants. On average, for every 100 shares passively traded by a multi-market liquidity supplier on a given venue, slightly more than 19 shares are immediately cancelled by the same liquidity supplier on a different venue. This percentage is significantly greater for HFTs than for non-HFTs and for those trading as principal. GL is larger on alternative platforms than on primary exchanges. Overall, GL implies that simply measured consolidated liquidity exceeds true consolidated liquidity but its average weight in total consolidated depth, i.e., slightly more than 4%, does not challenge the liquidity benefits of fragmentation.

This thesis studies the behavior of investors in open-end mutual funds and its implications for liquidity risk. The objective of this research is to help fund managers avoid the "fund run" scenario where they suddenly lose their clients. The first step of this study is to collect a new database that records investors' "micro-transactions". This allows us to analyze their behavior at the individual level and to conduct three research papers on this topic. In the first paper, we develop a self-exciting counting model that captures stylized facts of the fund flow series. From this, we show a fund liability risk that is different from the asset risk already documented in the previous literature. We also identify a contagion of liquidity shocks across different clients in the same fund. In the next chapter, we study the investment horizons of individual clients. These horizons are strongly related to investor characteristics and economic conditions. We also show that fund managers face a premature exit risk related to the shortening of their clients' investment horizons. We then observe heterogeneity among investors: long-term investors behave differently than short-term investors. Finally, in the last chapter, we focus on rebalancing activities. We find that many investors hold a portfolio containing several funds and rebalance it to keep the same asset allocation.

We have grouped Robert Shiller's work into four sections. The first section will deal with his early work on the questioning of market efficiency and the predictability of rates of return. The second section will focus on Shiller's contributions to behavioral finance and the identification of speculative bubbles. In a third section, we will develop his contributions to real estate finance. Finally, a smaller section will deal with the societal vision of finance that Shiller develops in Finance and the Good Society.

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Based on data from eight exchanges and a trade reporting facility for a large sample of LSE- and Euronext-listed equities, this article investigates how lit and dark market fragmentation affects liquidity on the primary exchange and across markets. Fragmentation between lit order books is found to improve liquidity, with greater benefits for large stocks and stocks with less electronic trading. When algorithmic trading (AT) is controlled for: (1) spreads decrease with both lit fragmentation and AT but the impact of fragmentation is greater. (2) lit fragmentation increases depth across markets without reducing it on the primary exchange, while AT has a negative impact on depth. Dark trading is associated with greater depth but wider quoted spreads, the combination of both effects being neutral for effective spreads.

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This thesis focuses on three stakeholders in the financing of pension plans: the legislator, the insurer and the individual. In an environment of deviant financial market behavior and unfavorable demographic changes, the role of these stakeholders must be reassessed to meet the challenge of sustainable pension funding. The study of regulation and plan design has been carried out by integrating typical characteristics of the future pension landscape, such as the increasing weight of risk assumed by the individual or the possible participation of stock market investors in the contract offering. The findings provide guidance for managing longevity risk for individuals, an assessment of the attractiveness of longevity risk exposure for investors, contract design information for insurers, and proposals for policymakers on regulatory measures to support a sustainable pension landscape.

We investigate the relationship between rule-based versus risk-based regulatory choices in different countries and the real investment performance of their pension funds. Pension systems in countries with more mature risk-based regulatory regimes tend to demonstrate superior investment performance. The benefit of implementing risk-based regulation is more pronounced in countries with low regulatory quality. The core of rule-based regulations, i.e., quantitative investment limits, has no significant impact on the Sharpe ratio of pension investment returns.

Using Institutional Investors (I/I) and Extel rankings and I/B/E/S data for European analysts over 15 years, we show that European analyst rankings are determined more by popularity than by intrinsic skills, the first determinant of recognition being employer size. Becoming an I/I star is like joining a club: talent for issuing high-quality recommendations is required to be initially ranked but is irrelevant to being re-elected or reaching the top level. Our findings also underline the importance of analyst rankings’ design features. These features could probably be improved by reducing the impact of recognition in the election process.

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Our study investigates by which channel(s) initial underpricing positively impacts liquidity in the secondary market several months after the initial public offering. Whereas this positive impact has been previously attributed to the ownership dispersion induced by underpricing, we show that this theory cannot be generalized to all stock markets, and that public information production can be another channel by which underpricing contributes to improving liquidity. Using a sample of IPOs undertaken on Euronext, we show that the analyst coverage engendered by initial underpricing reduces information asymmetry costs and illiquidity in the secondary market. Regarding information asymmetry, the impact is statistically more significant on measures based on adverse selection costs than on measures based on the proportion of informed traders in the market.

Our study investigates by which channels IPO underpricing impacts post-listing liquidity. Using a sample of IPOs undertaken on Euronext with diverse mechanisms, we show that when ownership structure is not influenced by initial underpricing, this underpricing still has a positive impact on aftermarket liquidity by a virtuous cycle related to analyst coverage. The analyst coverage purchased by initial underpricing reduces information asymmetry costs and illiquidity in the secondary market. The public information produced by analysts has a statistically more significant impact on adverse selection costs than on the proportion of informed traders in the market.

The objective of this thesis is to analyze the capital structure and performance of French family firms that go public. Based on a sample of 90 family firms belonging to the CAC All-Tradable index from 2010 to 2013, we find that the capital structure of family firms is characterized by a low level of debt with a preference for short-term debt over long-term debt. Moreover, the capital structure of family firms verifies the classical theories of financing, the 'market timing' hypothesis, the optimal debt ratio theory and the hierarchical financing theory. We then analyze the short and long term performance of French family firms going public. The results show the different expropriation techniques employed by the owners of family firms. At the time of the IPO, the majority of owners of family firms are both the CEOs and the chairmen of the boards of directors. After the IPO, the owners of family firms hold about 80% of the cash flow rights and we find that the difference between their cash flow rights and their voting rights has increased. The undervaluation on day one is around 2%, revealing that family businesses are correctly valued at issuance. Family businesses outperform the market index in the first three months of the issue and after the third year. We also find that the change in ownership and control rights before and after the IPO explains the short- and long-term performance in contrast to the governance mechanisms.

This article examines how the introduction of an ETF replicating a stock index impacts on the liquidity of the underlying stocks when the ETF market involves liquidity providers (LPs). We find that index stock spreads decline, relative to those of non-index stocks, after the introduction of the ETF but this liquidity improvement is not driven by changes in adverse selection costs or recognition effects. By contrast, we show that it is mainly explained by a decrease in order processing and order imbalance costs. This most probably results from additional risk sharing capacities provided by increased cross-market trading and LPs' liquidity provision in low-liquidity times.

This book chapter provides an overview of market fragmentation in Europe since the first implementation of the Markets in Financial Instruments Directive (MiFID) on 1 November 2007. It makes a brief literature review on the consequences of lit and dark fragmentation for liquidity. It presents an empirical analysis of the effect of market fragmentation on price quality measured by price inefficiency coefficients (PICs) based on variance ratios for a sample of European large and medium capitalizations stocks. Contrary to the results by O'Hara and Ye (2011) for U.S. stocks, I do not find a clearly significant impact of market fragmentation on price quality. The only PICs to be affected are those based on 1-second to 5-second return variance ratios. According to 1-second to 5-second PICs: (1) the price quality of large UK equities improved with market fragmentation after MiFID. (2) the price quality of large Euronext equities improved with fragmentation in the primary market but deteriorated when measured across markets. and (3) the price quality of Euronext mid-caps was adversely affected. Notwithstanding these findings, price quality is not affected when measured at any other horizon.

This paper provides an overview of the knowledge available to date on market fragmentation and its consequences, with a specific focus on the European experience. Since the implementation of MiFID1 on 1 November 2007, market fragmentation has considerably increased in European stock markets without however reaching the same level as in the U.S. At present, in Europe, three trading platforms have become significant players and their joint market share exceeds 30% of lit trading volumes. Regulated dark pools do not execute more than some 5% of the total trading volumes. In contrast, OTC trading makes a large share of total volumes. The empirical evidence converges to show that fragmentation has generally contributed to improving liquidity with greater benefits for global traders who connect to several platforms and greater liquidity gains on large capitalization stocks. Adverse effects on the depth of small stocks may be observed locally in their primary market but they are more the outcome of algorithmic trading than that of fragmentation. Further, while dark trading in crossing engines is shown to improve liquidity, the impact of OTC trading is mixed and the lack of strong conclusion on this issue leaves room for further research. Finally, price quality does not appear to be significantly affected by market fragmentation in European stock markets.

No summary available.

This book chapter provides an overview of market fragmentation in Europe since the first implementation of the Markets in Financial Instruments Directive (MiFID) on 1 November 2007. It makes a brief literature review on the consequences of lit and dark fragmentation for liquidity. It presents an empirical analysis of the effect of market fragmentation on price quality measured by price inefficiency coefficients (PICs) based on variance ratios for a sample of European large and medium capitalizations stocks. Contrary to the results by O’Hara and Ye (Journal of Financial Economics 100(3):459–474, 2011) for U.S. stocks, I do not find a clearly significant impact of market fragmentation on price quality. The only PICs to be affected are those based on 1-s to 5-s return variance ratios. According to 1-s to 5-s PICs: (1) the price quality of large UK equities improved with market fragmentation after MiFID. (2) the price quality of large Euronext equities improved with fragmentation in the primary market but deteriorated when measured across markets. and (3) the price quality of Euronext mid-caps was adversely affected. Notwithstanding these findings, price quality is not affected when measured at any other horizon.

This paper investigates how the introduction of an index security directly or indirectly impacts the underlying-index spot-futures pricing. Using intraday data for financial instruments related to the CAC 40 index, we do not find that the spot-futures price efficiency improvement observed after ETF introduction is explained either by the direct effect of ETF shares being used in arbitrage trades or by the indirect effect of ETF trading improving the liquidity of index stocks in the short run. Some of our findings suggest that the efficiency improvement could rather result from a structural change in the way index traders distribute across index markets, with the ETF market absorbing the liquidity demand from some hedgers or passive index traders.

We investigate the relationship between rule-based versus risk-based regulatory choices in different countries and the real investment performance of their pension funds. Pension systems in countries with more mature risk-based regulatory regimes tend to demonstrate superior investment performance. The benefit of implementing risk-based regulation is more pronounced in countries with low regulatory quality. The core of rule-based regulations, i.e., quantitative investment limits, has no significant impact on the Sharpe ratio of pension investment returns.

We investigate the relationship between rule-based versus risk-based regulatory choices in different countries and the real investment performance of their pension funds. Pension systems in countries with more mature risk-based regulatory regimes tend to demonstrate superior investment performance. The benefit of implementing risk-based regulation is more pronounced in countries with low regulatory quality. The core of rule-based regulations, i.e., quantitative investment limits, has no significant impact on the Sharpe ratio of pension investment returns.

This article examines how the introduction of an ETF replicating a stock index impacts on the liquidity of the underlying stocks when the ETF market involves liquidity providers (LPs). We find that index stock spreads decline, relative to those of non-index stocks, after the introduction of the ETF but this liquidity improvement is not driven by changes in adverse selection costs or recognition effects. By contrast, we show that it is mainly explained by a decrease in order processing and order imbalance costs. This most probably results from additional risk sharing capacities provided by increased cross-market trading and LPs’ liquidity provision in low-liquidity times.

The purpose of this thesis is to analyze the impact of financial analysts' monitoring of the IPO on the quality of the secondary market and on the future stock market life of the company. To this end, three empirical studies are conducted on the French market. The first study provides a new explanation for the positive relationship between initial undervaluation and secondary market liquidity. It shows that this positive relationship is formed through financial analysts' coverage. Based on the survival analysis method, our second study reveals that financial analyst coverage has a positive impact on the stock market life of the firm. The third study shows that hedging can also influence the occurrence and speed of occurrence of a secondary issue. It appears that the most hedged firms at the time of the IPO are those that return to the market most quickly to make a secondary guaranteed issue. This work underscores the importance of financial analysts' monitoring of IPOs.

Sovereign debt is a powerful instrument of public policy. With its rapid growth in developed countries, on the one hand, and the fundamental change in its structure in developing countries, on the other, understanding the determinants of sovereign risk has become a major concern for researchers and investors. This thesis studies aspects of default risk in advanced and emerging economies. The theoretical part presents sovereign default risk. The main results show that the choice of currency of issuance represents an important aspect of a government's default risk profile.In the first, a detailed analysis of sovereign defaults using a new database that includes 100 countries observed over the period 1996-2012 has been conducted. The results show that a government's decision to default differs significantly depending on the denomination of the currency and the type of holders of the public debt. The second study sheds new light on the sovereign rating. It shows that countries whose debt is largely - or entirely - denominated in their own currency have a considerable advantage over countries that issue in foreign currency. In the last empirical section, the market price of sovereign risk is explored. The study shows that aggregate factors affect investors' remuneration for holding sovereign risk, but not the risk itself.The main results imply that any modeling of sovereign default risk calls for a distinction between local and foreign currency.

In the first chapter, I show that traditional liquidity measures, such as market depth, are not always relevant for measuring investor welfare. I build a model of an order-driven market and show that high liquidity supply can correspond to poor execution conditions for liquidity providers and relatively low welfare.In the second chapter, I model the speed of price adjustments to news arrivals in order-driven markets, when investors have limited attention capacity.Due to their limited attention, investors imperfectly follow news arrivals. Due to their limited attention, investors imperfectly follow the arrival of news, so prices adjust to the news after a certain delay. This delay decreases as the level of attention of investors increases.The delay in price adjustment also decreases as the frequency at which news arrives, increases. The third chapter presents a work written in collaboration with Thierry Foucault. We build a model to explain how high-frequency trading can generate "mini-flash crashes" (a sudden change in price followed by a very rapid return to the previous level). Our theory is based on the idea that there is a tension between the speed at which information can be acquired and the accuracy of that information. When high-frequency traders implement strategies involving rapid reactions to market events, they increase their risk of reacting to noise and thus generate "mini flash crashes". Nevertheless, they increase the informational efficiency of the market.

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Using the most comprehensive publicly available data to-date, we study the effect of three aspects of pension regulation (namely quantitative investment restrictions, minimum return or benefit guarantee, and the type of supervising authority) on risk-adjusted funded pension performance in 27 countries. Regulatory strictness’ influence on the Sharpe ratio of investment return depends on a country’s level of economic development. In emerging market economies, existence of quantitative investment restrictions across asset classes adversely affects risk-adjusted returns. This impact is more severe if higher investment limits are imposed on equities and foreign assets, as opposed to on bonds. Having a minimum benefit or return guarantee, as well as having a specialized supervising authority has no statistically significant effect on the risk-adjusted returns regardless of economic development.

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Based on trade and quote data from eight exchanges and a trade reporting facility for a sample of LSE- and Euronext-listed equities, this article compares the consolidated liquidity of competing markets, also called global liquidity, and the local liquidity of the primary exchang, before and after MiFID. It then investigates how liquidity measured by spreads and best-quote depth relate to market fragmentation and internalization after MiFID. Market fragmentation is found to improve global and local liquidity, with spreads decreasing proportionally to market competition. The decline in depth observed in the early post-MiFID period is driven by other factors than market fragmentation. The only harmful effect is that fragmentation may reduce market depth for small stocks. Further, internalization is not found to be detrimental for liquidity.

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The objective of this thesis is to analyze the role of rating agencies on the financial market. Our contribution consists in better understanding the influence of rating announcements on French equity market participants (investors and financial analysts).The first question concerns the informative contribution delivered by rating agencies and the impact of their decisions. In order to answer this question, we conducted a study of rating announcement events, distinguishing between announcements by nature, type and category.This research provides evidence that rating announcements have an overall impact on the equity market. The impact depends on the nature of the announcement, the information provided in the rating reports, the rating changes between categories and those made in the speculative category. Finally, the level of the rating depends on the financial and accounting characteristics of the rated firm.The second question concerns the beneficial role of rating agencies on the markets. In order to answer this second question, we conducted a research that consists in analyzing the evolution of information asymmetry between investors and liquidity around rating announcements.This research proves that positive (respectively negative) announcements lead to a decrease (respectively increase) of information asymmetry in the equity market. The results also prove that positive and neutral announcements, in contrast to negative announcements, lead to a reduction in price ranges and an improvement in trading volumes. These two concomitant effects reflect an improvement (respectively deterioration) in market liquidity during positive and neutral (respectively negative) announcements.The third question concerns the usefulness of rating announcements for analysts in their forecasts. In order to answer this question, we conducted research that consists of studying the evolution of the dispersion and error of analysts' forecasts around rating announcements.The results reveal an inverse relationship between the characteristics of financial analysts' forecasts and the nature of the rating announcement. The results show an inverse relationship between the characteristics of financial analysts' forecasts and the nature of the rating announcement. Positive and neutral announcements reduce the error and dispersion of analysts' forecasts.This research work attests to the real importance of the informational content of rating announcements for the equity market and the real contribution of the announcements to the improvement of financial communication in the market.

Can the investor rely on the results of annual sell-side analyst rankings to identify the best performing analysts? This is the question that this thesis attempts to answer through two empirical studies. The first study investigates the factors that explain the election of an analyst in a ranking: his or her performance on forecasts and recommendations relative to other analysts in the sector, the size of the financial intermediary to which he or she belongs, and his or her experience in the sector. The second explores the predictive nature of the analyst's ranking on the performance of his recommendations in the year following his ranking. The performance of several families of stock portfolios recommended by ranked analysts on the one hand and unranked analysts on the other hand are then compared. The two empirical studies show that there is almost no relationship between the analyst's ranking and his quantitative performance. These results raise the specific question of the impact of the analyst's affiliation on his or her ranking. Moreover, they call into question the use of analyst rankings in the Anglo-Saxon literature as a proxy for reputation.

This work aims to determine, in the context of companies going public, the factors that explain the presence of contractual commitments by the main shareholders on the one hand and their impact on the value of the firm on the other. The term "contractual commitment" refers to two mechanisms put in place at the time of the IPO: commitments to retain shares by managers and shareholders' agreements. Our study focuses on a sample of 292 companies listed between 1996 and 2000 on the Nouveau Marché and the Second Marché of the Paris Stock Exchange. Our results show that the presence and duration of executive shareholding commitments serve to signal the value of the firm when information asymmetry is high but also to compensate for some inefficiencies in the firm's governance system. We also observe a negative impact on the value of the firm of management retention commitments, whereas those concerning venture capital firms have a positive impact. Regarding shareholders' agreements, our work shows that their implementation is more likely when managers anticipate a future sale of the firm. They also have a positive influence on the value of the firm as long as they do not protect the signatories from a hostile takeover. In the latter case, the effect on the value of the firm is negative. Finally, we show that there is a negative reaction of the stock market price around the day of the expiration of the retention agreements.

We study the properties of the distribution of rates of return on financial securities and assess their impact on portfolio management. First, we estimate the distributional characteristics of the rates of return and extend this by studying the in-sample properties of the semi-moment estimators. With the latter we develop and study a normality test adapted to finance, which we use to estimate the speed of convergence of the distribution of rates of return to normality as a function of the horizon. We assess the impact of the non-normality of the rates of return on the empirical performance of the CAPM, through the semi-components. Finally, we study portfolio selection methods under non-normality and establish one based on distances between densities, using Gram-Charlier developments to obtain the distribution of portfolio returns, conditional on stock weights.

With the multiple listing of many financial securities on several exchanges, but also with the coexistence of several trading systems within the same exchange, we observe a fragmentation of order flows on the markets. With fragmentation, two types of competition are juxtaposed: competition between investors seeking to trade at the best prices, and competition between markets, each seeking to attract the largest number of investors possible. By considering two performance criteria, liquidity and informational efficiency, this thesis seeks to determine whether fragmentation and competition between markets contribute to economic efficiency, and whether one trading organization is more efficient than another. The research suggests that if an order-driven market is competing with market makers in an asymmetric information environment, the detour of some orders to these market makers does not undermine market efficiency. Fragmentation harms the liquidity of the auction market as well as the general liquidity of the traded security, by increasing the anti-selection costs. This result should be modulated according to the ability of uninformed agents to be recognized as such by the dealers. Finally, the result according to which the listing of a security on a new market deteriorates its liquidity is not necessarily verified if it drains a new demand for liquidity on the security. Through field observations and empirical comparisons of French stocks traded in Paris and London, the relative liquidity of the three competing trading structures, the fixing, the continuous auction and the counterparty, is assessed. Contrary to previous studies on the subject, it is shown that the Paris market, driven by orders, is dominant, not only in the execution of transaction volumes, but also in the price discovery process. According to the tests and observations made, the dual listing of French stocks is not exactly a case of fragmentation but rather a case of segmentation of the exchanges.