RIVA Fabrice

The thesis consists of three empirical articles on stock market reactions to financial misconduct. The scope of the breaches covers insider trading, price manipulation, breaches relating to financial information and any other breach likely to undermine investor protection. The first two articles exploit a unique database covering all sanction decisions taken by the French Autorité des Marchés Financiers (AMF) since its creation in 2003, using an event study methodology. More specifically, the first paper examines how the French market reacts to the unanticipated announcement of a sanction of a listed company. The results highlight that such decisions by the regulator lead to significant but limited negative abnormal returns. By correcting these abnormal returns for the amount of the fine imposed by the AMF, the largest market capitalizations would benefit from being sanctioned. The second article reverses the perspective by analyzing the repercussions for a listed company of being mentioned as the past victim of sanctioned breaches. The conclusion is that these "avenged victims" suffer a double penalty: when the breach is committed (for example, price manipulation or insider trading) and again when their former tormentor is convicted. The last article broadens the perspective by meta-analyzing the literature on the impact on financial markets of intentional financial misconduct, estimated with an event study. The objective is to put the results of the first article into perspective as well as to fill a gap in the existing literature. The meta-analysis demonstrates that this field of literature is affected by a negative publication bias. Nonetheless, after correcting for this bias, financial failures result in statistically significant negative abnormal returns.

ETFs (Exchange-Traded Funds) have been a major innovation of the last thirty years, but they have been slow to become a subject of interest in finance research. This article examines the reasons for the time lag between the launch of the product and the scientific production on the subject. The analysis shows that the development of research and the evolution of the themes it has successively addressed are inseparable from the growth in the number of ETFs, the amount of their assets under management, and the appearance of the first episodes casting doubt on their operation, initially presented and perceived as simple.

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We provide a theory and empirical evidence showing that the liquidity (quoted spread) of an ETF is strongly determined by inventory-risk related variables. We consider a risk averse market maker who optimally chooses to either manage her ETF position through trading, or resort to the ETF creation/redemption mechanism to exchange her residual inventory for the underlying basket. The trade-off between the ETF price concession and the cost of trading the basket is key in explaining liquidity provision in ETFs. Using data on European equity ETFs, we provide supporting evidence that ETF spreads depend on the risks and costs of inventory management. We also find that the ETF liquidity is linked with the basket liquidity only when market conditions make on-exchange inventory management unsuitable.

This thesis focuses on the new opportunities offered by the growth of Exchange-Traded Funds (ETFs). This research explores three of their impacts on collective bond management.The first step of this study observes the effects on underlyings of inclusion or exclusion in an ETF. Because of their hybrid structure, ETFs can affect the characteristics of underlyings and increase the proportion of uninformed investors. I exploit bond downgrades to establish a relationship between ETF ownership and the liquidity or price of the underlyings. The results show that the effects of ETF inclusion are long-lasting and partially persist after ETF exit. The next chapter proposes a methodology using the information contained in ETFs as a stress measure. Many investors take advantage of the speed of trading of ETFs to adjust their exposures very quickly. The proposed indicator provides a single methodology for all asset classes, which facilitates the analysis of its propagation. Finally, the last chapter deals with the integration of portfolio insurance strategies in an open-ended fund. The flexibility of ETFs across multiple asset classes creates new opportunities for portfolio insurance. This chapter proposes a model that tailors exposure to a risky asset based on downside and upside protections. The methodology allows for protection of all investors regardless of the subscription/redemption period. regardless of the subscription/redemption period.

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This doctoral work studies the "feedback" effect of financial information related to stock prices on managers' decisions. Specifically, I study whether and how managers actually learn new information from stock prices to guide their corporate decisions. My dissertation consists of three essays, each addressing a different aspect of this same topic. The first essay studies the link between the informational efficiency of the stock market and the level of real economic efficiency of the firm. In the first essay, I find that when stock prices aggregate a greater amount of useful information, managers' decisions about firms should be even more optimally efficient. The second essay studies whether managers seek to learn the information used by short sellers. Is studying stock prices in the presence of short sellers useful for firm decisions? In the second essay, I overcome empirical difficulties by exploiting a unique institutional feature in the Hong Kong stock market. I find that managers of "non-shortable" firms can take advantage of short sellers' information about industry economic conditions through the stock prices of other "shortable" firms in the same industry and use it in their corporate decisions. The third essay studies the actual effects of long option trading. In the third essay, I find that the introduction of a specific class of long-term options stimulates the production of long-term private information and thus leads to an increase in the informativeness of prices on the long-term fundamentals of firms. As a result, managers can extract more information from the stock price to guide their long-term investment decisions.

Market liquidity refers to the ability to trade a financial asset quickly without losing value relative to its fundamental value. This liquidity is a source of risk but also of reward. In this thesis we focus on both aspects. We propose a new methodology to estimate the remuneration of liquidity risk based on unobserved component models. In terms of risk, we propose to combine density predictions from different models to better predict liquidity at the high-frequency scale. We also model funding liquidity. This corresponds to the capacity for an agent to continuously honor its commitments by finding financing. In particular, we study the funding liquidity risk in the banking system, which is of primary importance as demonstrated by the major role it played in the 2008 financial crisis. We propose several new measures of this risk to assess the exposure of banks. Our model also allows us to evaluate so-called extreme situations and to measure the contagion of this risk between institutions.

The recent academic literature only very rarely addresses the issue of the behavior, transactions and earnings underlying insider trading. Based on the decisions rendered by the Enforcement Committee of the Autorité des marchés financiers between 2001 and 2011, we identify insider trading that took place between 1999 and 2008 on listed shares in France, which led to the individuals concerned being implicated and possibly to an administrative sanction. The information collected, which concerns not only the professional status of the insiders, but also the number and amount of their transactions, the type of insider information used, the profits obtained, and any sanctions imposed, allows us to characterize empirically the typical profile of the insider and his behavior. The determinants of profits, the probability of sanctions and the amount of the financial fine are also tested econometrically. We then focus on concealment strategies, which, although they exist, seem to be not very effective. The determinants of the size of illegal transactions are also highlighted by means of an econometric estimation. Finally, in the perspective of a fair adequacy between the financial penalty and the gravity of the breach committed, we propose an evaluation of the methods used by market regulators in France, in the United States and in Italy to calculate the profits made by insiders. Although much more complex, the method used by the SEC provides identical results to those obtained using the AMF calculation tool. The latter is therefore the preferred method for evaluating undue profits, as it is usable in all circumstances, statistically just as robust and simpler to implement.

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This thesis focuses on the portfolio management choices of long-term investors and on the risk premiums offered by the French financial market. The work carried out in this thesis aims to shed light on and provide arguments in favor of long-term, risky and productive investments. In terms of portfolio management, this work provides several answers in terms of asset allocation and optimal investment strategies. First, and based on stock and bond market indices, it turns out that the French market is efficient in the weak sense and that the random walk hypothesis is not rejected. This first result implies that the abnormal returns that can be measured on this market are due to risk factors to be remunerated and not to anomalies. Thus, in the second paper, we demonstrate a persistent value premium in the French market over the period studied. On the other hand, the size premium is only observed for stocks with very low or very high book-to-market ratios and for stocks with a high past cumulative profitability. Also, investing in high momentum companies always leads to better returns regardless of the size of the company considered. It is also confirmed that the correct specification of the market portfolio is a prerequisite for a correct valuation of financial assets. In the third paper, and from a multi-period portfolio management perspective, the standard deviation of annualized returns on risky assets decreases when the holding period is lengthened, implying that portfolio managers tend to bias allocations towards safer assets and thus neglect a shortfall. This work also shows that holding a portfolio of small-cap stocks is an optimal investment for investors with a long time horizon. These results highlight inefficient prudential rules from the policyholder's point of view on the one hand, and, on the other hand, the need for measures to revive the markets for small companies and to facilitate their access to direct financing.

Despite the importance ETFs have recently gained, little is known about their liquidity. The conventional view on ETF liquidity is that what really matters is not the size of the ETF or its trading volume but the liquidity of its benchmark index. We argue that while creation/redemption effectively creates a tight link between the ETF and the index liquidity, other factors are likely to affect the former. The aim of our paper is to provide empirical evidence of the determinants of the spreads in the European equity ETF markets from their inception in 2000 to the end of 2011. We find that, while the liquidity of ETFs effectively depends on the liquidity of their benchmark index, size also matters: larger and more heavily traded ETFs display tighter spreads. We also find that synthetic ETFs exhibit lower spreads than physical ETFs but that this effect becomes insignificant when competition is accounted for. Finally, market fragmentation also affects spreads but does so differently in physical and synthetic ETFs, which may be explained by the degree of fragmentation these ETFs really face.

This paper examines the impact of market liquidity on seasoned equity offerings (SEO) characteristics in France. We find that, besides blockholders' takeup, liquidity is an important determinant of SEO flotation method choice. We document higher direct equity offering flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. After controlling for endogeneity in the choice of SEO flotation method, we find that pure public offerings and standby rights are comparable in terms of direct costs and liquidity improvement. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.

This paper examines the impact of market liquidity on seasoned equity offerings (SEO) characteristics in France. We find that, besides blockholders’ takeup, liquidity is an important determinant of SEO flotation method choice. We document higher direct equity offering flotation costs, but also improved stock market liquidity after public offerings and standby rights relative to uninsured rights. After controlling for endogeneity in the choice of SEO flotation method, we find that pure public offerings and standby rights are comparable in terms of direct costs and liquidity improvement. Our results provide new insights as to why firms choose public offerings despite apparently higher costs.

For a long time, the principle of the centralized order-driven market was the only reference for the organization of transactions. However, the success of alternative trading systems (price-driven markets and private trading systems) since the 1970s has shown the inadequacy of traditional structures for the new requirements arising from the institutionalization of markets. Too rigid, too transparent, insufficiently liquid, these structures seem to be synonymous with high transaction costs for investors who have to make large trades. Based on this observation, structures such as the NYSE or the Paris Stock Exchange have set up a block market in order to offer institutional investors trading conditions that are better adapted to their needs. Thus, block markets are supposed to provide additional liquidity to the centralized structures that they complement. The purpose of the work presented here is to study the reality of this contribution in the case of the non-CAC block market on the Paris stock exchange. The study shows that this compartment captures only a small share, about 10 to 15%, of transactions reaching the normal block size, the rest being the responsibility of the CAC. Several phenomena can explain this result. If transaction costs on the CAC system (price range, temporary and permanent effects of orders on prices) are an increasing function of the number of securities traded because of the private information contained in the orders, investors, by trading strategically, can at the same time minimize the impact of their transactions on prices. The anonymity and speed of execution provided by the CAC system also seem to be factors appreciated by investors. Finally, the non-CAC market would only be of interest to agents who can credibly report the uninformed nature of their demand.