"Supporters of MTS say that these practices are needed to ensure there is plenty of liquidity in the eurozone’s fragmented government bond market. The rules are popular among smaller eurozone members.
However, critics say the rules have created a quasi-cartel, which has raised the cost of bond dealing and looks increasingly anachronistic given the growing use of electronic trading. "
Here's some great empirical evidence for all this. Bart Hobijn and Boyan Jovanovic estimate (pdf) that the stock market value of US firms that existed in 1972 fell relative to GDP in the three subsequent decades. And yet the value of the overall market more than doubled relative to GDP. This means that more than all the rise in the value of shares relative to GDP came from new firms. Growth - as perceived by investors - therefore comes from new firms much more than incumbent ones.
This suggests that old hierarchic firms don't grow quickly. Rather than being a source of innovation, big hierarchical firms exist to exploit innovations that have occurred outside the firm, as this paper (pdf) shows.
Now, I'm not saying here that co-operatives would be a better source of innovations; as workers want to cling onto their jobs, labour-saving innovation would be less. All I'm saying is that whatever the benefits of hierarchies are, they don't include an ability to innovate. It's markets that give us innovations, not hierarchies.
"This trend toward dark pools and crossing networks is providing a lucrative source of revenues for investment banks and it is likely to accelerate, particulaly as the introduction of the Market in Financial Instruments Directive this year in Europe is likely to expand the use of private networks there."
The price of the 2015 Bund has moved sharply in the past week, suggesting that the bank could stand to make large profits in the repurchase or repo market, where securities such as bonds are lent in exchange for cash.
A lower interest rate on the cash side of the transaction indicates greater repo demand to borrow a bond. The 2015 Bund has been attracting a cash interest rate of about 1 per cent in the overnight repo market this week, down from about 3.5 per cent last week and well below the 3.5 per cent average overnight repo rate in Europe, set in line with the European Central Bank’s main interest rate.
Such a low repo rate for a Bund is rare. A bank able to lend the bond receives cash at below-market interest rates, which can then be deployed at a profit.
Trading volumes for last Friday and Monday rose to €3.4bn on BrokerTec, the electronic platform on which repo trading is conducted, suggesting that millions of euros could be made this way.
"This paper develops and implements a new test to investigate whether sell-side analysts herd around the consensus when they make stock recommendations. Our empirical results support the herding hypothesis. Stock price reactions following recommendation revisions are stronger when the new recommendation is away from the consensus than when it is closer to it, indicating that the market recognizes analysts' tendency to herd. We find that analysts from larger brokerages and analysts following stocks with smaller dispersion across recommendations are more likely to herd."
"Such was the scale of investment flows that the structure of the commodity markets changed. Traditionally, futures prices were lower than spot, or current, prices; a state known as “backwardation”. This allowed investors to buy the future and wait for its price to rise to the spot level. This gain, known as the “roll yield”, was an important part of commodity returns."
In fact real people make systematic mistakes, not just random ones. That might ruin things in the supermarket, but not in the stock market. In the supermarket a group of elite queue “arbitrageurs”, trying to exploit different queue lengths, could not equalise queues when faced with hordes of ignorant shoppers who irrationally favoured aisles three and four.
In the stock market, when smart investors can take advantage of other people’s stupidity (for instance by buying cheap shares in December and offloading them in January) then these smart investors get richer and more influential. The irrational investors may be numerous but they will also be impoverished and inconsequential.
"More likely, countries such as Thailand and South Korea are more worried about excessive domestic liquidity, leading to credit growth, inflation and rising asset prices. Economists judge that it is impossible to manage both domestic liquidity and exchange rates, while having an open capital account – one of the three has to give. Thailand’s capital controls, therefore, might offer a workable solution to managing the currency. This makes Tuesday’s rate cut surprising, as it will certainly spur domestic demand"
"But retail investors such as the baby-boomers are a largely untapped source of funds for the Tokyo market, mainly because they have been happy to keep so much of their savings in the bank. In this respect, they are practically the mirror image of Americans: while the Japanese kept 51 per cent of household financial assets in bank accounts last year, compared with 17 per cent in stocks and other investments, US investors held 52 per cent in stocks and left just 13 per cent in the bank."
"Ads produce a general awareness of a film, but they don’t necessarily persuade people to go see it. “You don’t need eighty per cent of the entire public to know about your movie,” Rice said. “You need one hundred per cent of those whom the movie is for. If we can reach that audience, we can do this kind of filmmaking profitably.”"
"ECONOMICS is “not a ‘gay science’,” wrote Thomas Carlyle in 1849. No, it is “a dreary, desolate, and indeed quite abject and distressing one; what we might call, by way of eminence, the dismal science.”"
"This is good news for stockmarkets in the short term, in that profits may remain high—or at least will not be undermined by the folly of executives. But the bad news is that underinvestment will weaken companies' long-term health. The conglomerates behind the takeover booms of the 1970s and the 1980s resembled today's private-equity groups. They aimed to use their financial expertise to improve returns across a range of industries. But they tended to run subsidiaries to maximise cashflow, and the businesses slowly deteriorated, like a poorly maintained house. Today's skinflints may do the same."
"Or consider trade-opening agreements. They give Americans access to more low-cost products and services from abroad. This makes Americans’ dollars go further. But the agreements especially benefit the rich, who spend more ... because they have more income to spend. The agreements also typically impose a burden on working-class Americans who... lose their jobs to foreigners. These job losers get new jobs, but studies show the new jobs pay 10 to 15 percent less... Even if you assume that access to cheaper goods from abroad adds about 10 to 15 percent to their purchasing power, these working-class wage earners come out about even, at best. That means the overall result of most trade agreements is to widen inequality. Do the efficiency benefits of trade outweigh this result? Maybe a decade ago when inequality was less pronounced. Probably not, now. "
"But supporters and critics of private equity agree on one thing: recent corporate governance regulation in the US has given buy-out funds a new edge there over publicly listed companies and their executives. The Sarbanes-Oxley law, passed in 2002 when the scars left by the Enron and WorldCom scandals were still fresh, requires that chief executives and board directors exercise stricter oversight of governance and audit processes.
Corporate executives protest that compliance with the new law, which has increased the risk of legal action against companies and individuals, is an expensive, time-consuming affair that dilutes their focus on company performance and strategy.
For their part, buy-out executives make no secret of their willingness to exploit the current climate to tempt companies and executives away from public markets. “We have a great corporate governance advantage,” says Kevin Conway, managing partner at Clayton, Dubilier & Rice, the buy-out firm. “Our board members are much more focused on driving the performance of the company than looking at processes.”"
"Using a multiple linear regression model, prediction variables were numerically weighted according to statistical significance and used to predict the match outcome. With the use of the Duckworth-Lewis method to determine resources remaining, at the end of each completed over, the predicted run total of the batting team could be updated to provide a more accurate prediction of the match outcome. By applying this prediction approach to a holdout sample of matches, the efficiency of the 'in the run' wagering market could be assessed. Preliminary results suggest that the market is prone to overreact to events occurring throughout the course of the match, thus creating brief inefficiencies in the wagering market."
