Pricing Carbon Ellerman, A. Denny; Convery, Frank J.; de Perthuis, Christian
01/2001
eBook
The European Union's Emissions Trading Scheme (EU ETS) is the world's largest market for carbon and the most significant multinational initiative ever taken to mobilize markets to protect the ...environment. It will be an important influence on the development and implementation of trading schemes in the US, Japan, and elsewhere. However, as is true of any pioneering public policy experiment, this scheme has generated much controversy. Pricing Carbon provides the first detailed description and analysis of the EU ETS, focusing on the first 'trial' period of the scheme (2005–7). Written by an international team of experts, it allows readers to get behind the headlines and come to a better understanding of what was done and what happened based on a dispassionate, empirically based review of the evidence. This book should be read by anyone who wants to know what happens when emissions are capped, traded, and priced.
COMPETING ON SPEED Pagnotta, Emiliano S.; Philippon, Thomas
Econometrica,
20/May , Letnik:
86, Številka:
3
Journal Article
Recenzirano
Odprti dostop
We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster ...venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.
We study intraday market intermediation in an electronic market before and during a period of large and temporary selling pressure. On May 6, 2010, U.S. financial markets experienced a systemic ...intraday event—the Flash Crash—where a large automated selling program was rapidly executed in the E-mini S&P 500 stock index futures market. Using audit trail transaction-level data for the E-mini on May 6 and the previous three days, we find that the trading pattern of the most active nondesignated intraday intermediaries (classified as High-Frequency Traders) did not change when prices fell during the Flash Crash.
We propose a model of trade in over-the-counter (OTC) markets in which each dealer with private information can engage in bilateral transactions with other dealers, as determined by her links in a ...network. Each dealer's strategy is represented as a quantity-price schedule. We analyze the effect of trade decentralization and adverse selection on information diffusion, expected profits, trading costs, and welfare. Information diffusion through prices is not affected by dealers' strategic trading motives, and there is an informational externality that constrains the informativeness of prices. Trade decentralization can both increase or decrease welfare. A dealer's trading cost is driven by both her own and her counterparties' centrality. Central dealers tend to learn more, trade more at lower costs, and earn higher expected profit.
Government agencies routinely allow pre-release access to information to accredited news agencies under embargo agreements. Using high-frequency data, we find evidence consistent with informed ...trading during embargoes of Federal Open Market Committee (FOMC) scheduled announcements. The E-mini Standard & Poor’s 500 futures’ abnormal order imbalances are in the direction of subsequent policy surprises and contain information that predicts the market reaction to the policy announcements. The estimated informed trades’ profits are arguably large. Notably, we find no evidence of informed trading prior to the start of FOMC news embargoes or during lockups ahead of nonfarm payroll, US Producer Price Index, and gross domestic product data releases.
Community-based trading structures play important roles in the development of local energy market (LEM). In this paper, a decentralized optimization model for the trading community formation is ...proposed based on the Lp-box consensus alternating direction method of multipliers (ADMM), where the network features of the physical systems are explicitly represented by power loss and wheeling charging in local and regional trading level, respectively. The framework for multi-level hybrid trading network construction is introduced involving three different trading modes, i.e, traditional trading mode, agent-based trading mode and peer-to-peer (P2P) trading mode, and two hybrid trading networks, namely Traditional trading & Agent based trading (TA) and Traditional trading & Peer-to-peer trading & Agent based trading (TPA), are developed based on the trading community formation results. The corresponding profit allocation schemes are also presented for the TA and TPA hybrid trading networks respectively. A set of complex network indices is applied to analyze the network characteristics of the TA and TPA trading topologies, while the link entropy (LE) index is used to evaluate the edge significance of the communication relationship network in maintaining global connectivity. Finally, the proposed models are validated via a test system with six IEEE 33-bus systems connected through the IEEE 9-bus system. The results show that the agent-based strategy can benefit all entities compared with the SDR and contribution-based strategies, while the REO (renewable energy output)-first strategy proposed for P2P pairing is more stimulating for the selling entities with larger REOs than distance-first mode. In addition, the entities’ prices in the bi-level trading are significantly improved compared with those of the single-level trading both for agent-based trading and P2P trading. The complex index values of TA are all slightly greater than those of TPA, and a feeder with fewer managers is likely to have a larger LE value. The proposed models for trading community formation and trading network formation provide significant means for the development of sustainable LEMs.
•A decentralized trading community formation model is proposed for local energy market.•A framework for multi-level hybrid trading network construction is introduced involving different trading modes.•Two hybrid trading networks are developed with the corresponding profit allocation schemes.•A set of complex network indices is applied to analyze the network characteristics of hybrid trading networks and corresponding communication network.
This article studies the impact of increasing trading frequency in financial markets on allocative efficiency. We build and solve a dynamic model of sequential double auctions in which traders trade ...strategically with demand schedules. Trading needs are generated by time-varying private information about the asset value and private values for owning the asset, as well as quadratic inventory costs. We characterize a linear equilibrium with stationary strategies and its efficiency properties in closed form. Frequent trading (more double auctions per unit of time) allows more immediate asset reallocation after new information arrives, at the cost of a lower volume of beneficial trades in each double auction. Under stated conditions, the trading frequency that maximizes allocative efficiency coincides with the information arrival frequency for scheduled information releases, but can far exceed the information arrival frequency if new information arrives stochastically. A simple calibration of the model suggests that a moderate market slowdown to the level of seconds or minutes per double auction can improve allocative efficiency for assets with relatively narrow investor participation and relatively infrequent news, such as small- and micro-cap stocks.
We extend the theory of strategic trading around a predictable liquidation by considering the role of market resiliency. Our model predicts that even a monopolist strategic trader improves market ...quality and increases liquidator proceeds if trades’ temporary price impacts are quickly reversed, and that competition among strategic traders strictly improves market quality. We provide related empirical evidence by studying prices, liquidity, and individual account trading activity around the large and predictable “roll” trades undertaken by a large exchange-traded fund (ETF). The evidence indicates narrower bid-ask spreads, greater order book depth, and improved resiliency on roll dates. We find that a larger number of individual trading accounts provide liquidity on roll dates, and do not find evidence of the systematic use of predatory strategies. On balance, the theory and evidence imply that traders supply liquidity to rather than exploit predictable trades in resilient markets.
News Trading and Speed FOUCAULT, THIERRY; HOMBERT, JOHAN; ROŞU, IOANID
The Journal of finance (New York),
February 2016, Letnik:
71, Številka:
1
Journal Article
Recenzirano
We compare the optimal trading strategy of an informed speculator when he can trade ahead of incoming news (is "fast"), versus when he cannot (is "slow"). We find that speed matters: the fast ...speculator's trades account for a larger fraction of trading volume, and are more correlated with short-run price changes. Nevertheless, he realizes a large fraction of his profits from trading on long-term price changes. The fast speculator's behavior matches evidence about high-frequency traders. We predict that stocks with more informative news are more liquid even though they attract more activity from informed high-frequency traders.
This paper considers the role of high-frequency trading in a dynamic limit order market. Fast traders׳ ability to revise their quotes quickly after news arrivals helps to reduce the inefficiency that ...is rooted in the risk of being picked off, which increases trade. However, their presence induces slow traders to strategically submit limit orders with a lower execution probability, thereby reducing trade. Because speed is a source of market power, it enables fast traders to extract rents from other market participants and triggers a costly arms race that reduces social welfare. The model generates a number of testable implications concerning the effects of high-frequency trading in limit order markets.
PDF
