Liquidity, Trading, and Price Determination in Equity Markets: A Finance Course Application

Trading is the implementation of an investment decision. After a portfolio decision has been made by a portfolio manager, it must be implemented, and especially for handling large orders and navigating stressful markets, specific skills and responsibilities are needed that require the expertise of a professional trader. However, the efficiency with which orders are handled and turned into trades depends, not just on traders’ abilities, but also on a market’s liquidity, on the design of the marketplace where shares are traded, and on the regulatory environment. In this chapter, we cover trading costs, liquidity, volatility, price discovery, market structure, and market structure regulation.

Revisiting the Long Memory in Global Stock Market Returns: An Empirical Analysis

We present a multifarious view on the presence of long memory across 33 countries, subsampled as developed, emerging and frontier economies for the period 2000–2018. We employ the classical rescaled range test, and two semi-parametric tests proposed by Geweke Porter-Hudak (1983) and the frequency domain test proposed by Robinson (1995) to decipher the presence of long memory. The results confirm that while there exists no long-range dependence for developed countries, the return series in the emerging and the frontier countries display long memory characteristics. The rationale for such result emerges from market quality parameters such as size, liquidity, trading and settlement mechanism or sound regulatory framework. These results are of importance for the global investor community for asset allocation, risk management and portfolio diversification purposes.

The effect of liquidity on the profitability of commercial banks in the Kingdom of Saudi Arabia Period (2010- 2019): أثر السيولة على ربحية البنوك التجارية في المملكة العربية السعودية للفترة (2010- 2019)

This study aimed to identify the impact of liquidity on the profitability of commercial banks in Saudi Arabia during the period 2010 to 2019. The study was based on the descriptive analytical approach where this approach is based on data collection, description and analysis, by analyzing the financial statements of the sample banks study that will be obtained from a trading site, and then using the appropriate statistical method of data analysis based on SPSS, in order to identify the impact of liquidity on profitability. The study showed that there was a statistically significant effect at the level of liquidity (0.05) on the return on equity, while there was no effect of liquidity (trading ratio) on the return on assets. The study recommended: Saudi commercial banks should focus on aligning liquidity with profitability. to avoid falling into a financial deficit. It also needs to focus on profitability, which demonstrates the bank's ability to make profits. In addition to paying more attention to liquidity because of its impact on profitability, commercial banks also have appropriate policies to better manage their liquidity, while working to achieve profitability. Finally, work on more studies and research which are more widely available to include all banks in Saudi Arabia. Finally, some semi-liquid investments need to be maintained to ensure that there is no future liquidity crisis.

Disagreement and Liquidity

Disagreement is an increasingly popular explanation for trade of informationally sensitive securities. Yet, there is limited research on the relation between disagreement and liquidity, particularly regarding how disagreement affects private information's impact on trading and liquidity. This paper proposes a model in which trading is entirely generated by disagreement stemming from overconfident interpretation of private signals. Contrary to traditional intuition, the model predicts that private information increases trading and enhances liquidity. A more general version of the model incorporates both disagreement and liquidity trading. The general model relates traditional intuition about private information destroying liquidity and trade to disagreement trading. The relation between private information and liquidity is not monotonic. Private information at first decreases liquidity but then enhances it, potentially explaining why private information seems to destroy liquidity in money markets but not in markets that are more informationally sensitive to start with.

Hospitality REITs and financial crisis: a comprehensive assessment of market quality

Purpose The purpose of this paper is to examine market microstructure differences in stock market quality for hospitality real estate investment trusts (REITs) during the pre- and post-financial crisis eras. It provides insight on different trading strategies based on the underlying liquidity and volatility of hospitality REITs as compared traditional REITs and the broader market. Design/methodology/approach The paper uses established microstructure measures for liquidity, trading volumes and risk assessment and compares daily and intraday trading patterns of REITs, hospitality REITs and the broad market. Findings The results suggest a quicker recovery of performance for hospitality REITs and some fundamental increases in liquidity measures post-crisis. The results of the study highlight the differences in trading volumes, liquidity and risk profile of hospitality REITs compared to traditional REITs both in the pre- and post-financial crisis periods. Practical implications The quicker recovery of hospitality REITs in key trading measures may suggest flight to quality during periods of high volatility. Originality/value This study fills the gap in the literature relative to microstructure studies and provides information to help hotel firms and portfolio managers choose an appropriate organizational structure and investment vehicle, respectively.