Securities Markets
Papers, books, op-eds, blog posts, datasets and case studies on this project in one place, newest first. Part of Projects; the full lists are on Research and Books.
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2023
Abstract
Credit rating agencies have long been criticized for being slow to downgrade ratings, when the financial health of the firm deteriorates. This stands out in sharp contrast to how security market prices of the firm respond more rapidly, during the same time. In this paper, we ask whether this disparity between the two indicators can be bridged. We estimate a logit model for the probability of a rating downgrade, using a large dataset of firms in India which combines both high frequency market price data and lower frequency accounting data. We find that changes in measures such as the Distance to Default, in combination with firm characteristics such as ownership structure, can predict a higher probability of ratings downgrades, before they are announced. This will be particularly useful for regulated financial firms, which have to re-weight their portfolios to satisfy micro-prudential requirements, based on downgrades in credit ratings.
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Abstract
Regulators use measures such as a fee on high order-to-trade ratio (OTR) to slow down high-frequency trading. Their impact on market quality is, however, mixed. We study a natural experiment in the Indian stock market where such a fee was introduced twice, with differences in motivation and implementation. Using a difference-in-difference approach, we find that the fee decreased OTR and improved market quality when it was imposed on all orders, while it had little effect when it was imposed selectively on some orders. Improvement in liquidity was driven by a reduction in adverse selection costs following lower OTR.
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2019
Abstract
This paper revisits the role of leverage in price discovery, using one of the most liquid single-stock futures (SSFs) markets in the world. Price discovery is analysed as a dynamic intraday process. We find that the information share of the SSFs is 55% during news arrivals. It increases to 61%, when the news is negative and the futures is preferred because of short-sales restrictions on the spot. A partial equilibrium analysis predicts that the trade-off between leverage and market liquidity determines price discovery across securities. These predictions are validated by empirical evidence.
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2017
Abstract
This paper studies how firms respond after getting listed on small and medium enterprise (SME) exchanges in India, examining changes in capital structure, growth, and profitability — and whether listing confers benefits beyond access to equity capital.
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Abstract
An empirical evaluation of the commodity transactions tax introduced in India in 2013, examining its impact on trading volumes, liquidity, and price discovery in commodity derivatives markets.
- 2016
- 2014
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Abstract
The causal impact of algorithmic trading on market quality has been difficult to establish due to endogeneity bias. We address this problem by using the introduction of co-location, an exogenous event after which algorithmic trading is known to increase. Matching procedures are used to identify a matched set of firms and set of dates that are used in a difference-in-difference regression to estimate causal impact. We find that securities with higher algorithmic trading have lower liquidity costs, order imbalance, and order volatility. There is new evidence that higher algorithmic trading leads to lower intraday liquidity risk and a lower incidence of extreme intraday price movements.
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Abstract
In 2003, trading of commodity futures shifted from single commodity, regional exchanges to national exchanges that trade multiple commodities. This paper examines price discovery and hedging effectiveness of commodity futures after this change and concludes that,on average, futures prices do discover information relatively efficiently, but helps to manage risk less efficiently. The paper uses the viewpoint of the hedger to conjecture what factors may improve hedging effectiveness. These include high settlement costs caused by few and widely dispersed delivery centers and an unreliability of warehouse receipts,a mismatch between the grade specified in the futures contract and what is available for delivery in the market, and disruptions caused by various policy interventions in both commodities spot and futures markets.
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2012
Abstract
Develops measures of asymmetry in market liquidity — situations where the cost of buying differs from the cost of selling — and applies these to Indian equity markets to understand market stress and one-sided order flow dynamics.
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2010
Abstract
The Indian financial system has been revolutionised by the application of a new market design : continuous trading with an anonymous limit order book at NSE and BSE. However, in certain situations, this market design has limitations. Call auctions represent an alternative strategy, where the order flow over a certain time period is pooled, and the market-clearing price obtained through an aggregated supply and demand curve. Call auctions trade off instantaneity of order execution in favour of elimination of impact cost, and can achieve a more trusted price. They can improve the functioning of the market on issues such as market opening, market close, extreme news events, and potentially for illiquid securities including bonds. Call auctions could usefully replace some existing market rules such as `circuit breakers\'. At the same time, there are many subtle elements in making a call auction market work, which require care in market design.
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Derivatives Markets
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2007
Stock market indexes
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2006
Resilience of liquidity in Indian securities markets
Abstract
Liquid securities markets are a core goal of financial sector reforms, and this has two dimensions: low impact cost and high resilience. We employ elements of evidence to suggest that equity market liquidity is robust to negative price shocks. However, bond market liquidity appears fragile when faced with negative price shocks.
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2003
Equity derivatives in India: The state of the art
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The jaggery futures market at Muzaffarnagar: Status and policy recommendations
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Securities market efficiency
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Policy issues in Indian securities markets
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Derivatives markets in India 2003
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2002
The stock market response to the Union Budget
- 2000
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Policy issues in India's capital markets in 2000
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1999
Developing the Indian capital market
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1998
Derivatives markets in India 1998
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1997
Securities Markets