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How much can marketability affect security values?

Article Abstract:

How marketability affects security prices is one of the most important issues in finance. We derive a simple analytical upper bound on the value of marketability using option-pricing theory. We show that discounts for lack of marketability can potentially be large even when the illiquidity period is very short. This analysis also provides a benchmark for assessing the potential costs of exchange rules and regulatory requirements restricting the ability of investors to trade when desired. Furthermore, these results provide new insights into the relation between discounts for lack of marketability and the length of the marketability restriction. (Reprinted by permission of the publisher.)

Prices and rates, Securities, Securities prices, Pricing

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Dual trading in futures markets

Article Abstract:

With dual trading, brokers trade both for their customers and for their own account. We study dual trading and find that customers who are less likely to be informed have a higher expected profits with dual trading while customers who are more likely to be informed have higher expected profits without dual trading. We also examine the effects of frontrunning. We test the major empirical implications of our model. Consistent with the model, dual traders earn higher profits than non-dual traders, and customers of dual-trading brokers do better than customers of non-dual-trading brokers. (Reprinted by permission of the publisher.)

Models, Futures market, Futures markets, Beliefs, opinions and attitudes, Bond brokers, Dual trading, Brokers, Bond

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Arbitrage and the expectations hypothesis

Article Abstract:

Research suggests that the expectations hypothesis of the term structure can exist without arbitrage if fixed income markets are incomplete. Topics addressed include arbitrage, riskless portfolios, and fixed income markets.

Market Research, Statistical Data Included, Research, Finance, Rational expectations (Economics), Arbitrage

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