Download files
Abstract
This thesis presents three related essays on the economic effects of institutional trading in U.S. and non-U.S. equities by pension plan sponsors and mutual funds. Institutional trading is selected as a foundation for this thesis given the growing share and importance of the investors’ total equity transactions. The thesis investigates the implications of money managers from U.S. and non-U.S. countries trading in U.S. and non-U.S. equities.
The first essay investigates implicit and explicit institutional trading costs realised on U.S. exchanges by domestic money managers compared to foreign domiciled institutional investors from 2000 to 2009. The findings suggest foreign institutional investors have an advantage with total execution costs, realised prices, and taxes and fees, but a disadvantage with total explicit costs and commissions.
The second essay analyses permanent, temporary, and total price impact asymmetry anomalies in U.S. (2000-2009) bear and bull markets and during these periods in 37 other countries (2002-2009). The essay analyses part of Saar’s (2001) theory, where the longer a run-up in prices of a stock, the smaller the permanent price impact asymmetry. The results show that on average, sell (buy) permanent, temporary, and total price impacts are greater than buy (sell) price impacts in bear (bull) markets. The longer the run-up in days for a stock price the lower the permanent price impact asymmetry, in some cases it is symmetric or sells are greater than buys. The evidence suggests that the average permanent price impact asymmetry is due to worked orders occurring over a different number of days on one side of the market than the other. This result tracks the underlying strategies of money managers as they cautiously buy (sell) over days when stock(s) is increasing (decreasing) to minimise price impacts, as money managers selling (buying), trade in less days due to increasing liquidity provision in a rising (falling) stock(s).
The third essay tests the implications of Kondor’s (2012) theoretical prediction that trading volumes, private and/or public information, and return volatility increase around public quarterly earnings announcements for U.S. common stocks because of investor heterogeneity. Using daily data from 2000 to 2009, this essay shows evidence in support of Kondor’s (2012) theory.