Dynamic Order Submission Strategies with Competition between a Dealer Market and a Crossing Network
Hans Degryse, Mark Van Achter, Gunther Wuyts
Journal of Financial Economics,
No. 3,
2009
Abstract
We analyze a dynamic microstructure model in which a dealer market (DM) and a crossing network (CN) interact for three informational settings. A key result is that coexistence of trading systems generates systematic patterns in order flow, which depend on the degree of transparency. Further, we study overall welfare, measured by the gains from trade of all agents, and compare it with the maximum overall welfare. The discrepancy between both measures is attributable to two inefficiencies. Due to these inefficiencies, introducing a CN next to a DM, as well as increasing the transparency level, not necessarily produces greater overall welfare.
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Competition between Financial Markets in Europe: What can be Expected from MiFID?
Hans Degryse
Financial Markets and Portfolio Management,
No. 1,
2009
Abstract
The Markets in Financial Instruments Directive (MiFID) could be the foundation of new trading platforms in Europe. This contribution employs insights from the theoretical and empirical literature to highlight some of the possible implications of MiFID. In particular, we argue that more competition will lead to more liquid markets, reflected in lower bid–ask spreads and greater depth. It will also lead to innovation in incumbent markets and stimulate the design of new trading platforms. MiFID has already introduced more competition, as evidenced by the startup of Instinet Chi-X, the announcement of new initiatives, including Project Turquoise and BATS, and the reactions of incumbent exchanges.
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The Role of the Intellectual Property Rights Regime for Foreign Investors in Post-Socialist Economies
Benedikt Schnellbächer, Johannes Stephan
IWH Discussion Papers,
No. 4,
2009
Abstract
We integrate international business theory on foreign direct investment (FDI) with institutional theory on intellectual property rights (IPR) to explain characteristics and behaviour of foreign investment subsidiaries in Central East Europe, a region with an IPR regime-gap vis-à-vis West European countries. We start from the premise that FDI may play a crucial role for technological catch-up development in Central East Europe via technology and knowledge transfer. By use of a unique dataset generated at the IWH in collaboration with a European consortium in the framework of an EU-project, we assess the role played by the IPR regimes in a selection of CEE countries as a factor for corporate governance and control of foreign invested subsidiaries, for their own technological activity, their trade relationships, and networking partners for technological activity. As a specific novelty to the literature, we assess the in influence of the strength of IPR regimes on corporate control of subsidiaries and conclude that IPR-sensitive foreign investments tend to have lower functional autonomy, tend to cooperate more intensively within their transnational network and yet are still technologically more active than less IPR-sensitive subsidiaries. In terms of economic policy, this leads to the conclusion that the FDI will have a larger developmental impact if the IPR regime in the host economy is sufficiently strict.
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The Euro and the Competitiveness of European Firms
Filippo di Mauro, Gianmarco Ottaviano, Daria Taglioni
Economic Policy,
No. 57,
2009
Abstract
Much attention has been paid to the impact of a single currency on actual trade volumes. Lower trade costs, however, matter over and beyond their effects on trade flows: as less productive firms are forced out of business by the tougher competitive conditions of international markets, economic integration fosters lower prices and higher average productivity. We assess the quantitative relevance of these effects calibrating a general equilibrium model using country, sector and firm-level empirical observations. The euro turns out to have increased the overall competitiveness of Eurozone firms, and the effects differ along interesting dimensions: they tend to be stronger for countries which are smaller or with better access to foreign markets, and for firms which specialize in sectors where international competition is fiercer and barriers to entry lower.— Gianmarco I.P. Ottaviano, Daria Taglioni and Filippo di Mauro
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Trade's Impact on the Labor Share: Evidence from German and Italian Regions
Claudia M. Buch
IAW Discussion Paper No. 46,
2008
Abstract
Has the labor share declined? And what is the impact of international trade? These
questions are not only relevant in an international context they also matter for
understanding the regional distribution of incomes in a given country. In this
paper, we study two regions with trade exposures that differ from the rest of the
country, and which display distinct changes in the labor share. East German and
Southern Italian regions have a degree of international openness which is below
the countries’ averages. At the same time, there has been a more pronounced
decline in the labor share in East Germany than in West Germany. In Southern
Italy, the labor share has increased in recent years. We show that increased trade
openness is not the main culprit behind changing labor shares.
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The Great Risk Shift? Income Volatility in an International Perspective
Claudia M. Buch
CESifo Working Paper No. 2465,
2008
Abstract
Weakening bargaining power of unions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This paper documents and explains changes in income volatility. Using a theoretical framework which builds distribution risk into a real business cycle model, hypotheses on the determinants of the relative volatility of capital and labor are derived. The model is tested using industry-level data. The data cover 11 industrialized countries, 22 manufacturing and services industries, and a maximum of 35 years. The paper has four main findings. First, the unconditional volatility of labor and capital incomes has declined, reflecting the decline in macroeconomic volatility. Second, the idiosyncratic component of income volatility has hardly changed over time. Third, crosssectional heterogeneity in the evolution of relative income volatilities is substantial. If anything, the labor incomes of high- and low-skilled workers have become more volatile in relative terms. Fourth, income volatility is related to variables measuring the bargaining power of workers. Trade openness has no significant impact.
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Globalisation and the Competitiveness of the Euro Area
Filippo di Mauro, Katrin Forster
ECB Occasional Paper Series,
No. 97,
2008
Abstract
Against the background of increasing competition and other significant structural changes implied by globalisation, maintaining and enhancing competitiveness has evolved into one of the prime concerns in most countries. Following up on previous work (see in particular ECB Occasional Papers No. 30 and No. 55), this Occasional Paper examines the latest developments and prospects for the competitiveness and trade performance of the euro area and the euro area countries. Starting from an analysis of most commonly used, traditional competitiveness indicators, the paper largely confirms the findings of previous studies that there have been substantial adjustments in euro area trade. Euro area firms have taken advantage of the new opportunities offered by globalisation, and have at the same time been increasingly challenged by emerging economies. This is primarily reflected in the loss of export market shares which have been recorded over the last decade. While these can partly be related to the losses in the euro area's price competitiveness, further adjustment also seems warranted with regard to the export specialisation. Compared with other advanced competitors, the euro area remains relatively more specialised in labour intensive categories of goods and has shown only a few signs of a stronger specialisation in research-intensive goods. Nevertheless, the paper generally calls for a more cautious approach when assessing the prospects for euro area competitiveness, as globalisation has made it increasingly difficult to define and measure competitiveness. Stressing the need to take a broader view on competitiveness, specifically with a stronger emphasis on productivity performance, the paper also introduces a more elaborate framework that takes into account the interactions between country-specific factors and firm-level productivity. It thus makes it possible to construct more broadly defined competitiveness measures. Pointing to four key factors determining the global competitiveness of euro area countries - market accessibility, market size, technological leadership of firms and institutional set-up - the analysis provides further arguments for continuing efforts to increase market integration and strengthen the competitive environment within Europe as a mean of enhancing resource allocation and coping with the challenges globalisation creates.
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Exchange Rates and FDI: Goods versus Capital Market Frictions
Claudia M. Buch, J. Kleinert
World Economy,
forthcoming
Abstract
Changes in exchange rates affect countries through their impact on cross-border activities such as trade and foreign direct investment (FDI). With increasing activities of multinational firms, the FDI channel is likely to gain in importance. Economic theory provides two main explanations why changes in exchange rates can affect FDI. According to the first explanation, FDI reacts to exchange rate changes if there are information frictions on capital markets and if investment depends on firms’ net worth (capital market friction hypothesis). According to the second explanation, FDI reacts to exchange rate changes if output and factor markets are segmented, and if firm-specific assets are important (goods market friction hypothesis). We provide a unified theoretical framework of these two explanations. We analyse the implications of the model empirically using a dataset based on detailed German firm-level data. We find greater support for the goods market than for the capital market friction hypothesis.
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The Changing Role of the Exchange Rate in a Globalised Economy
Irina Bunda, Filippo di Mauro, Rasmus Rüffer
ECB Occasional Paper Series,
No. 94,
2008
Abstract
In addition to its direct effects on the global trading and production structure, the ongoing process of globalisation may have important implications for the interaction of exchange rates and the overall economy. This paper presents evidence regarding possible changes in the role of exchange rates in a more globalised economy. First, it analyses the link between exchange rates and prices, showing that there is at most a moderate decline in exchange rate pass-through for the euro area. Next, it turns to the effect of exchange rate changes on trade flows. The findings indicate that the responsiveness of euro area exports to exchange rate changes may have declined somewhat as a result of globalisation, reflecting mainly shifts in the geographical and sectoral composition of trade flows. The paper also provides a firm-level analysis of the impact of exchange rate changes on corporate profits, which suggests that overall this relationship appears to be relatively stable over time, although there are important cross-country differences. In addition, it studies the overall impact of exchange rates on GDP and the potential role of valuation effects as a transmission channel in the case of the euro area. JEL Classification: E3, F15, F31
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