Postdoctoral Researcher, Financial Markets Group, London School of Economics
Empirical asset pricing and market microstructure.
Liquidity provision in the Exchange Traded Fund market, with Carole Comerton-Forde and Zhuo Zhong
We examine the impact of intraday tracking error — deviations in Exchange Traded Fund (ETF) prices from indicative Net Asset Values — on liquidity. We find that intraday tracking error is negatively and causally associated with liquidity. Declining liquidity is due to designated market makers (DMMs) reducing liquidity provision when intraday tracking error increases. The retreat of ETF DMMs is consistent with higher adverse selection risk being imposed by ETF arbitrageurs. We find that intraday rather than end-of-day tracking error drives ETF primary market arbitrage. ETF prices also become less informative and more volatile in the presence of primary market arbitrage.
Do Market-Wide Circuit Breakers Calm the Markets or Panic Them?, with Xiaoyang Li and Wenying Yao
We examine the effectiveness of market-wide circuit breakers (MWCBs) by comparing market quality between four instances of trading halts during COVID-19 and other significant market declines in March 2020, as well as the 2008 global financial crisis. We find that MWCBs affect different investors and different stocks in different ways. First, liquidity and price discovery deteriorate immediately after market reopening but recover within a short period of time. Second, trading volume rises sharply, and buy-side support strengthens especially among the most distressed stocks, driven by non-retail investors. Third, price discovery recovers faster for stocks listed on the NYSE than for those listed on the Nasdaq. Fourth, market quality worsens while retail trading surges and liquidity providers withdraw as the index approaches the trading halt thresholds, consistent with a magnet effect. Overall, MWCBs disrupt market quality in the short term, but non-retail participants, rather than retail investors, absorb the post-halt selling pressure and stabilize the markets thereafter.
(Pre-PhD) Enhance the profitability of lottery strategies, with Kyung Yoon Kwon and Byoung-Kyu Min
Journal of Empirical Finance, Volume 69, December 2022, p.166-184