This thesis presents three related essays on the dynamic relationship between different types of investment flow and prices in the equity market. These studies attempt to provide greater insight into the evolution of prices by investigating not ???what moves prices??? but ???who moves prices??? by utilising a unique database from the Korean Stock Exchange. The first essay investigates the trading behaviour and performance of online equity investors in comparison to other investors on the Korean stock market. Whilst the usage of online resources for trading is becoming more and more prevalent in financial markets, the literature on the role of online investors and their impact on prices is limited. The main finding arising from this essay supports the claim that online investors are noise traders at an aggregate level. Whereas foreigners show distinct trading patterns as a group in terms of consensus on the direction of market movements, online investors do not show such distinct trading patterns. The essay concludes that online investors do not trade on clear information signals and introduce noise into the market. Direct performance and market timing ability measures further show that online investors are the worst performers and market timers whereas foreign investors consistently show outstanding performance and market timing ability. Domestic mutual funds in Korea have not been extensively researched. The second essay analyses mutual fund activity and relations between stock market returns and mutual fund flows in Korea. Although regulatory authorities have been cautious about introducing competing funds, contractual-type mutual funds have not been cannibalized by the US-style corporate mutual funds that started trading in 1998. Negative feedback trading activity is observed between stock market returns and mutual fund flows, measured as net trading volumes using stock purchases and sales volume. It is predominantly returns that drive flows, although stock purchases contain information about returns, partially supporting the price pressure hypothesis. After controlling for declining markets, the results suggest Korean equity fund managers tend to swing indiscriminately between increasing purchases and increasing sales in times of rising market volatility, possibly viewing volatility as an opportunity to profit and defying the mean-variance framework that predicts investors should retract from the market as volatility increases. Mutual funds respond indifferently to wide dispersions in investor beliefs. The third essay focuses on the conflicting issue of home bias by looking at the impact on domestic prices of foreign trades relative to locals using high frequency data from the Korean Stock Exchange (KSE). This essay extends the work of Choe, Kho and Stulz (2004) (CKS) in three ways. First, it analyses the post-Asian financial crisis period, whereas CKS (2004) analyse the crisis (1996-98) period. Second, this essay adopts a modified version of the CKS method to better capture the aggregate behaviour of each investor-type by utilising the participation ratio in comparison to the CKS method. Third, this essay does not limit investigation to intra-day analysis but extends to daily analysis up to 50 days to observe the effect of intensive trading activity in a longer horizon than the CKS study. In contrast to the CKS findings, this paper finds that foreigners have a short-lived private information advantage over locals and trades by foreigners have a larger impact on prices using intra-day data. However, assuming investors buy-hold for up to 50 days, the local individuals provide a greater impact and more profitable returns than foreigners. Superior performance is documented for buys rather than sells.

本研究探討台灣加權股價指數以及本土指數期貨間的「價格發現」關係。研究期間乃自民國87年9月1日至88年12月31日止，選取各交易日內期貨與現貨每5分鐘的資料作為觀察值。在研究方法的採用上包括：ADF單根檢定、共整合檢定、錯誤更正模型（ECM）以及衝擊反應分析與變異數分解等。進而，本研究亦依照相同之分析流程，將資料進一步區分為週一至週六等6個交易日，以探討各交易日的結果是否不同。本研究得出以下之結論： 1. 在ADF單根檢定之下，我們發現不論期貨或現貨，兩數列均為I(1)之數列。 2. 根據共整合的檢定結果，發現台股指數期貨與現貨間存在「共整合關係」，即兩者存在一長期均衡關係，且此一情形亦適用於所有資料與各交易日。 3. 將共整合關係考慮進ECM分析中則可發現，對全體資料而言，不論是期貨或現貨，兩者均會對前期均衡誤差作調整，但是期貨的調整速度較現貨為快，也較為顯著。但對於單一交易日而言，可發現不同之結果：期貨仍會往均衡方向作移動，但現貨除星期五外，並沒有往均衡移動之情形。 4. 在「領先-落後」關係上：就全部資料來看（落後4期），期貨會領先現貨約15分鐘左右，而現貨領先期貨亦為20分鐘，兩者並非單一方向之因果關係。而在週一至週六的結果上，回饋關係亦存在，且領先落後的時間也約為15至20分鐘，唯獨「星期一」期貨似乎未有領先現貨之情形。 5. 在衝擊反應分析與變異數分解方面，不論期貨或現貨，大部分的波動來源，仍是來自於自身的變異程度。但相對上，期貨對現貨預測誤差變異數的解釋程度會高於現貨對期貨預測誤差變異數的解釋程度。同時，由衝擊反應函數來看，亦可得出相類似的結果：即相對而言，期貨對現貨之衝擊較大，且衝擊時間約為15至20分鐘。

This paper seeks to fill a gap in the literature regarding the consequences of banning ‘naked’ Credit Default Swaps (CDS). In particular, I use the European Union’s Ban on ‘naked” Sovereign CDS as an event study to evaluate the impact that banning such derivative products has on the price discovery process in the credit markets. Using both Granger Causality tests and a Vector Error Correction Model, I find that before November 1, 2012, CDS are the clear price leader in the credit markets. However, since the official date the regulation was put into effect, CDS’ price leadership was eroded. Moreover, after the ban, CDS and Bond Yield Spreads are no longer cointegrated in the long run, suggesting that different pricing mechanisms now exist between the two securities

In a firm level matched sample of 499 firms we examine the information flow between stocks and the credit default swap (CDSs) over a period of January 2004 to December 2008. Our study confirms the general findings of previous studies that the information generally flows from equity market to CDS market. However, for a much smaller number of firms we also find that information also flows from the CDS to its stock. A major advantage of our sample period is that it allows us to examine the information flow before and during the crisis. This paper makes two contributions. We document that the firms for which the information flows from the CDS to its stock increases by almost tenfold during the crisis. The current crisis is often referred as a credit crisis, so this finding is consistent with what is expected of CDSs. The major contribution of this paper is that it identifies the firm specific factors that influence the information flow across the two markets. We show that characteristics such as asset size, profitability, and industry, amongst others, play an important role in determining information flow.

In a firm level matched sample of 499 firms we examine the information flow between stocks and the credit default swap (CDSs) over a period of January 2004 to December 2008. Our study confirms the general findings of previous studies that the information generally flows from equity market to CDS market. However, for a much smaller number of firms we also find that information also flows from the CDS to its stock. A major advantage of our sample period is that it allows us to examine the information flow before and during the crisis. This paper makes two contributions. We document that the firms for which the information flows from the CDS to its stock increases by almost tenfold during the crisis. The current crisis is often referred as a credit crisis, so this finding is consistent with what is expected of CDSs. The major contribution of this paper is that it identifies the firm specific factors that influence the information flow across the two markets. We show that characteristics such as asset size, profitability, and industry, amongst others, play an important role in determining information flow.

The dynamics of the U.S. and Canada natural gas spot markets are evolving through deregulation policies and technological advances. Economic theory suggests that these markets will be integrated. The key question is the extent of integration among the markets. This thesis characterizes the degree of dynamic integration among 11 major natural gas markets, six from the U.S. and five from Canada, and determines each individual markets’ role in price discovery. This is the first study to include numerous Canadian markets in a North American natural gas market study. Causal flows modeling using directed acyclic graphs in conjunction with time series analysis are used to explain the relationships among the markets. Daily gas price data from 1994 to 2009 are used. The 11 natural gas market prices are tied together with nine long-run co-integrating relationships. All markets are included in the co-integration space, providing evidence the markets are integrated. Results show the degree of integration varies by region. Further results indicate no clear price leader exists among the 11 markets. Dawn market is exogenous in contemporaneous time, while Sumas market is an information sink. Henry Hub plays a significant role in the price discovery of markets in the U.S. Midwest and Northeast, but little to markets in the west. The uncertainty of a markets’ price depends primarily on markets located in nearby regions. Policy makers may use information on market integration for important policy matters in efforts of attaining efficiency. Gas traders benefit from knowing the price discovery relationships.

In this thesis we study three basic issues related to international black tea markets: Are black tea markets integrated? Where is the price of black tea discovered? Are there leaders and followers in black tea markets? We use two statistical techniques as engines of analysis. First, we use time series methods to capture regularities in time lags among price series. Second, we use directed acyclic graphs to discover how surprises (innovations) in prices from each market are communicated to other markets in contemporaneous time. Weekly time series data on black tea prices from seven markets around the world are studied using time series methods. The study follows two paths. We study these prices in a common currency, the US dollar. We also study prices in each country's local currency. Results from unit root tests suggest that prices from three Indian markets are not generated through random walk-like behavior. We conclude that the Indian markets are not weak form efficient. However, prices from all non-Indian markets cannot be distinguished from random walk-like behavior. These latter markets are weak form efficient. Further analysis on these latter markets is conducted to determine whether information among the markets is shared. Vector Autoregressions (VARs) on the non-Indian markets are studied using directed acyclic graphs, impulse response functions and forecast error decomposition analyses. In both local currencies and dollar-converted series, the Sri Lankan and Indonesian markets are price leaders in contemporaneous time. Kenya is an information sink. It is endogenous in current time. Malawi is an exogenous price leader in dollar terms, but it is endogenous in local currency in contemporaneous time. In the long run, Sri Lanka, Indonesia and Malawi are price leaders in US dollar terms. In local currency series, Indonesia, Kenya and Malawi are price leaders in the long run. We use Theil's U-statistic to test the forecasting ability of the VAR models. We find for most markets in either dollars or on local currencies that a random walk forecast outperforms the VAR generated forecasts. This last result suggests the non-Indian markets are both weak form and semi-strong form efficient.

This thesis presents three related essays on the dynamic relationship between different types of investment flow and prices in the equity market. These studies attempt to provide greater insight into the evolution of prices by investigating not ???what moves prices??? but ???who moves prices??? by utilising a unique database from the Korean Stock Exchange. The first essay investigates the trading behaviour and performance of online equity investors in comparison to other investors on the Korean stock market. Whilst the usage of online resources for trading is becoming more and more prevalent in financial markets, the literature on the role of online investors and their impact on prices is limited. The main finding arising from this essay supports the claim that online investors are noise traders at an aggregate level. Whereas foreigners show distinct trading patterns as a group in terms of consensus on the direction of market movements, online investors do not show such distinct trading patterns. The essay concludes that online investors do not trade on clear information signals and introduce noise into the market. Direct performance and market timing ability measures further show that online investors are the worst performers and market timers whereas foreign investors consistently show outstanding performance and market timing ability. Domestic mutual funds in Korea have not been extensively researched. The second essay analyses mutual fund activity and relations between stock market returns and mutual fund flows in Korea. Although regulatory authorities have been cautious about introducing competing funds, contractual-type mutual funds have not been cannibalized by the US-style corporate mutual funds that started trading in 1998. Negative feedback trading activity is observed between stock market returns and mutual fund flows, measured as net trading volumes using stock purchases and sales volume. It is predominantly returns that drive flows, although stock purchases contain information about returns, partially supporting the price pressure hypothesis. After controlling for declining markets, the results suggest Korean equity fund managers tend to swing indiscriminately between increasing purchases and increasing sales in times of rising market volatility, possibly viewing volatility as an opportunity to profit and defying the mean-variance framework that predicts investors should retract from the market as volatility increases. Mutual funds respond indifferently to wide dispersions in investor beliefs. The third essay focuses on the conflicting issue of home bias by looking at the impact on domestic prices of foreign trades relative to locals using high frequency data from the Korean Stock Exchange (KSE). This essay extends the work of Choe, Kho and Stulz (2004) (CKS) in three ways. First, it analyses the post-Asian financial crisis period, whereas CKS (2004) analyse the crisis (1996-98) period. Second, this essay adopts a modified version of the CKS method to better capture the aggregate behaviour of each investor-type by utilising the participation ratio in comparison to the CKS method. Third, this essay does not limit investigation to intra-day analysis but extends to daily analysis up to 50 days to observe the effect of intensive trading activity in a longer horizon than the CKS study. In contrast to the CKS findings, this paper finds that foreigners have a short-lived private information advantage over locals and trades by foreigners have a larger impact on prices using intra-day data. However, assuming investors buy-hold for up to 50 days, the local individuals provide a greater impact and more profitable returns than foreigners. Superior performance is documented for buys rather than sells.

This thesis consists of three essays examining the impact and consequences of the trading behaviour of a finely disaggregated category of investors in an electronic limit order book equity market, the Malta Stock Exchange (MSE). The three essays in market microstructure are closely related and examine how investor heterogeneity impacts the informational content of the limit order book, the informational content of individual trades, the price impact of investor trades, the aggressiveness of order submission strategies and the price discovery process within such a market. The first essay investigates the role of the financial intermediary in the price discovery process in a limit order market. We address this issue by analysing the trades of brokers within the Malta Stock Exchange by comparing the profitability of their individual trades and the impact of these trades on the price discovery process. The results of a Weighted Price Contribution methodology indicate that more active brokers that dominate the market in terms of volume and amount traded account for a significant portion of the price discovery process. We also find that the level of profitability of these brokers is directly proportional to the amount of volume traded and their relative share in the price discovery process. This appears to rule out the possibility of manipulative trades by these brokers in order to influence profitabilityThe second essay examines the price impact of the order flow emanating from finely disaggregated classes of investor with the aim of determining whether detectable differences exist in the extent to which orders emanating from particular groups of investors impact on the evolution of stock prices. On the aggregate stock level, results indicate price impact is inversely related to liquidity and as such the price impact of trades is of a higher magnitude and significance in stocks that are less liquid. Significantly, we find that stocks with higher liquidity and trading volume adjust quickly to price changes and the cumulative impact is realised earlier for these stocks. Similarly, for investor classes, our results show that the magnitude and significance of individual price impact increases as liquidity of the stocks declines, showing that as liquidity increases in the order book, the impact of information asymmetry begins to diminish. Institutional investors consistently have the highest significant impact on the evolution of prices across all the stocks. The final essay examines how investors structure their order submission choice in response to changes in the limit order book and market conditions (such as order depth, volatility, returns, and height of the limit order book). We identify 7 distinct investor classes who differ in their trading requirement and the information set available to them, and as such we expect that these investors will adopt different strategies to maximise their trades. The results show variability in the submission strategies adopted by investors as trade sides changes from buy to sell trades. It also indicate that investors have to balance between execution risk, the timely use of private information and the risk of being picked-off by other informed investors. In analysing the varied responses of these investors, we find that the order submission strategies adopted is most responsive to the risk of non-execution.

This thesis investigates the price discovery process between the stock and the credit default swap market (CDS). We link the financial theory of efficient markets and the underlying models and conditions involved in CDSs, the stock market and financial crashes. This study uses publicly listed firms and the European market CDS series to construct a matched stock portfolio and uses financial data collected between the years 2019 to 2021. The purpose is to better understand the price discovery process during a potential new type of crisis in modern financial history. It could potentially allow portfolio managers, traders, arbitrageurs and stakeholders who monitor systematic indices to gauge the level of risk in the overall economy. It can also better inform regulators about how the CDS and the stock market reacted to each other during the COVID-19 pandemic. This deductive and quantitative research is based on secondary data gathered from the Eikon financial database. It uses a vector autoregressive model to test a hypothesis regarding the price discovery process between the stock and CDS portfolios.  Our results show that when using only the variables for the CDS and stock market, both variables cause each other, which is to say a feedback effect is present between the CDS Europe index and the matched portfolio of stocks. When adding the three control variables, the stock variable no longer causes the CDS variable, while the CDS variable still causes the stock variable. We conclude that the European credit default swap index leads the matched portfolio of stocks in the price discovery process with our chosen variables.