| dc.description.abstract | Financial asset prices reflect investor's perspectives over the current and
future situation of a firm, an industry, a country and ultimately, the entire
economy. For this reason, how financial asset prices are driven has been
a fundamental economic question. Specific market characteristics such as
the number of sellers and buyers, investors valuation perceptions, market
availability of other assets and legal and technical properties are some of the
features that affect asset prices. When the same asset is traded at different
venues, these specific characteristics may vary, following a certain degree
of heterogeneity across buyers and sellers. The direct consequence is that
transaction prices of the same asset differ across markets. However, prices
will also not drift apart, since arbitrage opportunities would arise, reducing
or even eliminating the differences. Prices of similar securities linked to a
single latent price, as derivative markets, for instance, present the same
behaviour. Price differences among markets observed at high frequencies
are an indication that venues incorporate new information in an unlike
way. The structure and design of a market impacts its behaviour, liquidity,
effciency, and hence how prices are discovered. The task of identifying the
leading markets and understanding how the price dynamics occurs are the
main objectives of the price discovery analysis.
Chapter 1 introduces the research subject of price discovery, motivating
the importance of what this thesis proposes and the results and conclusions
obtained.
Chapter 2 explains in details the main methodologies used to measure
price discovery and the important results in the empirical literature.
Chapter 3 motivates the data set this thesis uses, with institutional
background details and specific market and firm characteristics. We also
present in details the steps we follow to deal with standard issues of high
frequency data, such as outliers and errors on a tick-by-tick database and
non synchronicity of prices at different markets.
Chapter 4 extends the standard price discovery model to estimate the
information share (IS) accounting for the information content of both common
and preferred non US stocks, their American Depositary Receipts
(ADRs) counterparts traded on the New York Stock Exchange and ARCA,
and the exchange rate. We gauge the significance of price discovery in the
home and foreign markets, through common or preferred stocks. One of
the main critiques on the IS methodology is that it does not deliver a single
measure when there is contemporaneous correlation among markets. We
propose an ordering invariant methodology that delivers a single measure of
IS.We find that the foreign market is more important than the home market
for the price discovery of Petrobras, the Brazilian stated-owned oil giant,
and Vale, one of the largest mining companies in the world. Additionally,
the Brazilian market has lost significant importance after the 2008/2009
financial crisis. During this period, common and preferred stocks shared a
single common factor, with voting premium being a stationary process.
Chapter 5 investigates instantaneous and long-run linkages between
common and preferred shares traded at both domestic and foreign markets.
We develop a market microstructure model in which the dynamics of
the different share prices react to three common factors, namely, the efficient price, the efficient exchange rate, and the efficient voting premium.
We show how to identify the structural innovations so as to differentiate
instantaneous and long-run effects. First, we obtain dynamic measures of
price discovery that quantify how prices traded at different venues respond
to shocks on the common factors. Second, we are able to test whether
shocks in the efficient exchange rate change the value of the firm. Third,
we test whether shocks on the efficient voting premium have a permanent
effect on preferred shares. We implement an empirical application using
high-frequency data on six Brazilian large companies. We find that, in the
long-run, a depreciation of the Brazilian currency leads to a depreciation
of the value of the firm that exceeds the expected arbitrage adjustment. In
addition, a positive shock on the voting premium yields a positive impact
on the value of the firm. Our price discovery analysis also reveals that
one trading day suffices to impound new information on all share prices,
regardless of the venue they trade at.
Finally, Chapter 6 concludes. | en_US |
