Essays On International Market Efficiency and Manipulation

Three empirical studies in this dissertation all examine issues that important and related to the international market. Three essays share similar theme and try to address the common questions whether the institutional difference, such as exchange regulation, surveillance, national culture, economic and market condition, could explain the difference in market manipulation as well as market efficiency.

The first essay examines the impact of stock exchange regulation and surveillance around the world and seeks to understand whether or not exchange regulation and their enforcement facilitate more efficient markets with greater integrity. Using new indices for market manipulation, insider trading, and broker-agency conflict based on the trading rules of each stock exchange, along with surveillance to detect non-compliance with such rules, we show that more detailed exchange trading rules and surveillance over time and across markets significantly reduce the number of cases, but increase the profits per case.

The second essay examines the important role of high frequency traders (HFT) in the equity market. I show that the presence of high frequency trading (HFT) has significantly mitigated the frequency and severity of end-of-day price dislocation, counter to recent concerns expressed in the media. Moreover, the effect of HFT is more pronounced than the role of trading rules, surveillance, enforcement and legal conditions in curtailing the frequency and severity of end-of-day price dislocation.

The third essay examines the institutional factor, national culture around the world and links this culture difference with overall stock market volatility. I find that Nations with lower value of individualistic culture are more likely to have a higher number of synchronized stock price movements. Further, the correlations between stock price movements apparently increase stock market volatility. The positive relationship between synchronized stock price movements and stock market volatility is stronger for emerging markets during the financial crisis from June 2007 to December 2008. Rather than due to the different levels of economic development, the empirical results here indicate that a portion of the difference in market level volatility is attributed to the investor bias of different cultures.