politics for the 99%

… the Lehman Brothers case – Published on VOX EU.org, by Thomas Gehrig, May 25, 2016.

During normal operations, price discovery is an important feature of decentralised market trading. But the process can be distorted when markets are under great stress, such as during the run up to the collapse of Lehman Brothers in 2008. This column uses trading data from the days leading up to and following the collapse to show that price discovery at US stock exchanges remained remarkably efficient, even at the height of the turmoil.  

Price discovery is the hallmark of the benefits derived from decentralised trading in a market economy. When markets operate smoothly, the flow of information about traded goods or securities miraculously gets translated into prices reflecting this information almost instantly (Hayek 1945, Fama 1970). But how do markets perform in periods of ultimate stress? Does orderly price discovery still work? The final weeks prior to the Lehman Brothers’ failure, and the weeks after, present such a period of ultimate stress.

In joint work, my co-author and I analyse price discovery in US stock markets during this dramatic period, both in the Lehman’s stocks as well as in the stocks of its large US peers in commercial and investment banking (Gehrig and Haas 2016).

The Lehman insolvency: … //

… Price discovery for Lehman Brothers stock: … //
… Price discovery in the stocks of the largest US banks: … //

… Conclusion:

Overall, price discovery at US stock exchanges remained remarkably efficient even at the height of turmoil during the Great Recession. Even though there is no discernible leakage of information in pricing, there is clear evidence that a revaluation of the stock of Lehman Brothers did occur at least the very day before the public disclosure of what was going to be the final and lethal losses. Trading on 8 and 9 September is characterised by an extraordinary number of standard trades at constant spreads with little price impact individually, but with a clear aggregate impact and strong revaluation of the stock prior to the public disclosure. Price adjustments continue at high pace after the disclosure, but trade size increases while the number of trades recedes to even below normal levels.

(full text, 8 graphs, references, related links).

Links:

Brazil’s Coup Plotters Aimed to Block Corruption Investigation, on The Peoples Voice.org, by Stephen Lendman, May 25, 2016;

Helicopter money: The illusion of a free lunch, on VOXEU.org, by Claudio Borio, Piti Disyatat, Anna Zabai, May 24, 2016; Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only game in town’, there has been a renewed push for monetary policy to experiment even further. One of the latest proposals is the revival of Milton Friedman’s helicopter money. But have all the implications of what many see as central banks’ ‘nuclear option’ been fully appreciated? This column argues that this is not the case. Realising the benefits that its proponents claim exist would require giving up on interest rate policy forever;

It’s time for a national postal bank in both Canada and the United States, on rabble.ca, by DAVID J. CLIMENHAGA, May 24, 2016;

Push for Raqqa: Moscow ready to ‘synchronize’ efforts with US to recapture ISIS capital – Lavrov, on RT, May 24, 2016;

Die Anstalt Folge 20 – TTIP & CETA, 50.22 min, uploaded by sonnenmond8, vom 24, Mai 2016 … https://www.facebook.com/crazy.nein/ …

L’Europe doit prendre exemple sur la Suisse, dans Migros Magazine, par Viviane Menétrey, le 23 mai 2016;

One of the World’s Most Expensive Countries Is Debating Giving Away Money, on Bloomberg, by Catherine Bosley, March 23, 2016: The Swiss are discussing paying people $2,500 a month for doing nothing;

Clic, a voté, dans Médiapart.fr, par SCHINDMA37, le 22 Mai 2016: le vote par Internet peut être transparent, sécurisé et démocratique. A condition de s’en donner les moyens comme le fait Genève;

PANEM ET CIRCENSES, dans L’Hebdo.ch, par Jacques Neirynck, le 22 mai 2016;

Rating downgrades to aggravate liquidity squeeze, cost of funds, on Gulf News, by Babu Das Augustine, May 22, 2016: Lending rates across GCC likely to creep up this year following recent rating downgrades of sovereign funds followed by banks;

We should be worried about job atomization, not job automation – Jon Evans, on BIEN, by Jenna van Draanen, May 22, 2016;

Olaf Schubert über den Brexit, 4.14 min, uploaded by sonnenmond8, vom 22. April 2016 … https://www.facebook.com/crazy.nein/ …