Topics on Fractional Trading and Trade–Growth Nexus
This dissertation consists of two parts. The first part studies the impact of fractional trading on non-professional investors’ behavior and order book dynamics, and the second part studies the relationship between international trade and economic growth for G20 countries.The first part consists of two chapters. The first chapter explores the impact of fractional trading on risk aversion for non-professional investors. Using the expected utility framework, we show that with the recent easiness to trade in stock markets and with the option to buy or sell a fraction of a share of a stock or ETF (exchange-traded fund), the risk appetite of non-professional investors might have gone up, increasing market participation and demand for stocks. Furthermore, we show that this change in the non-professional investor's risk aversion behavior varies by household income levels. The results suggest that easy access to trade stocks and fractional trading allows households with lower discretionary income a new tool to diversify their portfolio and participate in the stock markets by investing in different stocks and ETFs while at the same time having a significant impact on the stocks' price levels and price dynamics observed in the markets.Further, in the second chapter, we study the impact of fractional trading on the price levels and order book dynamics observed in the market. Using the Nasdaq data feed at a minute frequency, we show that there has been a significant increase in the slope of the price-volume structure. In some cases, there is an increase in the number of steps required to place a limit order after the introduction of fractional trading. The results suggest that increased demand for stocks led by easiness to trade stocks and fractional trading impacts the order book's price formation process and price–volume structure.Finally, in the second part, a standalone chapter explores the relationship between international trade and economic growth for G20 countries using a simultaneous equations model for 2004-2019. The model is estimated using a full information maximum likelihood method for the G20 countries. Further, the analysis is also done separately for Advanced and Developing G20 countries. The results suggest that trade is positively related to growth, but it works as a handmaiden rather than a growth engine. Further, we also perform dynamic policy simulations based on the most advocated policies like increasing growth of exports, foreign capital inflows, curbing domestic inflation, etc. We find that these policies are not very effective in increasing the growth rate of the real per capita income.
Tripathi, Janhavi Shankar, "Topics on Fractional Trading and Trade–Growth Nexus" (2023). ETD Collection for Fordham University. AAI30571048.