Short-Term Reversals and the Efficiency of Liquidity Provision | Hanlon Financial Systems Center

Short-Term Reversals and the Efficiency of Liquidity Provision

Short-Term Reversals and the Efficiency of Liquidity Provision

seminar date: 
Thursday, March 27, 2014 - 5:00pm
seminar location: 
BC122
Sheridan Titman - McAllister Centennial Chair in Financial Services, University of Texas at Austin
Abstract: 

We present a model where the magnitude of return reversals depends on the number of informed investors as well as the number of active but uninformed investors that play a market making role. Consistent with the model, return reversals are temporarily higher following declines in the number of active institutional investors. By using stock price declines over the previous one and two quarters as instruments for unanticipated declines in active investors, we get much stronger reversals. We also show that the magnitudes of the reversals as well as their relation to prior stock price declines are lower in the post-2000 period, which is consistent with active uninformed investors (e.g., high frequency traders) reacting more quickly to changes in the number of informed investors in the more recent period.

 

Bio: 

Sheridan Titman holds the McAllister Centennial Chair in Financial Services at the University of Texas at Austin and is a Research Associate of the National Bureau of Economic Research. Prior to joining the faculty at the University of Texas, Sheridan was a Professor at UCLA, the Hong Kong University of Science and Technology and Boston College and spent the 1988-89 academic year in Washington D.C. as the special assistant to the Assistant Secretary of the Treasury for Economic Policy.  Sheridan’s academic publications include both theoretical and empirical articles on asset pricing, corporate finance, real estate and energy finance. He won the Smith-Breeden best paper award for the Journal of Finance, the GSAM best paper award for the Review of Finance and was a recipient of the Batterymarch Fellowship.  Sheridan has served on the editorial boards of leading academic journals, including the Journal of Finance and the Review of Financial Studies.  He has served as President of both the Western Finance Association and the American Finance Association and has served as a Director of the American Finance Association, the Western Finance Association, the Financial Management Association and the Asia Pacific Finance Association. He has also co-authored three finance textbooks, Financial Markets and Corporate Strategy, Valuation: The Art and Science of Corporate Investment Decisions, and Financial Management: Principles and Applications. 

Sheridan has a B.S. from the University of Colorado and an M.S. and Ph.D. from Carnegie Mellon University.