Dissertations, Theses, and Capstone Projects

Date of Degree

2007

Document Type

Dissertation

Degree Name

Ph.D.

Program

Business

Advisor

Christos Giannikos

Committee Members

Hany Guirguis

Barry Ma

Kishore Tandon

Subject Categories

Business

Abstract

The following is an executive summary of three essays on the modeling of the blind principal bid (BPB) basket trading cost, each focusing on different issues. The first essay, "How does a liquidity provider price a blind principal bid basket - An empirical perspective," investigates various determinants of the blind principal bid basket trading cost. I extend Kavajecz and Keim's (2005) model by identifying the price determinants based on the liquidity provider's behavior. The model developed in the first essay, however, is not a structural model because it is not based on any theoretical framework. That is addressed in the second essay, "Two theoretical models for blind principal bid basket trading cost." Both structural models in the second essay are based on well-defined theoretical frameworks for modeling the trading cost of blind principal basket. The key insight in the second essay is the similarity between a dealer's spread and the trading cost of blind principal bid. I extend the two dealer's spread model developed by Stoll (1978a, 1978b) and Bollen, Smith and Whaley (2004) to model blind principal bid basket trading cost.

The third essay, "Manager's Decision to Trade Blind Principal Bid Basket - a behavioral perspective," investigates an asset manager's choice between traditional agency trade and blind principal bid for executing a basket of stocks. I look at a manager's choice based on decision theory, with a behavioral perspective. I test both prospect theory and expected utility theory in modeling a manager's choice. The results indicate stronger empirical support for prospect theory than for expected utility theory and show that prospect theory provides a better explanation of the observed decisions made by managers.

Comments

Digital reproduction from the UMI microform.

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