Essays on Financial Market Structure

In this thesis, I model three innovations in modern financial markets. First, I study conflict of interest in the relation between brokers and investors. Second, I study Exchange Traded Funds, and their impact on their constituent assets. Finally, I study crowdfunding as a means for entrepreneurs to resolve uncertainty regarding demand for their projects. Many investors do not access equity markets directly; instead they rely on a broker who receives their order and submits it to a trading venue. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues. Investors want their orders to be filled with the highest probability, while brokers choose venues in order to maximize their own profits. I construct a model of limit order trading in which brokers serve as an agent for investors who wish to access equity markets. In just over 20 years, exchange traded funds (ETFs) have gone from a new financial innovation to an industry representing over $1.3 trillion CAD in assets under management. With this rapid rise in popularity, questions naturally arise as to whether ETFs affect the markets for the underlying assets from which they are formed. In this chapter I present a static model of informed limit order book trading in which market participants trade in either cash markets or basket securities ETFs. Since its advent less than 10 years ago, crowdfunding has grown to a multi-billion dollar industry. There has been debate over whether crowdfunding has competed with or complemented traditional financing methods such as banks and venture capital. One feature of crowdfunding, is a shifting of the risk from the project from the traditional venues, to these consumers themselves. This chapter examines the role of crowdfunding in the financing process for entrepreneurs, specifically in regards to the resolution of uncertainty regarding demand for their projects.

Department dc:contributor.department

Economics

Year dc:date.issued

2016

Author dc:creator

• Cimon, David

Advisor dc:contributor.advisor

• Park, Andreas

Handle dc:identifier.uri

http://hdl.handle.net/1807/76364

OAI identifier oai:identifier

oai:utoronto.scholaris.ca:1807/76364