GUTMANN CENTER FOR PORTFOLIO MANAGEMENT at the University of Vienna - http//:www.gutmann-center.at invites to the following PUBLIC LECTURE: - apologies for duplicated emails! - Date: January 31st, 2008 (Thursday) - 4.00 pm Location: Bank Gutmann AG, Schwarzenbergplatz 16, 1010 Wien Speaker: Prof. Dr. Mark SEASHOLES, Santa Clara University, London Business School and INSEAD http://www.seasholes.com/ Title: TIME VARIATION IN LIQUIDITY: THE ROLE OF MARKET MAKER INVENTORIES AND REVENUES Abstract: We use an 11-year panel of NYSE specialist inventory positions and revenues to study two aspects of financial markets: stock price reversals (temporary mispricings) and liquidity. Understanding when stocks are mispriced and when liquidity is drying up is of key importance to asset managers. We show that as stock prices go up, market-makers sell. As stock prices fall, market-makers buy. Market-makers are compensated for taking on risky positions via stock price reversals. Sorting stocks based on inventory positions predict reversals of 33 basis points over the following week and 45 basis points over the following two weeks. Sorting stocks by current returns and inventory positions can predict reversals of over 85 basis points per week. Combining inventory positions with NYSE specialist revenues allows us to predict liquidity (at the market-level) at a daily frequency. As prices fall, market-makers lose money on current positions. They also increase positions and thus risk. The net result is that market-makers are less willing to provide liquidity. Our tests are done at both the market-level and at the specialist firm level. Our results suggest an important role for market makers' financial positions in explaining the time variation of liquidity. About Mark Seasholes: Mark Seasholes is an Assistant Professor of Finance. He received his BA from Wesleyan University and his AM and PhD degrees from Harvard University. Mark's research focuses on investor behavior around the world. He has written on cross-border equity investments, herding behavior of individual investors, and loss aversion. Current work focuses on the role and pricing of liquidity. One project looks at the systematic liquidity demands of individual investors. A second project studies NYSE specialist inventories (a measure of liquidity provided to the market). Mark studied physics at Wesleyan University. After graduating from college, he spent a number of years working on Wall Street and in the emerging markets of East/Central Europe. He has completed a valuation project in Honduras, helped with the Lloyds of London restructuring, and given a series of lectures in the People's Republic of China. Professor Seasholes taught at U.C. Berkeley Haas School from 2000 to 2007 where he won teaching awards in three programs: Daytime MBA, Undergrad Program, and Berkeley-Columbia Executive MBA. He continues to teach in Executive Education programs where he receives top ratings. Please REGISTER: Mail: gutmann.bwl(a)univie.ac.at Phone: +43-1-4277-38186 - Fax: +43-1-4277-38074 Contact and further information: Gutmann Center for Portfolio Management University of Vienna - Mag. Dorothea GRIMM Bruenner Str. 72 - 1210 Wien (Austria) phone: +43-1-4277-38186 - fax: +43-1-4277-38074 mail: gutmann.bwl(a)univie.ac.at - web: www.gutmann-center.at