New Research on Efficiency and Fairness in the Market to Be Revealed

Frederick Harris, Ph.D., Professor of Economics and Finance at Wake Forest University Schools of Business, and some of the world’s most prominent financial researchers and economists will discuss groundbreaking research at the Financial Management Association (FMA) conference in New York on Thursday, Oct. 21 at 8:00 a.m. at the Marriott Marquis, 1535 Broadway, New York, NY 10036. The special panel session, led by Harris, will reveal how fairness and efficiency in the market can be effectively integrated.

The research is a compilation of several studies, all sponsored by the Capital Markets Cooperative Research Centre (CMCRC) in Sydney, Australia. CMCRC is the independent research arm of the leading surveillance effort on fairness in the markets. It has trade and quote data access to more than 40 markets worldwide.

“Until now, no one has ever proposed how to operationalize the simultaneous pursuit of the dual objectives of fairness and efficiency in the market,” said Harris. “There are currently lots of measurements on efficiency, but fairness and market integrity has never been measured and assessed systematically.”

Harris says because regulators must look out for a dozen forms of manipulation in the market as well as insider trading, and front running, many violations of integrity can be overlooked. He gives two examples: the alarming frequency every day of trading ahead of price-sensitive announcements – on average, one stock for every 1,000 stocks listed, and of possible manipulation at the close – on average, one stock for every 1,136 stocks listed. These worldwide averages apply as well to the three largest exchanges in North America in Toronto, New York, and the NASDAQ.

“Most markets try to prevent manipulation each day by closing with an auction. This has always been thought to ensure integrity at the close – but it doesn’t. It increases efficiency, but not fairness,” said Harris. “On the other hand, allowing institutional investors to directly access the market and bypass a broker does substantially decrease the chance of manipulation at the close if real-time surveillance is present.”

The panel will also address the role of high-frequency traders in price discovery and how spreads and other measures of market efficiency are affected in the face of integrity violations.

Among the panelists are:

• Michael Aitken, Chief Scientist of the CMCRC and Chairman of Capital Market Technologies at the University of New South Wales

• Kumar Venkataraman, Professor at Southern Methodist University School of Business

• Al Berkeley, Former President of NASDAQ and Chairman of Pipeline Trading

• Jim Overdahl, former Chief Economist of the U.S. Securities and Exchange Commission, advisor to the Futures Industry Association, Principal Trading Group, and vice president of NERA Economic Consulting

FMA is the global leader in developing and disseminating knowledge about financial decision making. FMA’s members include academicians and practitioners worldwide.

The Wake Forest University Schools of Business offer undergraduate programs in finance, accounting, mathematical business, and business and enterprise management, and graduate programs, including a Master of Business Administration, Master of Science in Accountancy and Master of Arts in Management. Our programs are consistently ranked among the world’s best in surveys by U.S. News & World Report, Business Week, the Economist, Forbes, and the Financial Times. Wake Forest graduates have earned the highest passing rate on the CPA exam for the past 5 consecutive years and have been ranked first or second for first-time pass rate in all but one year since 1997.