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This paper proposes the Shannon entropy as an appropriate one-dimensional measure of behavioural trading patterns in financial markets. The concept is applied to the illustrative example of algorithmic vs. non-algorithmic trading and empirical data from Deutsche Börse's electronic cash equity trading system, Xetra. The results reveal pronounced differences between algorithmic and non-algorithmic traders. In particular, trading patterns of algorithmic traders exhibit a medium degree of regularity while non-algorithmic trading tends towards either very regular or very irregular trading patterns. JEL Classification: C40, D0, G14, G15, G20
This paper makes an attempt to present the economics of credit securitization in a non-technical way, starting from the description and the analysis of a typical securitization transaction. The paper sketches a theoretical explanation for why tranching, or nonproportional risk sharing, which is at the heart of securitization transactions, may allow commercial banks to maximize their shareholder value. However, the analysis makes also clear that the conditions under which credit securitization enhances welfare, are fairly restrictive, and require not only an active role of the banking supervisiory authorities, but also a price tag on the implicit insurance currently provided by the lender of last resort. Klassifikation: D82, G21, D74. February 16, 2005.