Scott Condie
Assoc. Professor
Dept. of Economics
Brigham Young University
ssc@byu.edu
scottcondie.github.io

About

Research

Working Papers/Work in Progress

• Unawareness premia (with Lars Stentoft and Marie-Louise Vierø)

This paper considers the effect on asset prices of investors contemplating the possible occurrence of unexpected and unprecedented events that they have no basis to evaluate. We build a Capital Asset Pricing Model (CAPM) where, in addition to regular risk, investors are aware that they are potentially unaware of some events. We show that when investors feel that there exist states about which they are unaware, asset prices contain an unawareness premium. A driving force is that the “risk free” asset is no longer considered to be truly risk free. We develop a methodology that enables us to estimate the systematic portion of the unawareness premium, and we estimate it using daily data from 1980 to 2021. This unawareness premium implies a theoretical motivation behind the correlation between estimated asset alphas and betas in the cross section. We find evidence in support of the hypothesis that unawareness, in addition to risk, is a determinant of expected equity returns. This additional factor adds insights into asset market behavior around market run ups like those during the dot com boom and the pre-financial crisis market outperformance.

• Orderbook spreads, depth, and market efficiency in a general equilibrium model (with Brennan Platt)

This paper studies equilibrium order book formation in a limit-order market by building a search-theoretic model where the shape of the order book and its spread are determined jointly in equilibrium. The model characterizes liquidity as a function of differences in valuation between sellers and buyers, beliefs about the probability distribution of the arrival of buyers and sellers, exchange fees, and preference parameters like patience and beliefs about the expected lifespan of information. The efficiency of the market is characterized as a function of these parameters. We demonstrate how to extract the model’s parameters from order book data and, using a sample of data from Coinbase’s Bitcoin/U.S. Dollar exchange, characterize market liquidity as a function of these factors. We derive the optimal timing of frequent batch auctions in our model and show how this timing can be calculated for all limit-order markets.

• Configurable arbitrage and slippage in automated market making systems

Automated market making systems have become increasingly popular in recent years. This paper studies the constant elastiticy pricing function, a generalization of the typical con- stant product pricing function. This generalization allows for oracle-based, arbitrage-free pricing, as well as configurable liquidity. Each of these possibilities come with trade-offs that are discussed, including the competitive environments in which this increased flexibility is desirable. (Data and code)

• Assessing the manipulability of assets traded on NYSE and NASDAQ, 2016-2017 (with Sean Warnick, Alex Hoagland, Matthew Schaelling and John Wilson)

Using high-frequency data from the New York Stock Exchange and NASDAQ over the years 2016-2017, we assess the manipulability of equity shares by considering three specific manipulation vectors: order book shape-, cross-asset, and across-exchange-arbitrage manipulability. Stability of these estimates is also considered. Orderbook shape has a significant effect on future price for a wide swath of assets, while the possibility of cross-asset and across exchange manipulability vary more widely across assets. These results suggest that at frequencies from 10 seconds to 10 minutes manipulability of the form studied here is a substantive problem for a wide swath of publicly traded assets.

• The information content of trades at low-latency

This paper studies the liquidity of assets traded on NASDAQ as measured by the impact that order executions have on future market prices over very short horizons. After deriving a testable implication of Glosten and Milgrom (1985), high-frequency data from a six month sample of all stocks traded on NASDAQ are applied to the model. Empirical results characterize the average information content across asset executions during the sample period. The most active stocks fit the predictions of the GM model tested here, even at very low latency. Less active stocks do not reject the model, although there is a significant loss of power. Evidence is consistent with the hypothesis that some of this lack of power is due to the censoring that comes from the minimum tick size. Using the structure of the GM model, the information content of executed orders can be characterized. Average information content of trades decreases in the log of message frequency, consistent with the hypothesis that prices become more efficient and individual trades are less likely to alter market prices as the amount of activity in the asset increases. By this measure, frequency trade increases liquidity for the average trader in the average asset. Regression results suggest that the assets for which executions convey the most information are those that are infrequently messaged, have a high price and a low market capitalization. This statistical model has substantial predictive power for the 100 most frequently messaged stocks.

Publications

• Nielsen, L.B., Warnick, S., & Condie, S. (2023). Characterizing the informativity of level II book data for high frequency trading2023 IEEE Conference on Control Technology and Applications (CCTA)
• Illeditsch, P. K., Ganguli, J. V, & Condie, S. (2021). Information inertia. Journal of Finance, 76, 443-479.
• Condie, S., & Ganguli, J. (2017). The pricing effects of ambiguous private information. Journal of Economic Theory, 172, 512-557.
• Barmish, B. R., Condie, S., Materassi, D., Primbs, J. A., & Warnick, S. (2016, July). On Nasdaq order book dynamics: New problems for the control field. In American Control Conference (ACC), 2016 (pp. 5671-5672). IEEE.
• Condie, S. S., & Phillips, K. L. (2016). Can irrational investors survive in the long run? The role of generational type transmission. Economics Letters, 139, 40-42.
• Condie, S. S., Evans, R. W., & Phillips, K. L. (2016). Natural Limits of Wealth Inequality and the Effectiveness of Tax Policy. Public Finance Review, 1091142117707970.
• Condie, S., Lefgren, L., & Sims, D. (2014). Teacher heterogeneity, value-added and education policy. Economics of Education Review, 40, 76-92.
• Condie, S., & Ganguli, J. V. (2011). Informational efficiency with ambiguous information. Economic Theory, 48(2-3), 229-242.
• Condie, S., & Ganguli, J. V. (2011). Ambiguity and rational expectations equilibria. The Review of Economic Studies, 78(3), 821-845.
• Condie, S., & Yoo, S. H. (2011). Market selection with endogenous information revelation. International Journal of Economic Theory, 7(2), 201-215.
• Condie, S. (2008). Living with ambiguity: prices and survival when investors have heterogeneous preferences for ambiguity. Economic Theory, 36(1), 81-108.
• Groen, J. A., Jakubson, G. H., Ehrenberg, R. G., Condie, S., & Liu, A. Y. (2008). Program design and student outcomes in graduate education. Economics of Education Review, 27(2), 111-124.

Teaching

• Advanced Micro (First-year graduate level)


• Financial Economics (Advanced undergraduate)


• Intermediate Macroeconomics
• Bootcamp Asset Pricing

Code

• NASDAQ ITCH
  Python programs for processing message data in the NASDAQ ITCH and NYSE OpenBook format.
• OFAC SDN Sanctions Checker
  A utility for scrubbing names and addresses against OFAC SDN lists.

Media

• Cryptocurrency and the evolution of finance
  Interview on the role and future of crypto with Compass Datacenters.
• Is cryptocurrency actually a viable currency?
  Interview on cryptocurrency with KSL News' Matt Gephardt.