New Economics Papers
on Market Microstructure
Issue of 2007‒02‒10
four papers chosen by
Thanos Verousis

  1. Whose trades convey information? Evidence from a cross-section of traders By Menkhoff, Lukas; Schmeling, Maik
  2. Information Loss in Volatility Measurement with Flat Price Trading By Phillips C.B. Peter; Jun Yu
  3. Modeling foreign exchange rates with jumps By John M Maheu; Thomas H McCurdy
  4. Test of Unbiasedness of the Integrated Covariance Estimation in the Presence of Noise By Masato Ubukata; Kosuke Oya

  1. By: Menkhoff, Lukas; Schmeling, Maik
    Abstract: This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in an electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades who-simultaneously-use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.
    Keywords: Market microstructure, informed trading, trade size, foreign exchange
    JEL: G12 G15 D82 F31
    Date: 2007–02
  2. By: Phillips C.B. Peter; Jun Yu
    Date: 2007–01–26
  3. By: John M Maheu; Thomas H McCurdy
    Abstract: We propose a new discrete-time model of returns in which jumps capture persistence in the conditional variance and higher-order moments. Jump arrival is governed by a heterogeneous Poisson process. The intensity is directed by a latent stochastic autoregressive process, while the jump-size distribution allows for conditional heteroskedasticity. Model evaluation focuses on the dynamics of the conditional distribution of returns using density and variance forecasts. Predictive likelihoods provide a period-by-period comparison of the performance of our heterogeneous jump model relative to conventional SV and GARCH models. Further, in contrast to previous studies on the importance of jumps, we utilize realized volatility to assess out-of-sample variance forecasts.
    Keywords: jump clustering, jump dynamics, MCMC, predictive likelihood, realized volatility, Bayesian model average
    JEL: C22 C11 G1
    Date: 2007–02–02
  4. By: Masato Ubukata (Graduate School of Economics, Osaka University); Kosuke Oya (Graduate School of Economics, Osaka University)
    Abstract: The cumulative covariance estimator in Hayashi and Yoshida (2005b) which suits for non-synchronous observations possibly has a bias in the presence of the observational noise. We propose the test statistic to detect whether the observational noise causes a measurable bias in the estimator of Hayashi and Yoshida (2005b). The test statistic proposed in this paper is asymptotically distributed as standard normal under null hypothesis. The finite sample performance of the test statistic is investigated through Monte Carlo simulation.
    Keywords: test statistic; integrated covariance; non-synchronous observation; observational noise; market microstructure noise
    JEL: C12 D49
    Date: 2007–02

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