New Economics Papers
on Market Microstructure
Issue of 2007‒02‒17
seven papers chosen by
Thanos Verousis

  1. Impact of Electronic Trading Platforms on the Brokered Interdealer Market for Government of Canada Benchmark Bonds By Natasha Khan
  2. Price Discovery in Canadian Government Bond Futures and Spot Markets By Christopher Chung; Bryan Campbell; Scott Hendry
  3. Order flow, transaction clock and normality of asset returns: a comment on Ané and Geman (2000) By Anthony Murphy; Marwan Izzeldin
  4. The Trader, the Market Maker, his Guru and her Information By Nicolas Melissas
  5. Assesing the Economic Significance of the Intra-daily Volatility Seasonalities By Zdravetz Lazarov
  6. Evidence on the arbitrage efficiency of SPI index futures and options markets By Steven Li; Elia Alfay
  7. Analyse microstructurelle du comportement du teneur de marché des changes : étude intra-journalière de l'activité d'un teneur de marché tunisien By Imen Kouki; Hélène Raymond

  1. By: Natasha Khan
    Abstract: This study examines the impact of increased transparency, brought about by the introduction of three electronic trading systems, on the brokered interdealer market for Government of Canada benchmark securities. Using the CanPX dataset for the 2-, 5-, 10-, and 30-year benchmarks, the paper finds some evidence of decreased bid-ask spreads for the 30-year benchmark in the months following the introduction of the electronic platforms. Bid-ask spreads are not significantly different in the pre- and post-transparency periods for the 2-, 5- or 10-year benchmarks. The price-impact coefficient, calculated using dollar value as a measure of order flow, also decreased in the post-event period for the 30-year benchmark but is not statistically different for any of the other benchmarks. Overall, there is little evidence that liquidity improved or was lowered by the introduction of the electronic systems.
    Keywords: Financial markets; Market structure and pricing
    JEL: G10 G14
    Date: 2007
  2. By: Christopher Chung; Bryan Campbell; Scott Hendry
    Abstract: In this paper we look at the relative information content of cash and futures prices for Canadian Government bonds. We follow the information-share approaches introduced by Hasbrouck (1995) and Harris et al (1995), applying the techniques in Gonzalo-Granger (1995), to evaluate the relative contributions of trading in the cash and futures markets to the price discovery process. Both approaches estimate a vector error correction model that permits the separation of long-run price movements from short-run market microstructure effects. As well, we follow Yan and Zivot (2004) who introduce size measures of a market's adjustment to a new equilibrium during the price discovery process. We find that, on an average day, just over 70% of price discovery occurs on the futures market where bid-ask spreads are lower and trading activity is higher. The size of the responses to shocks and the time taken to adjust to a new equilibrium are found to be significantly larger for the cash market.
    Keywords: Financial markets; Market structure and pricing
    JEL: G12 G13 G14
    Date: 2007
  3. By: Anthony Murphy; Marwan Izzeldin
    Abstract: We investigate the procedure used by Ané and Geman (AG, 2000) to recover the moments of information flow from high frequency data in a model which generalizes the subordinated or mixture of distributions process in Clark (1973). Using Monte Carlo experiments we show that the third and higher moments of the latent information flow cannot be accurately recovered using this procedure. We explain why this happens. We also show that returns conditioned on the recentered number of trades are not approximately Gaussian.
    Date: 2006
  4. By: Nicolas Melissas (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: This paper argues that a guru possessing a multi-dimensional informational advantage may want to truthfully report her opinion to the media to learn more out of the actions of other, sometimes better-informed traders.
    Keywords: Market Microstructure, Stock-Price Manipulation, Cheap Talk, Asymmetric Information.
    JEL: D82 D83 D84 G12 G14
    Date: 2007–01
  5. By: Zdravetz Lazarov (School of Economics and Finance, Queensland University of Technology)
    Abstract: It is a well established empirical fact that volatility follows approxi- mately an inverted U-shaped pattern during the day. It is high in the morning, gradually decreasing, reaching a minimum at lunch time and then starting to increase again until the end of the trading day. In this paper we investigate the dynamic properties of these intra-daily volatility seasonalities. More specifically, we divide daily volatility into several parts and model them separately. Our analysis shows that morning/afternoon volatility has a different time-series behaviour in comparison to lunch time volatility. Also, a substantial improvement in forecasting performance can be obtained by partitioning daily volatility into parts which correspond to the observed intra-daily seasonalities.
  6. By: Steven Li; Elia Alfay (School of Economics and Finance, Queensland University of Technology)
    Abstract: This paper investigates arbitrage opportunities from the Australian market using the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. A thorough ex post analysis is first carried out. Tick-by-tick transaction price data allow the futures contracts, the call futures options and the put futures options to be matched within a one minute interval. This paper take into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. The results reveal a significant number of violations with 25.40% of the sample breaching the PCFP equation with an average profit of 6.733 index points for SFE member firms. Ex ante tests are also conducted whereby the trios that signified an ex post profit for members were lagged up to 3 minutes before being executed. The results were similar to the ex post results casting doubt on the efficiency and integration between these two derivative markets in Australia.
  7. By: Imen Kouki; Hélène Raymond
    Abstract: The aim of this paper is to test if the price setting strategy of a Tunisian trader on the foreign exchange market can be adequately described by the microstructural model developed by Madhavan and Smidt (1991) and Lyons (1995). We test for informational and inventory effects. The dataset used involves intraday quotes of a medium size bank on the USDTND and EURTND exchange rates, from the 1st January 2002 to the 27th November 2003. Our results confirm an inventory effect and an informational effect from the transactions with the Central Bank of Tunisia, but only for the USDTND exchange rate. The microstructure approach does not help to explain the EURTND quotes. The management of Tunisia exchange rate regime could offer an explanation for these mitigated results. Our results also show that, despite the financial liberalization politics followed by Tunisia for two decades, the Central Bank of Tunisia interventions still strongly act on both USDTND and EURTND quotes.
    Date: 2006

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