New Economics Papers
on Market Microstructure
Issue of 2008‒07‒05
two papers chosen by
Thanos Verousis

  1. Measuring and Modeling Risk Using High-Frequency Data By Wolfgang Härdle; Nikolaus Hautsch; Uta Pigorsch
  2. The Informational Content of Trades on the EuroMTS Platform. By Alessandro Girardi

  1. By: Wolfgang Härdle; Nikolaus Hautsch; Uta Pigorsch
    Abstract: Measuring and modeling financial volatility is the key to derivative pricing, asset allocation and risk management. The recent availability of high-frequency data allows for refined methods in this field. In particular, more precise measures for the daily or lower frequency volatility can be obtained by summing over squared high-frequency returns. In turn, this so-called realized volatility can be used for more accurate model evaluation and description of the dynamic and distributional structure of volatility. Moreover, non-parametric measures of systematic risk are attainable, that can straightforwardly be used to model the commonly observed time-variation in the betas. The discussion of these new measures and methods is accompanied by an empirical illustration using high-frequency data of the IBM incorporation and of the DJIA index.
    Keywords: Realized Volatility, Realized Betas, Volatility Modeling
    JEL: C13 C14 C22 C52 C53
    Date: 2008–06
  2. By: Alessandro Girardi (ISAE - Institute for Studies and Economic Analyses and University of Rome Tor Vergata)
    Abstract: This paper presents unambiguous evidence that trading European government securities on EuroMTS contributes to determine their (unobservable) efficient price. Using twenty-seven months of daily transaction prices data for 107 bonds issued by eleven European governments, the estimated EuroMTS market’s contribution to price discovery is about 20 percent, on average. Further, the amount of price discovery turns out to be strongly related to trading activity and price volatility conditions even controlling for institutional factors and for the maturity of bonds. Overall, the empirical results suggest that trades conveying information occur on EuroMTS when the level of liquidity is sufficiently high.
    Keywords: European bond markets, price discovery, MTS system.
    JEL: G10 C21 C32
    Date: 2008–05

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