New Economics Papers
on Market Microstructure
Issue of 2008‒07‒20
three papers chosen by
Thanos Verousis

  1. Modelling High-Frequency Volatility and Liquidity Using Multiplicative Error Models By Nikolaus Hautsch; Vahidin Jeleskovic
  2. Does FOMC News Increase Global FX Trading? By Fischer, Andreas M.; Ranaldo, Angelo
  3. Analysis of HF data on the WSE in the context of EMH By Strawinski, Pawel; Slepaczuk, Robert

  1. By: Nikolaus Hautsch; Vahidin Jeleskovic
    Abstract: In this paper, we study the dynamic interdependencies between high-frequency volatility, liquidity demand as well as trading costs in an electronic limit order book market. Using data from the Australian Stock Exchange we model 1-min squared mid-quote returns, average trade sizes, number of trades and average (excess) trading costs per time interval in terms of a four-dimensional multiplicative error model. The latter is augmented to account also for zero observations. We find evidence for significant contemporaneous relationships and dynamic interdependencies between the individual variables. Liquidity is causal for future volatility but not vice versa. Furthermore, trade sizes are negatively driven by past trading intensities and trading costs. Finally, excess trading costs mainly depend on their own history.
    Keywords: Multiplicative error models, volatility, liquidity, high-frequency data
    JEL: C13 C32 C52
    Date: 2008–07
  2. By: Fischer, Andreas M. (Swiss National Bank); Ranaldo, Angelo (Swiss National Bank)
    Abstract: Does global currency volume increase on days when the Federal Open Market Committee (FOMC) meets? To test the hypothesis of excess currency volume on FOMC days, we use a novel data set from the Continuous Linked Settlement (CLS) Bank. The CLS measure captures roughly half of the global trading volume in foreign exchange (FX) markets. We find strong evidence that trading volume increases in the order of 5% across currency areas on FOMC days during 2003 to 2007. This result holds irrespective of the size of price changes in currency markets and FOMC policy shocks. The new evidence of excess FX trading on FOMC days is inconsistent with standard models of the asset market approach with homogenous agents.
    Keywords: Trading volume; FOMC; Global linkages
    JEL: F31 G12
    Date: 2008–03–01
  3. By: Strawinski, Pawel; Slepaczuk, Robert
    Abstract: This paper focuses on one of the heavily tested issue in the contemporary finance, i.e. efficient market hypothesis (EMH). However, we try to find the answers to some fundamental questions basing on the analysis of high frequency (HF) data from the Warsaw Stock Exchange (WSE). We estimate model on daily and 5-minute data for WIG20 index futures trying to verify daily and hourly effects. After implementing the base methodology for such testing, additionally we take into account the results of regression with weights, i.e. robust regression is used that assigns the higher weight the better behaved observations. Our results indicate that we observe the day of the week effect and hour of the day effect in polish data. What is more important is the existence of strong open jump effect for all days except Wednesday and positive day effect for Monday. Considering the hour of the day effect we observe positive, persistent and significant open jump effect and the end of session effect. Aforementioned results confirm our initial hypothesis that Polish stock market is not efficient in the information sense.
    Keywords: high-frequency financial data; ; robust analysis; pre-weighting; efficient market hypothesis; calendar effects; intra-day effects; the open jump effect; the end of session effect; emerging markets.
    JEL: G14 G15 C22
    Date: 2008–06

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