New Economics Papers
on Market Microstructure
Issue of 2008‒09‒13
five papers chosen by
Thanos Verousis

  1. "Separating Information Maximum Likelihood Estimation of Realized Volatility and Covariance with Micro-Market Noise" By Naoto Kunitomo; Seisho Sato
  2. Comparing Garman-Klass and DU Volatility and Symmetry Measures in Intraday Futures Returns and Volumes: A Vector Autoregression Analysis By Brian M Lucey and Alexander Eastman
  3. Analysis of the performance of Technical Analysis startegies applied to Intraday Market for the Future Contract of Ibovespa Index By Baptista , Ricardo F. de F.; Valls Pereira , Pedro L.
  4. Demand Estimation Under Incomplete Product Availability By Christopher T. Conlon; Julie Holland Mortimer
  5. Foreign Exchange Market Volatility Information: an investigation of real-dollar exchange rate By Frederico Pechir Gomes; Marcelo Yoshio Takami; Vinicius Ratton Brandi

  1. By: Naoto Kunitomo (Faculty of Economics, University of Tokyo); Seisho Sato (Institute of Statistical Mathematics)
    Abstract: For estimating the realized volatility and covariance by using high frequency data, we introduce the Separating Information Maximum Likelihood (SIML) method when there are possibly micro-market noises. The resulting estimator is simple and it has the representation as a specific quadratic form of returns. The SIML estimator has reasonable asymptotic properties; it is consistent and it has the asymptotic normality (or the stable convergence in the general case) when the sample size is large under general conditions including non-Gaussian processes and volatility models. Based on simulations, we find that the SIML estimator has reasonable finite sample properties and thus it would be useful for practice. It is also possible to use the limiting distribution of the SIML estimator for constructing testing procedures and confidence intervals.
    Date: 2008–08
  2. By: Brian M Lucey and Alexander Eastman
    Abstract: In this paper we investigate intraday futures market returns and volumes. Four contracts are selected from foreign exchange and equity market sectors. Using intraday data, two time-series are constructed using two measures of daily volatility and symmetry for each contract’s return and volume. An examination of the interaction between daily return and volume variables is conducted using vector autoregressive (VAR) models. These models compare conventional parametric measures of volatility and symmetry with a second VAR incorporating the Garman-Klass and DU (“down-up”) measures of volatility and symmetry. Although the results are mixed between market and contract types, they suggest that the conventional parametric measures outperform the alternative formulations.
    Date: 2008–08–29
  3. By: Baptista , Ricardo F. de F.; Valls Pereira , Pedro L.
    Abstract: The purpose of this article is to investigate whether, how and when, from a statistical standpoint, Technical Analysis strategies tools hold true for the futures contract of Ibovespa Index, negotiated at the Brazilian Futures Exchange (“Bolsa Brasileira de Mercadorias e Futuros – BM&F”), using tick-by-tick data. The methodology applied was suggested by Baptista (2002), in a way that the rules are grouped according to similar performance and are validated in subsequent intervals of time. As a result, in all periods and independently of sampling frequency, the strategies over-perform the buy-and-hold startegy, but realistic considerations about transaction costs and timing can reduce the gain.
    Keywords: Technical Analysis; intraday quotes
    JEL: G14 C53
    Date: 2008–09–08
  4. By: Christopher T. Conlon; Julie Holland Mortimer
    Abstract: Incomplete product availability arising from stock-out events and capacity constraints is a common and important feature of many markets. Periods of unavailability censor the observed sales for the affected product, and potentially increase observed sales of available substitutes. As a result, failing to adjust for incomplete product availability can lead to biased demand estimates. Common applications of these demand estimates, such as computing welfare effects from mergers or new products, are therefore unreliable in such settings. These issues are likely to arise in many industries, from retail to sporting events to airlines. In this paper, we study a new dataset from a wireless inventory management systems, which was installed on a set of 54 vending machines in order to track product availability at high frequency (roughly every four hours). These data allow us to account for product availability when estimating demand, and introduces a valuable source of variation for identifying substitution patterns. We also develop a simple procedure that allows for changes in product availability even when we only observe inventory (and thus availability) periodically. We find significant differences in the parameter estimates in demand, and as a result, the corrected model predicts significantly larger impacts of stock-outs on profitability.
    JEL: L0
    Date: 2008–09
  5. By: Frederico Pechir Gomes; Marcelo Yoshio Takami; Vinicius Ratton Brandi
    Abstract: Price distributions estimation has become a relevant subject for risk and pricing literature. Special concern resides on tail probabilities, which usually presents more severe observations than those predicted by Normal distributions. This work aims to verify whether the volatility implied in dollar-real options contains useful information about unexpected large-magnitude returns. Implied volatility is also checked as a predictor for realized volatility. Our results indicate that implied volatilities indeed provide useful information on unusual returns and also work as a good predictor for observed volatility. Finally, we implement an early-warning system and implied volatilities seem to signalize large-magnitude returns.
    Date: 2008–08

This issue is ©2008 by Thanos Verousis. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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