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on Market Microstructure |
| By: | Jean Jacod; Mark Podolskij; Mathias Vetter (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | This paper presents some limit theorems for certain functionals of moving averages of semimartingales plus noise, which are observed at high frequency. Our method generalizes the pre-averaging approach (see [13],[11]) and provides consistent estimates for various characteristics of general semimartingales. Furthermore, we prove the associated multidimensional (stable) central limit theorems. As expected, we find central limit theorems with a convergence rate n1=4, if n is the number of observations. |
| Keywords: | central limit theorem, high frequency observations, microstructure noise, quadratic variation, semimartingale, stable convergence. |
| JEL: | C10 C13 C14 |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2008-61&r=mst |
| By: | Frank, Julieta; Garcia, Philip |
| Abstract: | Liquidity costs in futures markets are not observed directly because bids and offers occur in an open outcry pit and are not recorded. Traditional estimation of these costs has focused on bidask spreads using transaction prices. However, the bid-ask spread only captures the tightness of the market price. As the volume increases measures of market depth which identify how the order flow moves prices become important information. We estimate market depth for lean hogs and live cattle markets using a Bayesian MCMC method to estimate unobserved data. While the markets are highly liquid, our results show that cost- and risk-reducing strategies may exist. Liquidity costs are highest when larger volumes are traded at distant contracts. For hogs the market becomes less liquid prior to the expiration month. For cattle this occurs during the expiration month when the liquidity risk is also higher. For both markets this coincides with periods of low volume. For the nearby contract highest trading volume occurs at the beginning of the month prior to expiration and lowest trading volume occurs in the expiration month. For both commodities the cumulative effect of volume on price change may lead to liquidity costs higher than a tick. |
| Keywords: | Bayesian MCMC, lean hog futures, liquidity cost, live cattle futures, market depth, market microstructure, Agricultural Finance, |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:ags:nccest:37613&r=mst |
| By: | Frantisek Kopriva |
| Abstract: | We focus on the extent of information-driven trading sourced from the behavior of market makers on an emerging market. We develop a methodology based on the Easley et al. (1996) model in order to estimate the extent of informed trading originating from the behavior of Czech market makers on the Prague Stock Exchange (PSE). Based on the high percentage of block trades in the years 2003-05, the market makers focusing on large customers may have a significant source of private information on the PSE. Significant differences in the behavior of market makers lead us to conclude that these differences remarkably affect the extent of information-driven trading. Under current regulation, market makers are able to protect their private information and not reveal it for a surprisingly long period of time. Our study contributes to the detection mechanisms of regulatory authorities on the emerging markets in identifying the suspicious behavior of particular market participants. |
| Keywords: | Trading systems, Informed trading, Emerging markets |
| JEL: | G14 G15 P34 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp365&r=mst |