New Economics Papers
on Market Microstructure
Issue of 2009‒05‒23
three papers chosen by
Thanos Verousis

  1. Liquidity, Volume, and Price Behavior: The Impact of Order vs. Quote Based Trading By Katya Malinova; Andreas Park
  2. Comovements of Returns and Volatility in International Stock Markets: A High-Frequency Approach By Michel Beine; Bertrand Candelon; Jan Piplack
  3. Liquidity on the Scandinavian Order-driven Stock Exchanges By Söderberg, Jonas

  1. By: Katya Malinova; Andreas Park
    Abstract: We provide a three way theoretical comparison of dealer, limit order, and hybrid markets and analyze the impact that the organization of trading has on volume, liquidity, and price efficiency. We find, in particular, that trading volume is highest in the limit order market and lowest in the dealer market. Small order price impacts are lowest and large order price impacts are highest in limit order markets. Prices are most efficient in the hybrid market and least efficient in the dealer market, except when the level of informed trading is very high. Post-trade market transparency in a hybrid market hampers price efficiency for thinly traded securities. We further identify that traders behave as contrarians.
    Keywords: liquidity, quote and order driven markets, price efficiency, hybrid markets, trading volume
    JEL: D82 G10 G12 G14
    Date: 2009–05–11
  2. By: Michel Beine; Bertrand Candelon; Jan Piplack
    Abstract: This paper analyzes common factors in the continuous volatility component, co-extreme and co-jump behavior of a sample of stock market indices. In order to identify those components in stock price processes during a trading day we use high-frequency data and techniques. We show that in most of the cases one common factor is enough to describe the largest part of the international variation in the continuous part of volatility and that this factor's importance has increased over time. Furthermore, we find strong evidence for asymmetries between extremely negative and positive co-extreme close-open returns and of negative and positive co-jumps across countries..
    Keywords: Volatility, realized volatility, high-frequency, comovements, cojumps
    JEL: G15
    Date: 2009–05
  3. By: Söderberg, Jonas (Centre for Labour Market Policy Research (CAFO))
    Abstract: In this paper, the time-series dynamics of liquidity on the Scandinavian stock exchanges between January 1993 and June 2005 are studied with liquidity indices. We observe that on all Scandinavian stock exchanges, liquidity has increased during the examined period. However, the monthly variation in liquidity is large. Moreover, within these order-driven stock exchanges, the relationship between the market variables return, volatility, trading activity,and liquidity is examined in a VAR framework. In line with previous findings on the U.S. stock markets, we find that an increase in return predicts higher liquidity, that there is a negative relationship between volatility and liquidity, and that a positive shock in trading activity predicts increasing liquidity. However, in comparison to previous studies on U.S. stock exchanges, our results indicate that liquidity is more dependent on trading activity in the Scandinavian order-driven markets. Finally, the linkage between these stock exchanges in terms of liquidity is explored with VAR. In these VAR, we find evidence of liquidity spillover between the Scandinavian stock exchanges.
    Keywords: Liquidity; Market microstructure theory; Scandinavian stock markets; Liquidity spillover; Vector autoregression analysis
    JEL: C22 G11 G12
    Date: 2008–12–01

This issue is ©2009 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.