New Economics Papers
on Market Microstructure
Issue of 2009‒11‒14
six papers chosen by
Thanos Verousis

  1. Modeling Asymmetric Volatility Clusters Using Copulas and High Frequency Data By Cathy Ning; Dinghai Xu; Tony Wirjanto
  2. Investigating the Determinants of Banking Coexceedances in Europe in the Summer of 2008 By Brian Lucey* School of Business and Institute for International Integration Studies,Trinity College Dublin Aleksandar Ševic, School of Business, Trinity College Dublin
  3. Information revelation in a security market: The impact of uncertain participation By Gabrielle Demange
  4. Large-scale portfolios using realized covariance matrix: evidence from the Japanese stock market By Masato Ubukata
  5. Short-Selling Bans around the World: Evidence from the 2007-09 Crisis By Alessandro Beber; Marco Pagano
  6. Announcement effect and intraday volatility patterns of euro-dollar exchange rate : monetary policy news arrivals and short-run dynamic response. By Mokhtar Darmoul; Mokhtar Kouki

  1. By: Cathy Ning (Department of Economics, Ryerson University, Toronto, Canada); Dinghai Xu (Department of Economics, University of Waterloo, Waterloo, Ontario, Canada); Tony Wirjanto (School of Accounting & Finance and Department of Statistics & Actuarial Science,University of Waterloo, Waterloo, Ontario, Canada)
    Abstract: Volatility clustering is a well-known stylized feature of financial asset returns. In this paper, we investigate the asymmetric pattern of volatility clustering on both the stock and foreign exchange rate markets. To this end, we employ copula-based semi-parametric univariate time-series models that accommodate the clusters of both large and small volatilities in the analysis. Using daily realized volatilities of the individual company stocks, stock indices and foreign exchange rates constructed from high frequency data, we find that volatility clustering is strongly asymmetric in the sense that clusters of large volatilities tend to be much stronger than those of small volatilities. In addition, the asymmetric pattern of volatility clusters continues to be visible even when the clusters are allowed to be changing over time, and the volatility clusters themselves remain persistent even after forty days.
    Keywords: Volatility clustering, Copulas, Realized volatility, High-frequency data.
    JEL: C51 G32
    Date: 2009–11
  2. By: Brian Lucey* School of Business and Institute for International Integration Studies,Trinity College Dublin Aleksandar Ševic, School of Business, Trinity College Dublin
    Abstract: We examine the nature, extent and possible causes of bank contagion in a high frequency setting. Looking at six major European banks in the summer and autumn of 2008, we model the lower coexceedances of these banks returns. We find that market microstructure, volatility (measured by range based measures) and limited general market conditions are key determinants of these coexceedances. We find some evidence that herding occurred.
    Date: 2009–09–30
  3. By: Gabrielle Demange
    Abstract: The paper analyzes how uncertainty on traders' participation affects a competitive security market in which there are some informed traders. We show that discontinuities, or "crashes", can arise at equilibrium, even when no investor posts a priori an increasing demand. Because of uncertain participation, the precision of the information brought by a price is endogenous, affected by the size of the trades. As a result, two prices with different volumes and information revelation may clear the market for the same values of the fundamentals. At one price, insurance motives drive the exchanges, noise is large and little information is revealed. At another price, uninformed trades are small, which makes the clearing price much more informative. This multiplicity of prices with different precision of information generates discontinuities.
    Date: 2009
  4. By: Masato Ubukata (Graduate School of Economics, Osaka University)
    Abstract: The objective of this paper is to examine effects of realized covariance matrix estimators based on intraday returns on large-scale minimum-variance equity portfolio optimization. We empirically assess out-of-sample performance of portfolios with different covariance matrix estimators: the realized covariance matrix estimators and Bayesian shrinkage estimators based on the past monthly and daily returns. The main results are: (1) the realized covariance matrix estimators using the past intraday returns yield a lower standard deviation of the large-scale portfolio returns than the Bayesian shrinkage estimators based on the monthly and daily historical returns; (2) gains to switching to strategies using the realized covariance matrix estimators are higher for an investor with higher relative risk aversion; and (3) the better portfolio performance of the realized covariance approach implied by ex-post returns in excess of the risk-free rate, the standard deviations of the excess returns, the return per unit of risk (Sharpe ratio) and the switching fees seems to be robust to the level of transaction costs.
    Keywords: Large-scale portfolio selection; Realized covariance matrix; Intraday data
    JEL: G11
    Date: 2009–09
  5. By: Alessandro Beber (University of Amsterdam and CEPR); Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR)
    Abstract: Most stock exchange regulators around the world reacted to the financial crisis of 2007-2009 by imposing bans or regulatory constraints on short-selling by market participants. We use the large amount of evidence generated by these regime changes to investigate their effects on liquidity, price discovery and stock returns. Since bans were enacted and lifted at different dates in different countries, and in some countries applied to financial stocks only, we identify their effects with panel data techniques, and find that bans (i) were detrimental for liquidity, especially for stocks with small market capitalization and high volatility; (ii) slowed down price discovery, especially in bear market phases, and (iii) failed to support stock prices.
    Keywords: liquidity, short selling, ban, crisis, volatility
    JEL: G12 G14 G18
    Date: 2009–05–06
  6. By: Mokhtar Darmoul (Centre d'Economie de la Sorbonne); Mokhtar Kouki (LEGI-Ecole Polytechnique de Tunis)
    Abstract: In this article, we examine the announcement effect of news relating to the monetary policies of the ECB and the FED and resulting from the official meetings of the Council of the governors and the FOMC on intraday volatility of the foreign exchange rate euro-dollar at five minutes of intervals. The results show that the news of the monetary policy of the ECB relative to its Target interest rates are more significant and more influential on the level of intraday volatility than those of the monetary policy of the FED relative to its federal funds rate. In spite of the reduced number of these news, their effect appears statistically significant during the years of the sample of foreign exchange rate euro-dollar selected. We also introduced a polynomial structure which enables us to take into account the short-run response patterns and to highlight a possible dissymmetry in the effect of each variable of signal on the volatility of foreign exchange rate euro-dollar.
    Keywords: Announcement effect, forex, news, exchange rate.
    JEL: C15 E44 F31 G14
    Date: 2009–08

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.