New Economics Papers
on Market Microstructure
Issue of 2010‒03‒06
two papers chosen by
Thanos Verousis

  1.  The Validity of Models on the Information Content of Trades By  Leif Brandes;  Egon Franck;  Erwin Verbeek
  2. Large-volatility dynamics in financial markets By B. Zheng; J. Shen

  1. By:  Leif Brandes (Institute for Strategy and Business Economics, University of Zurich);  Egon Franck (Institute for Strategy and Business Economics, University of Zurich);  Erwin Verbeek (Institute for Strategy and Business Economics, University of Zurich)
    Abstract:  Measuring the (private) information content of stock trades is an important topic in market microstructure research. A common problem of stock markets is that it is ex-ante not possible to separate phases where the scope for asymmetric information is likely to be broader from those, where there is less exposure to traders with superior information. Such a distinction is needed to directly test the reliability of the proposed measures. This paper applies a unique data set from the betting market to provide such a direct test. We exploit the fact that betting occurs preplay, i.e. before match start, as well as inplay. We test the hypothesis that measures of private information will be less pronounced for inplay betting quotations (where all actions on the court are publicly observable, and trading on private information is unlikely) than for preplay betting quotations. Based on more than 23,000 transactions for the 2008 Wimbledon final, and five additional matches, we present first empirical support for this relation.
    Keywords: betting; market microstructure; asymmetric information; vector autoregressive model
    JEL: G14 C33
    Date: 2010
  2. By: B. Zheng; J. Shen
    Abstract: We investigate the large-volatility dynamics in financial markets, based on the minutely and daily data of the Chinese Indices and German DAX. The dynamic relaxation both before and after large volatilities is characterized by a power law, and the exponents $p_\pm$ usually vary with the strength of the large volatilities. The large-volatility dynamics is time-reversal symmetric at the minutely time scale, while asymmetric at the daily time scale. Careful analysis reveals that the time-reversal asymmetry is mainly induced by exogenous events. It is also the exogenous events which drive the financial dynamics to a non-stationary state. In general, the Chinese Indices and German DAX are in different universality classes. An interacting herding model without and with exogenous driving forces could qualitatively describe the large-volatility dynamics.
    Date: 2010–02

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