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on Market Microstructure |
| By: | Dorje C. Brody; Julian Brody; Bernhard K. Meister; Matthew F. Parry |
| Abstract: | In this paper we examine inefficiencies and information disparity in the Japanese stock market. By carefully analysing information publicly available on the internet, an `outsider' to conventional statistical arbitrage strategies--which are based on market microstructure, company releases, or analyst reports--can nevertheless pursue a profitable trading strategy. A large volume of blog data is used to demonstrate the existence of an inefficiency in the market. An information-based model that replicates the trading strategy is developed to estimate the degree of information disparity. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1003.0764&r=mst |
| By: | Carey, Alexander |
| Abstract: | This paper presents time-series of higher-order volatilities for the S&P 500 and EURUSD. We use a 3-volatility model which accounts for non-normal skewness and kurtosis. The volatilities control the level, slope and curvature of the Black-Scholes implied volatility smile; accordingly we term them "base", "skew" and "smile" volatility. We define instantaneous skewness and kurtosis as simple ratios of the volatilities, and show that when these metrics are held constant, the model is relative sticky-delta. For the S&P 500 in 2008, skew and smile volatility are highly correlated with base volatility. Instantaneous skewness and kurtosis are remarkably stable, including over the market dislocation of the last four months of the year. Daily changes in all three volatilities are correlated with daily returns. For EURUSD in 2006, base and smile volatility are closely correlated, but in contrast to the equity case, skew volatility is independent and changes sign. This change in sign appears to provide advance warning of the two major market moves of the year. However, daily changes in the volatilities are uncorrelated with daily returns. |
| Keywords: | higher-order volatility; time series; S&P 500; EURUSD |
| JEL: | G13 |
| Date: | 2010–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21087&r=mst |
| By: | Fabio Tramontana (Department of Economics, University of Ancona, Italy); Frank Westerhoff (University of Bamberg); Laura Gardini (Department of Economics and Quantitative Methods, University of Urbino, Italy) |
| Abstract: | We develop a financial market model with heterogeneous interacting agents: market makers adjust prices with respect to excess demand, chartists believe in the persistence of bull and bear markets and fundamentalists bet on mean reversion. Moreover, speculators trade asymmetrically in over and undervalued markets and while some of them determine the size of their orders via linear trading rules others always trade the same amount of assets. The dynamics of our model is driven by a one-dimensional discontinuous map. Despite the simplicity of our model, analytical, graphical and numerical analysis reveals a surprisingly rich set of interesting dynamical behaviors. |
| Keywords: | Financial markets, heterogeneous agents, technical and fundamental analysis, nonlinear dynamics, discontinuous map, bifurcation analysis. |
| JEL: | D84 G12 G14 G15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:10_05&r=mst |