2010-04-11 papers

on Market Microstructure

Issue of 2010‒04‒11
two papers chosen by
Thanos Verousis

Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency By Conrad, Christian; Rittler, Daniel; Rotfuß, Waldemar
Why Does Overnight Liquidity Cost More Than Intraday Liquidity? By Bhattacharya, Joydeep; Haslag, Joseph; Martin, Antoine

Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency

By:	Conrad, Christian; Rittler, Daniel; Rotfuß, Waldemar
Abstract:	In this paper we model the adjustment process of European Union Allowance (EUA) prices to the releases of announcements at high-frequency controlling for intraday periodicity, volatility clustering and volatility persistence. We find that the high-frequency EUA price dynamics are very well captured by a fractionally integrated asymmetric power GARCH process. The decisions of the European Commission on second National Allocation Plans have a strong and immediate impact on EUA prices. On the other hand, our results suggest that EUA prices are only weakly connected to indicators about the future economic development as well as the current economic activity.
Keywords:	EU ETS; EUA; Second NAPs; Announcement Effects; Price Formation
Date:	2010–03–30
URL:	http://d.repec.org/n?u=RePEc:awi:wpaper:0497&r=mst

Why Does Overnight Liquidity Cost More Than Intraday Liquidity?

By:	Bhattacharya, Joydeep; Haslag, Joseph; Martin, Antoine
Abstract:	In this paper, we argue that the observed difference in the cost of intraday and overnight liquidity is part of an optimal payments system design. In our environment, overnight liquidity affects output while intraday liquidity affects only the distribution of resources between money holders and non-money holders. The low cost of intraday liquidity is explained by the Friedman rule. The optimal cost differential achieves the twin objective of reducing the incentive to overuse money at night and encouraging payment-risk sharing during the day.
Keywords:	Friedman rule; monetary policy; Overnight liquidity; intraday liquidity; random-relocation models
JEL:	E31 E51 E58
Date:	2009–06–01
URL:	http://d.repec.org/n?u=RePEc:isu:genres:13096&r=mst

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