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on Market Microstructure |
| By: | Tim Bollerslev (Department of Economics, Duke University, and NBER and CREATES); Viktor Todorov (Department of Finance, Kellogg School of Management, Northwestern University) |
| Abstract: | We propose a new and flexible non-parametric framework for estimating the jump tails of Itô semimartingale processes. The approach is based on a relatively simple-to-implement set of estimating equations associated with the compensator for the jump measure, or its "intensity", that only utilizes the weak assumption of regular variation in the jump tails, along with in-fill asymptotic arguments for uniquely identifying the "large" jumps from the data. The estimation allows for very general dynamic dependencies in the jump tails, and does not restrict the continuous part of the process and the temporal variation in the stochastic volatility. On implementing the new estimation procedure with actual high-frequency data for the S&P 500 aggregate market portfolio, we find strong evidence for richer and more complex dynamic dependencies in the jump tails than hitherto entertained in the literature. |
| Keywords: | Extreme events, jumps, high-frequency data, jump tails, non-parametric estimation, stochastic volatility |
| JEL: | C13 C14 G10 G12 |
| Date: | 2010–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-16&r=mst |
| By: | Borgy, V.; Idier, I.; Le Fol, G. |
| Abstract: | Even though the FX market is one of the most liquid financial market, it would be an error to consider that it is immune against any liquidity problem. This paper analyzes on a long sample (2000-2009), the all set of quotes and transactions in three main currency pairs (EURJPY, EURUSD, USDJPY) on the EBS platform. To characterize the FX market liquidity, we consider the spread, the traded volume, the number of transactions and the Amihud (2002) statistic for illiquidity. We also propose the computation of a new liquidity indicator, BIL, that solely relies on price series availability. The main benefit of such measure is to be easily calculated on almost any financial market as well as to have a clear interpretation in terms of liquidity costs. Using all these advanced liquidity analyses, we finally test the accuracy of these measures to detect liquidity problems in the FX market. Our analysis, based on a signaling approach, shows that liquidity problems have arisen during specific episodes in the early 2000's and more generally during the recent financial turmoil. |
| Keywords: | FX market, Liquidity, financial crisis. |
| JEL: | G15 F31 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:279&r=mst |
| By: | Agarwalla Sobhesh Kumar; Pandey Ajay |
| Abstract: | We analyze the permanent (information effect) and temporary (liquidity effect) impact of block trades transacted in the National Stock Exchange of India. Block trades are identified using multiple criteria based on trade value and trade volume. Overall, the permanent price impact is more for block purchases than for block sales indicating that block purchases are more informative than block sales, which may be motivated by liquidity need. Unlike in other markets, we observe that the temporary impact is greater than the permanent impact in case of block purchase. We classify the block trades as All-or-None (AON) and Not-AON trades depending on the number of transactions through which a block order is executed. As expected, the price impact is higher for Not-AON trades as compared to AON trades (which can be assumed to be pre-negotiated trades). Further, arrival of multiple block trades increases market confidence on the information. The permanent price impact is higher for days where there are more than one block trade of similar nature than for days with only one block trade. To analyze the speed of market response to the information associated with block trades, we have used the ‘transaction time event approach’, as used by Holthausen et al. (1990). We find that the prices start increasing (front running) 8 minutes before block purchases but not in case of block sales i.e. some information about the impending block purchase is factored in by the market when the block trade is for purchases. Further, in the case of block sales, prices revert quickly leaving very small permanent price impact. |
| Date: | 2010–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:wp2010-04-02&r=mst |
| By: | Kumar Brajesh; Singh Priyanka; Pandey Ajay |
| Abstract: | This study investigates the nature of relationship between price and trading volume for 50 Indian stocks. Firstly the contemporaneous and asymmetric relation between price and volume are examined. Then we examine the dynamic relation between returns and volume using VAR, Granger causality, variance decomposition (VD) and impulse response function (IRF). Mixture of Distributions Hypothesis (MDH), which tests the GARCH vs. Volume effect, is also studied between the conditional volatility and volume. The results show that there is positive and asymmetric relation between volume and price changes. Further the results of VAR and Granger causality show that there is a bi-directional relation between volume and returns. However, the results of VD imply weak dynamic relation between returns and volume which becomes more evident from the plots of IRF. On MDH, our results are mixed, neither entirely rejecting the MDH nor giving it an unconditional support. |
| Date: | 2009–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:wp2009-12-04&r=mst |
| By: | Aurélien Alfonsi (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - Ecole Nationale des Ponts et Chaussées); Alexander Schied (Institute of Mathematics - University of Mannheim) |
| Abstract: | We analyze the existence of price manipulation and optimal trade execution strategies in a model for an electronic limit order book with nonlinear price impact and exponential resilience. Our main results show that, under general conditions on the shape function of the limit order book, placing deterministic trade sizes at trading dates that are homogeneously spaced is optimal within a large class of adaptive strategies with arbitrary trading dates. This extends results from our earlier work with A. Fruth. Perhaps even more importantly, our analysis yields as a corollary that our model does not admit price manipulation strategies. This latter result contrasts the recent findings of Gatheral [12], where, in a related but different model, exponential resilience was found to give rise to price manipulation strategies when price impact is nonlinear. |
| Date: | 2009–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00397652_v3&r=mst |