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on Market Microstructure |
| By: | Paola Paiardini (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | In this paper we use three years high-frequency data to investigate the role played by public and private information in the process of price formation in two secondary government bond markets. As public information we examine the impact of regularly scheduled macroeconomic news announcements. We identify those announcements with the greatest impact on these markets. As private information we estimate the price impact of order flow. In fact, according to the microstructure models, private information in this context is related to the subjective evaluation of information and order flow can reflect difference of opinions among market participants. Thus, market participant may infer information about the subjective beliefs of other market participants looking at the aggregate order flow. We then use a vector autoregressive model for prices and trades to empirically test the role played by intraday trading intensity and by the waiting time between consecutive transactions in the process of price formations. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1011&r=mst |
| By: | Fricke, Christoph; Menkhoff, Lukas |
| Abstract: | This paper examines the relative information shares of the Bund, i.e. the ten-year Euro bond future contract on German sovereign debt, versus two futures with shorter maturity. We find that the Bund is most important but does not dominate price discovery. The other contracts also have relevant - and at many days even higher - information shares. In examining determinants of information shares, we add order flow measures to market state variables and macroeconomic news. More order flow in a contract consistently increases this contract's information share. |
| JEL: | G14 G23 D85 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-449&r=mst |
| By: | Alexander M. Petersen; Fengzhong Wang; Shlomo Havlin; H. Eugene Stanley |
| Abstract: | We study the cascading dynamics immediately before and immediately after 219 market shocks. We define the time of a market shock T_{c} to be the time for which the market volatility V(T_{c}) has a peak that exceeds a predetermined threshold. The cascade of high volatility "aftershocks" triggered by the "main shock" is quantitatively similar to earthquakes and solar flares, which have been described by three empirical laws --- the Omori law, the productivity law, and the Bath law. We analyze the most traded 531 stocks in U.S. markets during the two-year period 2001-2002 at the 1-minute time resolution. We find quantitative relations between (i) the "main shock" magnitude M \equiv \log V(T_{c}) occurring at the time T_{c} of each of the 219 "volatility quakes" analyzed, and (ii) the parameters quantifying the decay of volatility aftershocks as well as the volatility preshocks. We also find that stocks with larger trading activity react more strongly and more quickly to market shocks than stocks with smaller trading activity. Our findings characterize the typical volatility response conditional on M, both at the market and the individual stock scale. We argue that there is potential utility in these three statistical quantitative relations with applications in option pricing and volatility trading. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1006.1882&r=mst |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This paper analyses the long-memory properties of high frequency financial time series. It focuses on temporal aggregation and the influence that this might have on the degree of dependence of the series. Fractional integration or I(d) models are estimated with a variety of specifications for the error term. In brief, we find evidence that a lower degree of integration is associated with lower data frequencies. In particular, when the data are collected every 10 minutes there are several cases with values of d strictly smaller than 1, implying mean-reverting behaviour. This holds for all four series examined, namely Open, High, Low and Last observations for the British pound/US dollar spot exchange rate. |
| Keywords: | High frequency data; long memory; volatility persistence; structural breaks |
| JEL: | C22 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1016&r=mst |
| By: | Julio César Alonso; Manuel Serna Cortés |
| Abstract: | This paper evaluates the performance of 17 different parametric and non-parametric specifications and high frequency data for Colombian exchange market index (IGBC). We model the variance of the 10-minute returns using GARCH-M and TGARCH models that take in account the leverage effect, the day-of-the-week effect, and the hour-of-the-day effect. We estimate those models under two assumptions of the behavior of the returns: Normal distribution and t distribution. This exercise is performed for two different ten-minute intraday samples: 2006-2007 and 2008-2009. For the first sample, we found that the best model is a GARCH-M (1,1) with the hour-of-the-day effect. For the 2008-2009 sample, we found that the model with the correct conditional VaR coverage would be the GARCH-M with the day-of-the-week effect, and the hour-of-the-day effect. |
| Date: | 2010–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:col:000130:007098&r=mst |
| By: | Lubomir Petrasek (Penn State University, Pennsylvania, USA.) |
| Abstract: | Global bonds are international securities designed to be traded and settled efficiently in multiple markets. This paper studies global bonds to examine the effects of multimarket trading on corporate bond liquidity, prices, and the cost of debt. Using a sample of primary and secondary market transactions matched by issuer, I find that global bonds command a significant liquidity and price advantage over comparable domestic bonds. On average, global bonds trade at yields 15 to 25 basis points below domestic bonds of the same issuers, with the difference being greater for speculative grade bonds and in times of crisis. Global issues are more liquid, as evidenced by several trade-based liquidity measures, but the liquidity advantage of global bonds does not fully explain the yield differential. The findings imply that international corporate bond markets are not fully integrated, and global bond offerings can reduce the cost of debt. JEL Classification: G15, G12, G32, F36. |
| Keywords: | Cost of debt, corporate bonds, liquidity, international financial markets. |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101212&r=mst |