New Economics Papers
on Market Microstructure
Issue of 2010‒07‒10
four papers chosen by
Thanos Verousis

  1. Is high-frequency trading inducing changes in market microstructure and dynamics? By Reginald D. Smith
  2. Price Impact of Block Trades and Price Behavior Surrounding Block Trades in Indian Capital Market By Sobhesh Kumar Agarwalla; Ajay Pandey
  3. Why do firms pay for liquidity provision in limit order markets? By Johannes A. Skjeltorp; Bernt Arne Ødegaard
  4. The conditional autoregressive wishart model for multivariate stock market volatility By Golosnoy, Vasyl; Gribisch, Bastian; Liesenfeld, Roman

  1. By: Reginald D. Smith
    Abstract: Using high-frequency time series of stock prices and share volumes sizes from January 2002-May 2009, this paper investigates whether the effects of the onset of high-frequency trading, most prominent since 2005, are apparent in the dynamics of the dollar traded volume. Indeed it is found in almost all of 14 heavily traded stocks, that there has been an increase in the Hurst exponent of dollar traded volume from Gaussian noise in the earlier years to more self-similar dynamics in later years. This shift is linked both temporally to the Reg NMS reforms allowing high-frequency trading to flourish as well as to the declining average size of trades with smaller trades showing markedly higher degrees of self-similarity.
    Date: 2010–06
  2. By: Sobhesh Kumar Agarwalla; Ajay Pandey
    Abstract: This paper analyzes the permanent (information effect) and temporary (liquidity effect) impact of block trades transacted in the National Stock Exchange of India.[W.P. No. 2010-04-02]
    Keywords: Block Trades, Market Microstructure, All-or-None Trades
    Date: 2010
  3. By: Johannes A. Skjeltorp (Norges Bank (Central Bank of Norway)); Bernt Arne Ødegaard (University of Stavanger and Norges Bank (Central Bank of Norway))
    Abstract: In recent years, a number of electronic limit order markets have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper we ask why firms are willing to pay to improve the secondary market liquidity of their shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find some evidence of agency costs associated with the initiation of a market maker agreement as the probability of observing insider trades increases when liquidity improves.
    Keywords: Market liquidity, Corporate Finance, Designated Market Makers, Insider trading
    JEL: G10 G20
    Date: 2010–06–30
  4. By: Golosnoy, Vasyl; Gribisch, Bastian; Liesenfeld, Roman
    Abstract: We propose a Conditional Autoregressive Wishart (CAW) model for the analysis of realized covariance matrices of asset returns. Our model assumes a generalized linear autoregressive moving average structure for the scale matrix of the Wishart distribution allowing to accommodate for complex dynamic interdependence between the variances and covariances of assets. In addition, it accounts for symmetry and positive definiteness of covariance matrices without imposing parametric restrictions, and can easily be estimated by Maximum Likelihood. We also propose extensions of the CAW model obtained by including a Mixed Data Sampling (MIDAS) component and Heterogeneous Autoregressive (HAR) dynamics for long-run fluctuations. The CAW models are applied to time series of daily realized variances and covariances for five New York Stock Exchange (NYSE) stocks. --
    Keywords: Component volatility models,Covariance matrix,Mixed data sampling,Observation-driven models,Realized volatility
    Date: 2010

This issue is ©2010 by Thanos Verousis. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.