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on Market Microstructure |
| By: | Bruce Mizrach (Rutgers University); Yoichi Otsubo (Rutgers University) |
| Abstract: | This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Trading volumes are active, with EUA volume doubling in 2009. Spreads range from €0.02 to €0.06 for EUA futures and from €0.07 to €0.18 for CER. Market impact estimates imply that an average trade will move the EUA market by €0.0108 and the CER market €0.0429. Both Granger-Gonzalo and Hasbrouck information shares imply that approximately 90% of price discovery is taking place in the ECX futures market. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact. |
| Keywords: | carbon trading, market microstructure, bid-ask spread, market impact, information shares |
| JEL: | G13 G32 E44 |
| Date: | 2010–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201005&r=mst |
| 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,Announcement Effects,Price Formation,Long Memory |
| JEL: | C22 G13 G14 Q50 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:10038&r=mst |
| By: | Tyas Prevoo; Bas ter Weel |
| Abstract: | The Market Abuse Directive came into effect on 1 October 2005. One of its purposes is to reduce illegal insider trading and leakage of information prior to official releases by increasing penalties. Applying an event study approach to a dataset of almost 5,000 corporate news announcements, the analysis reveals that the information value of announcements, measured by the announcement day abnormal return and abnormal volume, is not significantly different after the new regulation than it was before although the number of releases has increased significantly. Trading suspicious of illegal insider trading and leakage of information, measured in terms of cumulative average abnormal returns and volumes for the 30 days prior to the news announcement, has significantly declined for small capitalization firms, for announcements containing information about alliances and mergers and acquisitions and for firms in the technology sector. |
| Keywords: | Market abuse; insider trading |
| JEL: | G14 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:154&r=mst |
| By: | Fulvio Corsi; Davide Pirino; Roberto Reno' |
| Abstract: | This study reconsiders the role of jumps for volatility forecasting by showing that jumps have a positive and mostly significant impact on future volatility. This result becomes apparent once volatility is separated into its continuous and discontinuous component using estimators which are not only consistent, but also scarcely plagued by small-sample bias. To this purpose, we introduce the concept of threshold bipower variation, which is based on the joint use of bipower variation and threshold estimation. We show that its generalization (threshold multipower vari- ation) admits a feasible central limit theorem in the presence of jumps and provides less biased estimates, with respect to the standard multipower variation, of the continuous quadratic varia- tion in finite samples. We further provide a new test for jump detection which has substantially more power than tests based on multipower variation. Empirical analysis (on the S&P500 index, individual stocks and US bond yields) shows that the proposed techniques improve significantly the accuracy of volatility forecasts especially in periods following the occurrence of a jump. |
| Keywords: | volatility estimation, jump detection, volatility forecasting, threshold estimation, financial markets |
| JEL: | G1 C1 C22 C53 |
| Date: | 2010–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2010/11&r=mst |