New Economics Papers
on Market Microstructure
Issue of 2010‒07‒31
three papers chosen by
Thanos Verousis
  1. Pre-Averaging Based Estimation of Quadratic Variation in the Presence of Noise and Jumps: Theory, Implementation, and Empirical Evidence By Nikolaus Hautsch; Mark Podolskij
  2. Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process. By Gaël Giraud; Dimitrios P. Tsomocos
  3. Nominal Uniqueness and Money Non-neutrality in the Limit-Price Exchange Process By Gaël Giraud; Dimitrios P. Tsomocos
  1. By: Nikolaus Hautsch; Mark Podolskij
    Abstract: This paper provides theory as well as empirical results for pre-averaging estimators of the daily quadratic variation of asset prices. We derive jump robust inference for pre-averaging estimators, corresponding feasible central limit theorems and an explicit test on serial dependence in microstructure noise. Using transaction data of different stocks traded at the NYSE, we analyze the estimators’ sensitivity to the choice of the pre-averaging bandwidth and suggest an optimal interval length. Moreover, we investigate the dependence of pre-averaging based inference on the sampling scheme, the sampling frequency, microstructure noise properties as well as the occurrence of jumps. As a result of a detailed empirical study we provide guidance for optimal implementation of pre-averaging estimators and discuss potential pitfalls in practice.
    Keywords: Quadratic Variation, Market Microstructure Noise, Pre-averaging, Sampling Schemes, Jumps
    JEL: C14 C22 G10
    Date: 2010–07
    URL: http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-038&r=mst
  2. By: Gaël Giraud (Centre d'Economie de la Sorbonne - Paris School of Economics); Dimitrios P. Tsomocos (Saïd Business School University)
    Abstract: We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a "veil" and trade vanishes. Typically, there is a peicewise globally unique trade-ant-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run, and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub-optimal) liquidity trap where monetary policy is ineffective ; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households' expectations, and the quantity of circulating money.
    Keywords: Bank, money, price-quantity dynamics, inside money, outside money, rational expectations, liquidity, double auction, limit-price orders, inflation, bounded rationality.
    JEL: D50 D83 E12 E24 E30 E40 E41 E50 E58
    Date: 2010–06
    URL: http://d.repec.org/n?u=RePEc:mse:cesdoc:10061&r=mst
  3. By: Gaël Giraud (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Dimitrios P. Tsomocos (Saïd Business School University - University of Oxford)
    Abstract: We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a "veil" and trade vanishes. Typically, there is a peicewise globally unique trade-ant-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run, and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub-optimal) liquidity trap where monetary policy is ineffective ; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households' expectations, and the quantity of circulating money.
    Keywords: Bank ; money ; price-quantity dynamics ; inside money ; outside money ; rational expectations ; liquidity ; double auction ; limit-price orders ; inflation ; bounded rationality
    Date: 2010–06
    URL: http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00505141_v1&r=mst
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