| Abstract: |
Network spillovers explain as much as 90% of the individual variation in
returns in a fully electronic market. We study two fully electronic, highly
liquid markets, the Dow an S&P 500 e-mini futures markets. Within these
markets, we use a unique dataset of realized trades that includes the precise
topology of transactions; this topology allows us to identify precisely both
the relevance of network structure as well as endogenous network spillovers.
Within these markets, we will show that network positioning on the part of
trader leads to remarkable spillovers in return. Empirically, we estimate that
the implied average multiplier, the ratio of a individual level shock to the
total network one, is as large as 20. A gain of $1 for a trader leads to an
average of $20 in gains for all traders and much more for connected ones. In a
zero-sum market, such as the one in this study, this suggests a very large
re-allocation of returns according to network structure. |