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on Market Microstructure |
| By: | Naoto Kunitomo (Faculty of Economics, University of Tokyo); Seisho Sato (Institute of Statistical Mathematics) |
| Abstract: | For estimating the realized volatility and covariance by using high frequency data, we have introduced the Separating Information Maximum Likelihood (SIML) method when there are possibly micro-market noises by Kunitomo and Sato (2008a, 2008b, 2010a, 2010b). The resulting estimator is simple and it has the representation as a specific quadratic form of returns. We show that the SIML estimator has reasonable asymptotic properties; it is consistent and it has the asymptotic normality (or the stable convergence in the general case) when the sample size is large under general conditions including some non-Gaussian processes and some volatility models. Based on simulations, we find that the SIML estimator has reasonable finite sample properties and thus it would be useful for practice. The SIML estimator has the asymptotic robustness properties in the sense it is consistent when the noise terms are weakly dependent and they are endogenously correlated with the efficient market price process. We also apply our method to an analysis of Nikkei-225 Futures, which has been the major stock index in the Japanese financial sector. |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf228&r=mst |
| By: | Cziraki, P.; Goeij, P. C. de; Renneboog, L.D.R. (Tilburg University, Center for Economic Research) |
| Abstract: | We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by anti-shareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position. |
| Keywords: | insider trading;management stock options;timing by insiders;corporate governance;anti-shareholder mechanisms;anti-takeover mechanisms. |
| JEL: | G14 G34 M52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:201090&r=mst |
| By: | Nektarios Aslanidis (Department of Economics, FCEE, University Rovira Virgili); Charlotte Christiansen (School of Economics and Management, Aarhus University and CREATES) |
| Abstract: | We scrutinize the monthly realized stock-bond correlation based upon high frequency returns. In particular, we use a probit model to track the dynamics of the sign of the correlation relative to its various economic forces. The sign is predictable to a large extent with bond market liquidity being the most important variable. Moreover, stock market volatility, inflation uncertainty, short rate volatility, and bond volatility have significant effects upon the sign. In addition, we use quantile regressions to pin down the systematic variation of the extreme tails of the realized stock-bond correlation over its economic determinants. We document that the correlation behaves di¤erently when it is large negative (0.10 quantile) as opposed to when it is large positive (0.90 quantile). Nevertheless, the empirical findings are only partially robust to using other, possibly less precise, measures of the stock-bond correlation. |
| Keywords: | Realized stock-bond correlation, Sign, Binary models, Quantile regressions |
| JEL: | C21 C22 C25 G10 G11 G12 |
| Date: | 2010–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-55&r=mst |
| By: | Aase, Knut K. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Bjuland, Terje (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Øksendal, Bernt (Department of Mathematics, University of Oslo) |
| Abstract: | The continuous-time version of Kyle's (1985) model of asset pricing with asymmetric information is studied, and generalized in various directions, i.e., by allowing time-varying liquidity trading, and by having weaker a priori assumptions on the model. This extension is made possible by the use of filtering theory. We derive the optimal trade for an insider and the corresponding price of the risky asset; the insider's trading intensity satisfies a deterministic integral equation, given perfect inside information. |
| Keywords: | Insider trading; equilibrium; strategic trade; linear filter theory; innovation equation |
| JEL: | G12 |
| Date: | 2010–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2010_009&r=mst |
| By: | Rasmus Fatum (School of Business, University of Alberta); Jesper Pedersen (Danish Economic Council); Peter Norman Sørensen (Department of Economics, University of Copenhagen) |
| Abstract: | This paper investigates the intraday effects of unannounced foreign exchange intervention on bid-ask exchange rate spreads using official intraday intervention data provided by the Danish central bank. Our starting point is a simple theoretical model of the bid-ask spread which we use to formulate testable hypotheses regarding how unannounced intervention purchases and intervention sales influence the market asymmetrically. To test these hypotheses we estimate weighted least squares (WLS) time-series models of the intraday bid-ask spread. Our main result is that intervention purchases and sales both exert a significant influence on the exchange rate spread, but in opposite directions: intervention purchases of the smaller currency, on average, reduce the spread while intervention sales, on average, increase the spread. We also show that intervention only affects the exchange rate spread when the state of the market is not abnormally volatile. Our results are consistent with the notion that illiquidity arises when traders fear speculative pressure against the smaller currency and confirms the asymmetry hypothesis of our theoretical model. |
| Keywords: | Foreign Exchange Intervention; Exchange Rate Spreads; Intraday Data |
| JEL: | D53 E58 F31 G15 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1020&r=mst |