New Economics Papers
on Market Microstructure
Issue of 2011‒01‒23
two papers chosen by
Thanos Verousis

  1. Clean Sweep: Informed Trading through Intermarket Sweep Orders By Sugato Chakravarty; Pankaj Jain; James Upson; Robert Wood
  2. Bigger Fish in Small Pond: The Interaction between Foreigners’ Trading and Emerging Stock Market Returns under the Microscope By Ülkü, Numan; Weber, Enzo

  1. By: Sugato Chakravarty (Purdue University); Pankaj Jain (University of Memphis); James Upson (University of Texas, El Paso); Robert Wood (University of Memphis)
    Abstract: An intermarket sweep order (ISO) is a limit order that automatically executes in a designated market center even if another market center is publishing a better quotation. An investor submitting an ISO must satisfy order-protection rules by concurrently submitting orders to the markets with better prices. We find that ISOs represent 46% of trades and 41% of volume in our sample. ISO trades have significantly larger information share despite their small trade size relative to non-ISO trades. Post trade return analysis suggests that informed institutions are the main users of ISO trades.
    Keywords: Regulation NMS, Market Quality, Sweep Order, Flash orders
    JEL: G21 D82 O16
    Date: 2011–01
  2. By: Ülkü, Numan; Weber, Enzo
    Abstract: This paper provides the first study of foreign investors’ trading in a sizeable European emerging stock market, using a combination of daily and monthly complete data collected at the destination. It also introduces the structural conditional correlation (SCC) methodology to identify the contemporaneous interaction between foreign flows and returns. We show that global emerging market returns are an additional driver of foreign flows after controlling for global developed market returns. Foreigners do negative (positive)-feedback-trade with respect to local returns at the monthly (daily) frequency. SCC methodology shows that the standard assumption in the literature that flows cause returns but not vice versa is not justified even at the daily frequency, making price impact estimates reported in previous literature questionable.
    Keywords: Foreign investors' trading in emerging stock markets; feedback trading; price impact; structural VAR; structural conditional correlation
    JEL: G15 C32
    Date: 2011–01–10

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