New Economics Papers
on Market Microstructure
Issue of 2011‒08‒22
four papers chosen by
Thanos Verousis

  1. Modelling trades-through in a limited order book using Hawkes processes By Toke, Ioane Muni; Pomponio, Fabrizio
  2. Clustering on the same news sources in an asset market By Larson, Nathan
  3. Information Percolation in Segmented Markets By Darrell Duffie; Semyon Malamud; Gustavo Manso
  4. A directional-change events approach for studying financial time series By Aloud, Monira; Tsang, Edward; Olsen, Richard; Dupuis, Alexandre

  1. By: Toke, Ioane Muni; Pomponio, Fabrizio
    Abstract: We model trades-through, i.e. transactions that reach at least the second level of limit orders in an order book. Using tick-by-tick data on Euronext-traded stocks, we show that a simple bivariate Hawkes process fits nicely our empirical observations of trades-through. We show that the cross-influence of bid and ask trades-through is weak. --
    Keywords: Hawkes processes,limit order book,trades-through,highfrequency trading,microstructure
    JEL: C32 C51 G14
    Date: 2011
  2. By: Larson, Nathan
    Abstract: We study the incentives to acquire information from exclusive news sources versus information from popular sources in a CARA-normal asset market. Each trader is able to observe one of a finite number of news sources. Clustering on the most precise source can happen for two reasons. One is standard: traders do not care that they dilute others’ profits by trading on the same information. The other reason is more novel: traders with different information sets may respond to the same news differently — when this is so, they can benefit by coordinating their attention on the same news source in order to take opposite sides of the market. News from such a source will generate abnormal volume that need not be accompanied by large price movement. Furthermore, we show that as the number of sources grows, traders concentrate their attention on a few of the best ones, leaving most information unexploited.
    Keywords: information acquisition; herding; abnormal volume; market order; limit order
    JEL: G14 G12
    Date: 2011–08–11
  3. By: Darrell Duffie; Semyon Malamud; Gustavo Manso
    Abstract: We calculate equilibria of dynamic double-auction markets in which agents are distinguished by their preferences and information. Over time, agents are privately informed by bids and offers. Investors are segmented into groups that differ with respect to characteristics determining information quality, including initial information precision as well as market “connectivity,” the expected frequency of their trading opportunities. Investors with superior information sources attain strictly higher expected profits, provided their counterparties are unable to observe the quality of those sources. If, however, the quality of bidders’ information sources are commonly observable, then, under conditions, investors with superior information sources have strictly lower expected profits.
    JEL: D53 D83 G14
    Date: 2011–08
  4. By: Aloud, Monira; Tsang, Edward; Olsen, Richard; Dupuis, Alexandre
    Abstract: Financial markets witness high levels of activity at certain times, but remain calm at others. This makes the flow of physical time discontinuous. Therefore using physical time scales for studying financial time series, runs the risk of missing important activities. An alternative approach is the use of an event-based time that captures periodic activities in the market. In this paper, we use a special type of event, called a directional-change event, and show its usefulness in capturing periodic market activities. Our study confirms that the length of the price curve coastline as defined by directional-change events, turns out to be a long one. --
    Keywords: Directional-change event,intrinsic time,high-frequency finance,foreign exchange market,time-series analysis
    JEL: G10
    Date: 2011

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