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on Market Microstructure |
| By: | Francis Breedon (Queen Mary, University of London); Angelo Ranaldo (University St. Gallen) |
| Abstract: | Using a comprehensive high-frequency foreign exchange dataset, we present evidence of time-of-day effects in foreign exchange returns through a significant tendency for currencies to depreciate during local trading hours. We confirm this pattern across a range of currencies and time zones. We also find that this pattern is reflected in order flow and suggest that both patterns relate to the tendency of market participants to be net purchasers of foreign exchange in their own trading hours. Data from a single market maker appears to corroborate that interpretation. |
| Keywords: | : Foreign exchange, Microstructure, Order flow, Liquidity |
| JEL: | G15 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp694&r=mst |
| By: | Frédéric Abergel (FiQuant - Chaire de finance quantitative - Ecole Centrale Paris, MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris); Riadh Zaatour (FiQuant - Chaire de finance quantitative - Ecole Centrale Paris, MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris) |
| Abstract: | We rely on high frequency data to explore the joint dynamics of underlying and option markets. In particular, high frequency data make observable the realized variance process of the underlying, so its effects on option price dynamics are tested. Empirical results are confronted with the predictions of stochastic volatility models. The study reveals that while the modeling of stochastic volatility gives more robust models, the market does not process information on the realized variance to update option prices. |
| Keywords: | options, microstructure, smile, stochastic volatility |
| Date: | 2012–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00687675&r=mst |
| By: | Greg Farrell; Shakill Hassan; Nicola Viegi |
| Abstract: | We examine the high-frequency response of the rand-dollar nominal rate within ten-minute intervals around (…five minutes before, …five minutes after) official infl‡ation announcements, and show that the rand appreciates (respectively, depreciates) on impact when in‡flation is higher (respectively, lower) than expected. The effect only applies after the adoption of infl‡ation targeting, and is stronger for “good” news. Our …ndings are rationalizable by the belief, among market participants, in a credible (though perhaps not particularly aggressive) in‡flation targeting policy in South Africa; and can be used to monitor changes in currency market perceptions about the monetary policy regime. |
| Keywords: | high-frequency exchange rates; in‡flation surprises; Taylor rules; in‡flation targeting; credibility. |
| JEL: | E31 E52 F30 F31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:279&r=mst |
| By: | Aurélien Alfonsi (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - Ecole des Ponts ParisTech); José Infante Acevedo (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - Ecole des Ponts ParisTech) |
| Abstract: | This paper focuses on an extension of the Limit Order Book (LOB) model with general shape introduced by Alfonsi, Fruth and Schied. Here, the additional feature allows a time-varying LOB depth. We solve the optimal execution problem in this framework for both discrete and continuous time strategies. This gives in particular sufficient conditions to exclude Price Manipulations in the sense of Huberman and Stanzl or Transaction-Triggered Price Manipulations (see Alfonsi, Schied and Slynko). These conditions give interesting qualitative insights on how market makers may create or not price manipulations. |
| Date: | 2012–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00687193&r=mst |
| By: | Aur\'elien Alfonsi (CERMICS); Jos\'e Infante Acevedo (CERMICS) |
| Abstract: | This paper focuses on an extension of the Limit Order Book (LOB) model with general shape introduced by Alfonsi, Fruth and Schied. Here, the additional feature allows a time-varying LOB depth. We solve the optimal execution problem in this framework for both discrete and continuous time strategies. This gives in particular sufficient conditions to exclude Price Manipulations in the sense of Huberman and Stanzl or Transaction-Triggered Price Manipulations (see Alfonsi, Schied and Slynko). These conditions give interesting qualitative insights on how market makers may create or not price manipulations. |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1204.2736&r=mst |