New Economics Papers
on Market Microstructure
Issue of 2012‒09‒30
four papers chosen by
Thanos Verousis

  1. Intraday Liquidity Patterns in Indian Stock Market By R. Krishnan; Vinod Mishra
  2. Comment on "Taylor rule exchange rate forecasting during the financial crisis" By Michael W. McCracken
  3. Information Inertia By Jayant Ganguli; Scott Condie; Philipp Karl Illeditsch
  4. Hierarchical structure of stock price fluctuations in financial markets By Ya-Chun Gao; Shi-Min Cai; Bing-Hong Wang

  1. By: R. Krishnan; Vinod Mishra
    Abstract: This paper attempts to study the liquidity patterns and to detect any commonality across liquidity measures, using one year intraday data from India's National Stock Exchange (NSE). Using the data on 20 stocks from NSE's NIFTY Index, we found that most of the volume and spread related liquidity measures exhibit an intra-day U-shaped pattern, similar to those found for a market consisting of market makers. However, we also note that the presence of U-shaped pattern in both the volume related and spread related measures,implying a concurrent high trading volume and wide spreads. While such a phenomena has been reported previously for a market with a specialist liquidity provider and can be explained using the Brock and Kleidon (1992) model [Journal of Economic Dynamics and Control, 16, 451-489 ], it is for the first time we observe such a behaviour in Indian stock market; an order driven market where there is no market maker. Besides, we find only a weak evidence of co-movement or commonality in liquidity measures. This suggests that market wide factors may not play a significant role in affecting the liquidity of individual stocks, hinting that such factors need not be a part of the asset pricing process.
    Keywords: Liquidity, Intraday data, Commonality, NSE, India
    JEL: G15
    Date: 2012–09
  2. By: Michael W. McCracken
    Abstract: In this note we discuss the paper on exchange rate forecasting by Molodtsova> and Papell (2012). In particular we discuss issues related to forecast origins and forecast> horizons when higher frequency exchange rate movements are predicted using lower> frequency quarterly macroaggregates.
    Keywords: Foreign exchange rates ; Taylor's rule
    Date: 2012
  3. By: Jayant Ganguli; Scott Condie; Philipp Karl Illeditsch
    Abstract: We study how information about an asset affects optimal portfolios and equilibrium asset prices when investors are not sure about the model that predicts future asset values and thus treat the information as ambiguous. We show that this ambiguity leads to optimal portfolios that are insensitive to news even though there are no information processing costs or other market frictions. In equilibrium, we show that stock prices may not react to public information that is worse than expected and this mispricing of bad news leads to profitable trading strategies based on public information.
    Date: 2012–09–19
  4. By: Ya-Chun Gao; Shi-Min Cai; Bing-Hong Wang
    Abstract: The financial market and turbulence have been broadly compared on account of the same quantitative methods and several common stylized facts they shared. In this paper, the She-Leveque (SL) hierarchy, proposed to explain the anomalous scaling exponents deviated from Kolmogorov monofractal scaling of the velocity fluctuation in fluid turbulence, is applied to study and quantify the hierarchical structure of stock price fluctuations in financial markets. We therefore observed certain interesting results: (i) The hierarchical structure related to multifractal scaling generally presents in all the stock price fluctuations we investigated. (ii) The quantitatively statistical parameters that describes SL hierarchy are different between developed financial markets and emerging ones, distinctively. (iii) For the high-frequency stock price fluctuation, the hierarchical structure varies with different time period. All these results provide a novelty analogy in turbulence and financial market dynamics and a insight to deeply understand the multifractality in financial markets.
    Date: 2012–09

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