New Economics Papers
on Market Microstructure
Issue of 2013‒06‒16
three papers chosen by
Thanos Verousis

  1. Fourier estimation of stochastic leverage using high frequency data By Imma Valentina Curato
  2. Market Transparency, Market Quality and Sunshine Trading By Frutos, M. A. de; Manzano, Carolina
  3. Market-wide price co-movement around crashes in the Tokyo Stock Exchange By Jun-ichi Maskawa; Joshin Murai; Koji Kuroda

  1. By: Imma Valentina Curato (Dipartimento di Economia e Management, Universita' degli Studi di Pisa)
    Abstract: In this paper, we define a new estimator of the leverage stochastic process based only on a pre-estimation of the Fourier coefficients of the volatility process. This feature constitutes a novelty in comparison with the leverage estimators proposed in the literature generally based on a pre-estimation of the spot volatility. Our estimator is proved to be consistent and in virtue of its definition it can be directly applied to estimate the leverage effect in case of irregular trading observations of the price path and microstructure noise contaminations.
    Keywords: leverage, non-parametric estimation, semi-martingale, Fourier transform, high frequency data.
    Date: 2013–06
  2. By: Frutos, M. A. de; Manzano, Carolina
    Abstract: This paper analyzes the implications of pre-trade transpareny on market performance. We find that transparency increases the precision held by agents, however we show that this increase in precision may not be due to prices themselves. In competitive markets, transparency increases market liquidity and reduces price volatility, whereas these results may not hold under imperfect competition. More importantly, market depth and volatility might be positively related with proper priors. Moreover, we study the incentives for liquidity traders to engage in sunshine trading. We obtain that the choice of sunshine/dark trading for a noise trader is independent of his order size, being the traders with higher liquidity needs more interested in sunshine trading, as long as this practice is desirable. Key words: Market Microstructure, Transparency, Prior Information, Market Quality, Sunshine Trading
    Keywords: Mercats financers, Informació -- Aspectes econòmics, 33 - Economia,
    Date: 2013
  3. By: Jun-ichi Maskawa; Joshin Murai; Koji Kuroda
    Abstract: As described in this paper, we study market-wide price co-movements around crashes by analyzing a dataset of high-frequency stock returns of the constituent issues of Nikkei 225 Index listed on the Tokyo Stock Exchange for the three years during 2007--2009. Results of day-to-day principal component analysis of the time series sampled at the 1 min time interval during the continuous auction of the daytime reveal the long range up to a couple of months significant auto-correlation of the maximum eigenvalue of the correlation matrix, which express the intensity of market-wide co-movement of stock prices. It also strongly correlates with the open-to-close intraday return and daily return of Nikkei 225 Index. We also study the market mode, which is the first principal component corresponding to the maximum eigenvalue, in the framework of Multi-fractal random walk model. The parameter of the model estimated in a sliding time window, which describes the covariance of the logarithm of the stochastic volatility, grows before almost all large intraday price declines of less than -5%. This phenomenon signifies the upwelling of the market-wide collective behavior before the crash, which might reflect a herding of market participants.
    Date: 2013–06

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