New Economics Papers
on Market Microstructure
Issue of 2013‒10‒05
five papers chosen by
Thanos Verousis

  1. The performance of bid-ask spread estimators under less than ideal conditions By Michael Bleaney; Zhiyong Li
  2. Understanding FX Liquidity By Karnaukh, Nina; Ranaldo, Angelo; Söderlind, Paul
  3. Can Information Demand Help to Predict Stock Market Liquidity ? Google it ! By Mohamed Arouri; Amal Aouadi; Philippe Foulquier; Frédéric Teulon
  4. Private Information in Markets: A Market Design Perspective By Marzena Rostek; Ji Hee Yoon
  5. Man or Machine? Rational trading without information about fundamentals. By Rossi, S; Tinn, K

  1. By: Michael Bleaney; Zhiyong Li
    Abstract: The performance of bid-ask spread estimators is investigated using simulation experiments. All estimators are much more accurate if the data are sampled at high frequency. In high-frequency data, the Huang-Stoll estimator, which requires order flow information, generally outperforms Roll-type estimators based on price information only. The exception is when there is feedback trading (order flows respond to past price movements), when the Huang-Stoll estimator is seriously biased. When only low-frequency (e.g. daily) data are available, the Corwin-Schultz estimator based on daily high and low prices is usually less inaccurate than the Huang-Stoll and Roll estimators. An important and empirically relevant exception is when the spread varies within the day; in this case the Corwin-Schultz estimator significantly overestimates the true spread.
    Date: 2013–09
  2. By: Karnaukh, Nina; Ranaldo, Angelo; Söderlind, Paul
    Abstract: Previous studies of liquidity in the foreign exchange (FX) market span short time periods or focus on specific measures of liquidity. In contrast, we provide a comprehensive study of FX liquidity and commonality over more than two decades and a cross-section of forty exchange rates. After identifying the most accurate liquidity proxies based on low-frequency and readily available data, we show that commonality in FX liquidities is stronger for developed currencies and in highly volatile markets. We also show that FX liquidity deteriorates with risk in stock, bond and FX markets, and that riskier currencies are more exposed to liquidity drops.
    Keywords: exchange rates, liquidity, transaction costs, commonality, low-frequency data
    JEL: C15 F31 G12 G15
    Date: 2013–09
  3. By: Mohamed Arouri; Amal Aouadi; Philippe Foulquier; Frédéric Teulon
    Abstract: Numerous recent studies indicate that investors’ information demand affects stock market return and volatility. In this paper, we contribute to the literature by investigating whether information demand is a significant determinant of liquidity in the French stock market. Our main findings suggest that internet research volume tends to be positively related to market liquidity. In the out-of-sample analysis, we show that introducing information demand variables significantly improves liquidity forecasting.
    Keywords: Information demand, Financial markets, Stock liquidity.
    JEL: C32 D83 G12 G14
    Date: 2013–09–26
  4. By: Marzena Rostek (University of Wisconsin-Madison Economics Department); Ji Hee Yoon (University of Wisconsin-Madison Economics Department)
    Abstract: This paper studies the impact of heterogeneity in interdependence of trader values on price inference and welfare. A model of double auction with quasilinear-quadratic utilities is introduced that allows for arbitrary Gaussian information structures. With heterogeneous interdependence, some traders learn more from prices whereas others from private signals; thus, heterogeneity separates informed and uninformed trading. Changes in market structure can improve both informativeness of prices and private signals of a trader and make some traders learn more from prices than others. We characterize conditions on the information structure for price and signal inference to involve no tradeoff.
    Keywords: Price Inference; Networks; Dark Pools; Market Design
    JEL: D43 D53 G11 G12 L13
    Date: 2013–09
  5. By: Rossi, S; Tinn, K
    Date: 2013–09–18

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