|
on Market Microstructure |
| By: | Yacine Aït-Sahalia; Mehmet Saglam |
| Abstract: | We propose a model of dynamic trading where a strategic high frequency trader receives an imperfect signal about future order flows, and exploits his speed advantage to optimize his quoting policy. We determine the provision of liquidity, order cancellations, and impact on low frequency traders as a function of both the high frequency trader's latency, and the market volatility. The model predicts that volatility leads high frequency traders to reduce their provision of liquidity. Finally, we analyze the impact of various policies designed to potentially regulate high frequency trading. |
| JEL: | G12 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19531&r=mst |
| By: | Alfonso Puorro (Bank of italy) |
| Abstract: | This paper examines high-frequency trading systems, which were first developed in the US equity markets but have spread steadily to most asset classes on the main world financial markets. It analyzes the current regulatory and technological structures of the markets and describes the inefficiencies and informational advantages that high-frequency trading systems seek to exploit and the strategies they use. The paper concludes with an assessment of the positive and negative impacts of the presence of this new type of player on the overall quality of the financial markets. |
| Keywords: | high frequency trading |
| JEL: | G14 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_198_13&r=mst |
| By: | Caporin, Massimiliano; Ranaldo, Angelo; Velo, Gabriel G. |
| Abstract: | Taking advantage of a trades-and-quotes database, the main stylized facts and dynamic properties of a time series related to spot precious metals, that is, gold, silver, palladium, and platinum, are documented. The behavior of spot prices, returns, volume, and selected liquidity measures is analyzed. A clear evidence of periodic patterns matching the trading hours of the most active markets, London, Zurich, New York, as well as Asian markets, is found. The time series of spot returns have thus properties similar to those of traditional financial assets with fat tails, asymmetry, periodic behaviors in the conditional variances, and volatility clustering. The empirical analyzes show, as expected, that gold is the most liquid and less volatile asset, whereas palladium and platinum are traded less. |
| Keywords: | precious metals, high-frequency data, liquidity measurement, intradaily periodicity |
| JEL: | C58 C22 C52 G10 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2013:18&r=mst |
| By: | Gianbiagio Curato; Fabrizio Lillo |
| Abstract: | Large tick assets, i.e. assets where one tick movement is a significant fraction of the price and bid-ask spread is almost always equal to one tick, display a dynamics in which price changes and spread are strongly coupled. We introduce a Markov-switching modeling approach for price change, where the latent Markov process is the transition between spreads. We then use a finite Markov mixture of logit regressions on past squared returns to describe the dependence of the probability of price changes. The model can thus be seen as a Double Chain Markov Model. We show that the model describes the shape of return distribution at different time aggregations, volatility clustering, and the anomalous decrease of kurtosis of returns. We calibrate our models on Nasdaq stocks and we show that this model reproduces remarkably well the statistical properties of real data. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.4539&r=mst |
| By: | Pawe{\l} Fiedor |
| Abstract: | We propose that predictability is a prerequisite for profitability on financial markets. We look at ways to measure predictability of price changes using information theoretic approach and employ them on all historical data available for Warsaw Stock Exchange. This allows us to determine whether frequency of sampling price changes affects the predictability of those. We also study the time evolution of the predictability of price changes on the sample of 20 biggest companies on Warsaw's market and investigate the relationships inside this group, as well as the time evolution of the predictability of those price changes. We also briefly comment on the complicated relationship between predictability of price changes and the profitability of algorithmic trading. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.5540&r=mst |
| By: | Panagiotis Papaioannnou; Lucia Russo; George Papaioannou; Constantinos Siettos |
| Abstract: | The Efficient Market Hypothesis (EMH) is widely accepted to hold true under certain assumptions. One of its implications is that the prediction of stock prices at least in the short run cannot outperform the random walk model. Yet, recently many studies stressing the psychological and social dimension of financial behavior have challenged the validity of the EMH. Towards this aim, over the last few years, internet-based communication platforms and search engines have been used to extract early indicators of social and economic trends. Here, we used Twitter's social networking platform to model and forecast the EUR/USD exchange rate in a high-frequency intradaily trading scale. Using time series and trading simulations analysis, we provide some evidence that the information provided in social microblogging platforms such as Twitter can in certain cases enhance the forecasting efficiency regarding the very short (intradaily) forex. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1310.5306&r=mst |
| By: | Shino Takayama (School of Economics, The University of Queensland) |
| Abstract: | This paper studies a dynamic version of the model proposed in Glosten and Milgrom (1985) with a long-lived informed trader. When the same individual can buy, and then sell, the same asset, the trader may profit from price manipulation. We make a fundamental contribution by clarifying the conditions under which a unique equilibrium exists, and in what situations this equilibrium involves price manipulation. We propose a concept that we refer to as a “tame†equilibrium, and derive a bound for the number of trading rounds under (or over) which a unique equilibrium exists (or multiple equilibria exist) for a sufficiently low probability of informed trading. We characterize and compute tame equilibria. Further, we provide a necessary and sufficient condition under which manipulation arises. We contend that we can extend our analysis to a continuous-time setting and thereby provide a reference framework in a discrete-time setting with a unique equilibrium. |
| Date: | 2013–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:492&r=mst |
| By: | Sylvie Lecarpentier-Moyal; Georges Prat; Patricia Renou-Maissant; Remzi Uctumd |
| Abstract: | We analyze the empirical relationship between announcement effects and return volatilities of four CAC40 companies using intraday financial and event data from SBF-Euronext and Bloomberg, respectively. We estimate the daily component of the intraday volatility using a FIGARCH model and the intraday seasonality by the Fourier Flexible Form. We find that individual return volatilities are affected by a systematic market effect, day effects and announcements related to macroeconomic environment, strategic and financial dealings and commercial outcome, the two latter events being specific to the firm or to its competitors. The volatility responses have delayed and progressive patterns with persistence horizons ranging from one to three hours, suggesting that agents access to complete information gradually. |
| Keywords: | Intraday volatility, FIGARCH, long memory, persistence of announcement effects. |
| JEL: | G14 C22 C58 |
| Date: | 2013–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:27&r=mst |