New Economics Papers
on Market Microstructure
Issue of 2013‒11‒02
two papers chosen by
Thanos Verousis

  1. News, Liquidity Dynamics and Intraday Jumps: Evidence from the HUF/EUR market By M. FRÖMMEL; X. HAN; F. VAN GYSEGEM
  2. Stock returns versus trading volume: is the correspondence more general? By Rafal Rak; Stanislaw Drozdz; Jaroslaw Kwapien; Pawel Oswiecimka

    Abstract: We study intraday jumps on a pure limit order FX market by linking them to news announcements and liquidity shocks. First, we show that jumps are frequent and contribute greatly to the return volatility. Nearly half of the jumps can be linked with scheduled and unscheduled news announcements. Furthermore, we show that jumps are information based, whether they are linked with news announcements or not. Prior to jumps, liquidity does not deviate from its normal level, nor do liquidity shocks offer any predictive power for jump occurrence. Jumps emerge not as a result of unusually low liquidity but rather as a result of an unusually high demand for immediacy concentrated on one side of the book. During and after the jump, a dynamic order placement process emerges: some participants endogenously become liquidity providers and absorb the increased demand for immediacy. We detect an interesting asymmetry and find the liquidity providers to be more reluctant to add liquidity when confronted with a news announcement around the jump. Further evidence shows that participants submit more limit orders relative to market orders after a jump. Consequently, the informational role of order flow becomes less pronounced in the thick order book after the jump.
    Keywords: microstructure, foreign exchange, jumps, liquidity, Hungary, limit order book
    JEL: F31 G15
    Date: 2013–08
  2. By: Rafal Rak; Stanislaw Drozdz; Jaroslaw Kwapien; Pawel Oswiecimka
    Abstract: This paper presents a quantitative analysis of the relationship between the stock market returns and corresponding trading volumes using high- frequency data from the Polish stock market. First, for stocks that were traded for suffciently long period of time, we study the return and volume distributions and identify their consistency with the power-law functions. We find that, for majority of stocks, the scaling exponents of both distri- butions are systematically related by about a factor of 2 with the ones for the returns being larger. Second, we study the empirical price impact of trades of a given volume and find that this impact can be well described by a square-root dependence: r(V) V^(1/2). We conclude that the prop- erties of data from the Polish market resemble those reported in literature concerning certain mature markets.
    Date: 2013–10

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