New Economics Papers
on Market Microstructure
Issue of 2014‒03‒15
three papers chosen by
Thanos Verousis
  1. Interdependency and Spillover during the Financial Crisis of 2007 to 2009 – Evidence from High Frequency Intraday Data By Faten Ben Slimane; Mohamed Mehanaoui; Irfan A. Kazi
  2. The adaptive nature of liquidity in limit order books By Damian Eduardo Taranto; Giacomo Bormetti; Fabrizio Lillo
  3. ASSESSING DAY-TO-DAY VOLATILITY: DOESTHE TRADING TIME MATTER? By JOSÉ VALENTIM MACHADO VICENTE; GUSTAVO SILVA ARAÚJO; PAULA BAIÃO FISHER DE CASTRO; FELIPE NORONHA TAVARES
  1. By: Faten Ben Slimane; Mohamed Mehanaoui; Irfan A. Kazi
    Abstract: The paper examines the intraday dynamics and volatility transmission among three European stock markets: Germany, France, the UK during the financial crisis of 2007-to-2009. After estimating the structural break date using Bai-Perron (1998, 2003), we analyze the pre-crisis and crisis periods using high frequency five-minute intraday data under the VAR-EGARCH framework. The empirical findings reveal that the interdependence among European markets increased substantially during the crisis period, pointing towards shift contagion. In addition, the results show that the German stock market strongly influences stock returns and volatility in France and the UK for all periods, while the reverse hold true but is mostly irrelevant. These findings have important implications for both policymakers and investors.
    Keywords: Volatility spillover, Global financial crisis, High frequency data
    JEL: G15
    Date: 2014–02–25
    URL: http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-126&r=mst
  2. By: Damian Eduardo Taranto; Giacomo Bormetti; Fabrizio Lillo
    Abstract: In financial markets, the order flow, defined as the process assuming value one for buy market order and minus one for sell market orders, displays very slowly decaying autocorrelation function. Since orders impact prices, reconciling the persistence of the order flow with market efficiency is a subtle issue whose possible solution is provided by asymmetric liquidity which states that the impact of a buy or sell order is inversely related to the probability of its occurrence. We empirically find that when the order flow predictability increases in one direction, the liquidity in the opposite side decreases, but the probability that a trade moves the price decreases significantly. While the last mechanism is able to counterbalance the persistence of order flow and restore efficiency and diffusivity, the first acts in opposite direction. We introduce a statistical order book model where the persistence of the order flow is mitigated by adjusting the market order volume to the predictability of the order flow. The model reproduces the diffusive behaviour of prices at all time scales without fine-tuning the values of parameters, as well as the behaviour of most order book quantities as a function of the local predictability of order flow.
    Date: 2014–03
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1403.0842&r=mst
  3. By: JOSÉ VALENTIM MACHADO VICENTE; GUSTAVO SILVA ARAÚJO; PAULA BAIÃO FISHER DE CASTRO; FELIPE NORONHA TAVARES
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:anp:en2012:130&r=mst
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