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on Market Microstructure |
| By: | Georges Dionne; Maria Pacurar; Xiaozhou Zhou |
| Abstract: | This paper develops a high-frequency risk measure, the Liquidity-adjusted Intraday Value at Risk (LIVaR). Our objective is to explicitly consider the endogenous liquidity dimension associated with order size. Taking liquidity into consideration when using intraday data is important because significant position changes over very short horizons may have large impacts on stock returns. By reconstructing the open Limit Order Book (LOB) of Deutsche Börse, the changes of tick-by-tick ex-ante frictionless return and actual return are modeled jointly using a Log-ACD-VARMA-MGARCH structure. This modeling helps to identify the dynamics of frictionless and actual returns, and to quantify the risk related to the liquidity premium. From a practical perspective, our model can be used not only to identify the impact of ex-ante liquidity risk on total risk, but also to provide an estimation of VaR for the actual return at a point in time. In particular, there will be considerable time saved in constructing the risk measure for the waiting cost because once the models have been identified and estimated, the risk measure over any time horizon can be obtained by simulation without re-sampling the data and re-estimating the model. |
| Keywords: | Liquidity-adjusted Intraday Value at Risk, Tick-by-tick data, Log-ACD-VARMA-MGARCH, Ex-ante Liquidity premium, Limit Order Book |
| JEL: | C22 C41 C53 G11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1414&r=mst |
| By: | Cihat Sobaci; Ahmet Sensoy; Mutahhar Erturk |
| Abstract: | With unique daily short sale data of Borsa Istanbul (stock exchange of Turkey), we investigate the dynamic relationship between short selling activity, volatil- ity, liquidity and market returns from January 2005 to December 2012 using a VAR(p)-cDCC-FIEGARCH(1,d,1) approach. Our findings suggest that short sellers are contrarian traders and contribute to ecient stock market in Turkey. We also show that increased short selling activity is associated with higher liquidity and decreased volatility. However this relation weakens during the financial turmoil of 2008. Our results indicate that any ban on short sales maybe detrimental for financial stability and market quality of Turkey. |
| Keywords: | short selling, contrarian trading, nancial stability, market quality, dynamic conditional correlation |
| JEL: | C51 G11 G14 G18 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:bor:wpaper:1417&r=mst |
| By: | Gao-Feng Gu; Xiong Xiong; Wei Zhang; Yong-Jie Zhang; Wei-Xing Zhou |
| Abstract: | Order cancellation process plays a crucial role in the dynamics of price formation in order-driven stock markets and is important in the construction and validation of computational finance models. Based on the order flow data of 18 liquid stocks traded on the Shenzhen Stock Exchange in 2003, we investigate the empirical statistical properties of inter-cancellation durations in units of events defined as the waiting times between two consecutive cancellations. The inter-cancellation durations for both buy and sell orders of all the stocks favor a $q$-exponential distribution when the maximum likelihood estimation method is adopted; In contrast, both cancelled buy orders of 6 stocks and cancelled sell orders of 3 stocks prefer Weibull distribution when the nonlinear least-square estimation is used. Applying detrended fluctuation analysis (DFA), centered detrending moving average (CDMA) and multifractal detrended fluctuation analysis (MF-DFA) methods, we unveil that the inter-cancellation duration time series process long memory and multifractal nature for both buy and sell cancellations of all the stocks. Our findings show that order cancellation processes exhibit long-range correlated bursty behaviors and are thus not Poissonian. |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1403.3478&r=mst |
| By: | Giulia Iori; Rosario N. Mantegna; Luca Marotta; Salvatore Micciche'; James Porter; Michele Tumminello |
| Abstract: | Interbank markets are fundamental for bank liquidity management. In this paper, we introduce a model of interbank trading with memory. Our model reproduces features of preferential trading patterns in the e-MID market recently empirically observed through the method of statistically validated networks. The memory mechanism is used to introduce a proxy of trust in the model. The key idea is that a lender, having lent many times to a borrower in the past, is more likely to lend to that borrower again in the future than to other borrowers, with which the lender has never (or has in- frequently) interacted. The core of the model depends on only one parameter representing the initial attractiveness of all the banks as borrowers. Model outcomes and real data are compared through a variety of measures that describe the structure and properties of trading networks, including number of statistically validated links, bidirectional links, and 3-motifs. Refinements of the pairing method are also proposed, in order to capture finite memory and reciprocity in the model. The model is implemented within the Mason framework in Java. |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1403.3638&r=mst |