New Economics Papers
on Market Microstructure
Issue of 2014‒04‒05
three papers chosen by
Thanos Verousis

  1. An agent-based computational model for China's stock market and stock index futures market By Hai-Chuan Xu; Wei Zhang; Xiong Xiong; Wei-Xing Zhou
  2. Dynamic optimal execution in a mixed-market-impact Hawkes price model By Aur\'elien Alfonsi; Pierre Blanc
  3. A high frequency assessment of the ECB securities markets programme By Ghysels, Eric; Idier, Julien; Manganelli, Simone; Vergote, Olivier

  1. By: Hai-Chuan Xu (TJU); Wei Zhang (TJU); Xiong Xiong (TJU); Wei-Xing Zhou (ECUST)
    Abstract: This study presents an agent-based computational cross-market model for Chinese equity market structure, which includes both stocks and CSI 300 index futures. In this model, we design several stocks and one index futures to simulate this structure. This model allows heterogeneous investors to make investment decisions with restrictions including wealth, market trading mechanism, and risk management. Investors' demands and order submissions are endogenously determined. Our model successfully reproduces several key features of the Chinese financial markets including spot-futures basis distribution, bid-ask spread distribution, volatility clustering and long memory in absolute returns. Our model can be applied in cross-market risk control, market mechanism design and arbitrage strategies analysis.
    Date: 2014–03
  2. By: Aur\'elien Alfonsi (CERMICS, INRIA Paris-Rocquencourt); Pierre Blanc (CERMICS, INRIA Paris-Rocquencourt)
    Abstract: We study a linear price impact model including other liquidity takers, whose flow of orders either follows a Poisson or a Hawkes process. The optimal execution problem is solved explicitly in this context, and the closed-formula optimal strategy describes in particular how one should react to the orders of other traders. This result enables us to discuss the viability of the market. It is shown that Poissonian arrivals of orders lead to quite robust Price Manipulation Strategies in the sense of Huberman and Stanzl. Instead, a particular set of conditions on the Hawkes model balances the self-excitation of the order flow with the resilience of the price, excludes Price Manipulation Strategies and gives some market stability.
    Date: 2014–04
  3. By: Ghysels, Eric; Idier, Julien; Manganelli, Simone; Vergote, Olivier
    Abstract: Policy impact studies often suffer from endogeneity problems. Consider the case of the ECB Securities Markets Programme: If Eurosystem interventions were triggered by sudden and strong price deteriorations, looking at daily price changes may bias downwards the correlation between yields and the amounts of bonds purchased. Simple regression of daily changes in yields on quantities often give insignificant or even positive coefficients and therefore suggest that SMP interventions have been ineffective, or worse counterproductive. We use high frequency data on purchases of the ECB Securities Markets Programme and sovereign bond quotes to address the endogeneity issues. We propose an econometric model that considers, simultaneously, first and second conditional moments of market price returns at daily and intradaily frequency. We find that SMP interventions succeeded in reducing yields and volatility of government bond segments of the countries under the programme. Finally, the new econometric model is broadly applicable to market intervention studies. JEL Classification: E52, E44, G12, C58
    Keywords: component models, euro area crisis, high frequency data, SMP, unconventional monetary policy
    Date: 2014–02

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