New Economics Papers
on Market Microstructure
Issue of 2014‒04‒18
three papers chosen by
Thanos Verousis

  1. Automated Liquidity Provision By Austin Gerig; David Michayluk
  2. Decomposing the bid-ask spread in multi-dealer markets By Michael Bleaney; Zhiyong Li
  3. On the impact of macroeconomic news surprises on Treasury-bond yields By Imane El Ouadghiri; Valerie Mignon; Nicolas Boitout

  1. By: Austin Gerig; David Michayluk (Finance Discipline Group, UTS Business School, University of Technology, Sydney)
    Abstract: Traditional market makers are losing their importance as automated systems have largely assumed the role of liquidity provision in markets. We update the model of Glosten and Milgrom (1985) to analyze this new world: we add multiple securities and introduce an automated market maker who prices order ow for all securities contemporaneously. This automated participant transacts the majority of orders, sets prices that are more ecient, reduces spreads, and increases informed and decreases uninformed traders' transaction costs. The model's predictions match very well with recent empirical ndings and are dicult to replicate with alternative models.
    Keywords: algorithmic trading; automated trading; high-frequency trading; market making; specialist; statistical arbitrage
    JEL: G14 G19
    Date: 2014–01–01
  2. By: Michael Bleaney; Zhiyong Li
    Abstract: In this paper, we modify the Huang and Stoll (1997) spread-decomposing model to fit multi-dealer markets. In a multi-dealer market, individual dealers can rebalance their inventories either by trading with other dealers or changing the quote price. Our modified model captures this feature. Using transaction data from the Reuters D2000-1 system, we find that the order-processing and inventory control components of the spread in the foreign exchange market are relatively small and dealers may tolerate the unwanted inventory to keep the spread small to attract informed orders. The asymmetric information component carries the biggest weight. We study the time pattern of the spread and its components. The spread varies significantly with the time of day, but the inventory control and asymmetric information components do not.
    Keywords: Bid-ask Spread, Multi-dealer Market, Decomposition JEL codes: G10, G15
    Date: 2014–04
  3. By: Imane El Ouadghiri; Valerie Mignon; Nicolas Boitout
    Abstract: This paper investigates the impact of surprises associated with monthly macroeconomic news releases on Treasury-bond yields, by paying particular attention to the moment at which the information is published in the month. Implementing an event study on intraday data, we show that (i) the main bond market movers are based on economic activity and in ation indicators, (ii) long-maturity bonds are slightly more impacted by surprises than short-maturity ones, and (iii) the bond market is more sensitive to bad news than to good announcements. Finally, we evidence an empirical monotonic relationship between the surprises' impact and their corresponding news' publication date and/or their sign.
    Keywords: bond market, event study, macroeconomic news.
    JEL: G14 G12 E44 C22
    Date: 2014

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