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on Market Microstructure |
| By: | Marcin Wojtowicz (VU University Amsterdam, the Netherlands) |
| Abstract: | We investigate the determinants of bid-ask spreads on corporate credit default swaps (CDSs). We find that proxies for dealer inventory costs such as variability of CDS premia and CDS trading volume explain as much as 80% of variation in CDS bid-ask spreads. We also analyze the influence of variables capturing systematic risk of reference entities, market-implied volatility, dealer funding costs and competition between dealers. Several of these variables are significant, but their explanatory power is moderate. Finally, we demonstrate that CDS bid-ask spreads do not widen preceding earnings announcement surprises, which suggests that private information does not hinder CDS liquidity. |
| Keywords: | Credit default swaps, Liquidity, Bid-ask spreads, Components of bid-ask spreads |
| JEL: | G10 G14 G19 |
| Date: | 2014–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20140138&r=mst |
| By: | Buti, Sabrina (University of Toronto); Consonni, Francesco (Bocconi University); Rindi, Barbara (Bocconi University); Werner, Ingrid M. (OH State University) |
| Abstract: | Sub-Penny Trading (SPT) is a form of dark trading that allows traders to undercut displayed liquidity. We distinguish between SPT that is queue jumping (QJ) and mid- crossing (MID) and find that QJ is higher for NASDAQ than NYSE stocks. Consistently with Buti, Rindi, Wen and Werner (2013), QJ is positively related to depth and negatively related to stock price. We also find that QJ is associated with improved lit market quality, especially for large capitalization stocks. Sub-penny quotes are allowed for stocks priced below $1.00, and we use this fact to show that QJ increases, the spread improves but depth deteriorates as the price of a stock crosses from above to below ($1.00). |
| JEL: | G10 G12 G14 G18 G20 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2013-18&r=mst |
| By: | Neil Shephard; Justin J. Yang |
| Abstract: | This paper proposes a novel model of financial prices where: (i) prices are discrete; (ii) prices change in continuous time; (iii) a high proportion of price changes are reversed in a fraction of a second. Our model is analytically tractable and the role of the calendar time can be explicitly understood. It is directly formulated in terms of the price impact curve. The resulting c\`{a}dl\`{a}g price process is a piecewise constant semimartingale with finite activity, finite variation and no Brownian motion component. We use moment-based estimations to fit four high frequency futures data sets and demonstrate the descriptive power of our proposed model. This model is able to describe the observed dynamics of price changes over three different orders of magnitude of time intervals. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1410.7317&r=mst |