|
on Market Microstructure |
| By: | Ledenyov, Dimitri O.; Ledenyov, Viktor O. |
| Abstract: | In the Schumpeterian creative disruption age, the authors firmly believe that an increasing application of electronic technologies in the finances opens a big number of new unlimited opportunities toward a new era of the ultra high frequency electronic trading in the foreign currencies exchange markets in the conditions of the discrete information absorption processes in the diffusion - type financial systems with the induced nonlinearities. Going from the academic literature, we discuss the probability theory and the statistics theory application to accurately characterize the trends in the foreign currencies exchange rates dynamics in the short and long time periods. We consider the financial analysis methods, including the macroeconomic analysis, market microstructure analysis and order flow analysis, to forecast the volatility in the foreign currencies exchange rates dynamics in the short and long time periods. We discuss the application of the Stratanovich-Kalman-Bucy filtering algorithm in the Stratanovich – Kalman – Bucy filter and the particle filter to accurately estimate the time series and predict the trends in the foreign currencies exchange rates dynamics in the short and long time periods. We research the influence by discrete information absorption on the ultra high frequency electronic trading strategies creation and execution during the electronic trading in the foreign currencies exchange markets. We formulate the Ledenyov law on the limiting frequency (the cut-off frequency) for the ultra high frequency electronic trading in the foreign currencies exchange markets. |
| Keywords: | absorption of information, diffusion of information, transmission of information, information theory, ultra high frequency electronic trading, processing frequency, algorithmic trading, informed trading, noise trading, currencies exchange rate, vehicle currency, interest rate, retail aggregator, liquidity aggregator, interdealer trade orders flow direction, stop-loss order, bid - ask spreads, price discovery process, capital inflow, capital outflow, carry trade strategy, financial liquidity, foreign currencies exchange market micro structure, foreign currencies exchange rate dynamics, Wiener filtering theory, Stratanovich-Kalman-Bucy filtering algorithm, Stratanovich – Kalman – Bucy filter, particle filter, nonlinearities, Ledenyov law on limiting frequency for ultra high frequency electronic trading in foreign currencies exchange markets, econophysics, econometrics, global foreign exchange market, global capital market |
| JEL: | C0 C01 C02 C1 C15 C3 C32 C41 C46 C53 C58 C63 F17 F30 F31 F32 G1 G17 |
| Date: | 2014–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59770&r=mst |
| By: | Yi-Fang Liu (College of Management and Economics - Tianjin University, China Center for Social Computing and Analytics - Tianjin University, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Wei Zhang (College of Management and Economics - Tianjin University, China Center for Social Computing and Analytics - Tianjin University); Chao Xu (College of Management and Economics - Tianjin University, China Center for Social Computing and Analytics - Tianjin University); Jørgen Vitting Andersen (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne); Hai-Chuan Xu (College of Management and Economics - Tianjin University, China Center for Social Computing and Analytics - Tianjin University) |
| Abstract: | This paper studies the switching of trading strategies and its effect on the market volatility in a continuous double auction market. We describe the behavior when some uninformed agents, who we call switchers, decide whether or not to pay for information before they trade. By paying for the information they behave as informed traders. First, we verify that our model is able to reproduce some of the stylized facts in real financial markets. Next we consider the relationship between switching and the market volatility under different structures of investors. We find that there exists a positive relationship between the market volatility and the percentage of switchers. We therefore conclude that the switchers are a destabilizing factor in the market. However, for a given fixed percentage of switchers, the proportion of switchers that decide to buy information at a given moment of time is negatively related to the current market volatility. In other words, if more agents pay for information to know the fundamental value at some time, the market volatility will be lower. This is because the market price is closer to the fundamental value due to information diffusion between switchers. |
| Keywords: | Agent-based model; heterogeneity; switching behavior; market volatility |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00983051&r=mst |
| By: | Starr, Ross M. |
| Keywords: | Social and Behavioral Sciences |
| Date: | 2014–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:qt90g2070h&r=mst |
| By: | Baruník, Jozef; Kukacka, Jiri |
| Abstract: | This paper develops a two-step estimation methodology that allows us to apply catastrophe theory to stock market returns with time-varying volatility and to model stock market crashes. In the first step, we utilize high-frequency data to estimate daily realized volatility from returns. Then, we use stochastic cusp catastrophe on data normalized by the estimated volatility in the second step to study possible discontinuities in the markets. We support our methodology through simulations in which we discuss the importance of stochastic noise and volatility in a deterministic cusp catastrophe model. The methodology is empirically tested on nearly 27 years of U.S. stock market returns covering several important recessions and crisis periods. While we find that the stock markets showed signs of bifurcation in the first half of the period, catastrophe theory was not able to confirm this behavior in the second half. Translating the results, we find that the U.S. stock market's downturns were more likely to be driven by the endogenous market forces during the first half of the studied period, while during the second half of the period, the exogenous forces seem to be driving the market's instability. The results suggest that the proposed methodology provides an important shift in the application of catastrophe theory to stock markets. |
| Keywords: | stochastic cusp catastrophe model,realized volatility,bifurcations,stock market crash |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:15&r=mst |