nep-mst New Economics Papers
on Market Microstructure
Issue of 2016‒02‒17
four papers chosen by
Thanos Verousis

  1. Stock liquidity in forefront of anticipated announcements By Gelman, Sergey; Lushchikov, Roman
  2. Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? By Adaemmer, Philipp; Bohl, Martin T.; Christian, Groß
  3. Revenues and Welfare in Auctions with Information Release By Szech, Nora; Schweizer, Nikolaus
  4. Who trades on momentum? By Baltzer, Markus; Jank, Stephan; Smajlbegovic, Esad

  1. By: Gelman, Sergey; Lushchikov, Roman
    Abstract: The paper studies the effects of anticipated earnings announcements on liquidity before the earnings announcement day, utilizing full limit order book data. We find very convincing supportive evidence of deteriorating liquidity due to the increase in information asymmetry, which is in line with existing literature. We contribute to the literature showing that supply and demand elasticities, and hence overall market depth, are much stronger adversely affected, as best bid and best ask quotes would suggest.
    JEL: G14 G12 G30
    Date: 2015
  2. By: Adaemmer, Philipp; Bohl, Martin T.; Christian, Groß
    Abstract: We investigate the price dynamics of two illiquid agricultural futures contracts traded at the European Exchange in Frankfurt. Based on constant and time-varying vector error correction models, we measure the contribution of each futures market to price discovery. Although results from the constant model indicate a dominant role of both futures markets, time-varying parameters reveal strong fluctuations in the price discovery process of the less liquid futures market. By comparing the empirical results, we conclude that the trading volume threshold which is necessary to facilitate efficient price discovery is very low. Our findings also show that neglecting time-variation in the parameters can lead to misleading results, especially for thinly traded markets.
    JEL: G12 G13 Q11
    Date: 2015
  3. By: Szech, Nora; Schweizer, Nikolaus
    Abstract: Auctions are the allocation-mechanisms of choice whenever goods and information in a market are scarce. Therefore, understanding how information in these markets affects welfare and revenues is of fundamental interest. We introduce new mathematical concepts, k- and k-m-dispersion, for understanding the impact of information. With these tools, we study the comparative statics of welfare versus revenues for markets with one or more objects and varying numbers of bidders. Depending on which parts of a distribution of valuations are most affected by release of information, welfare may react more strongly than revenues, or vice versa.
    JEL: D44 D82
    Date: 2015
  4. By: Baltzer, Markus; Jank, Stephan; Smajlbegovic, Esad
    Abstract: Using a unique data set that contains the complete ownership structure of the German stock market, we study the momentum and contrarian trading of different investor groups. Foreign investors and financial institutions, and especially mutual funds, are momentum traders, whereas private households are contrarians. Contrarian trading by private households declines with investors' financial sophistication though, as proxied by financial wealth and equity home bias. Observing momentum trading over time, we document substantial increase in sales of loser stocks by foreign and institutional investors during the market downturn of the Great Recession and just before the crash of the momentum strategy in 2009. Finally, our evidence indicates that excessive sales of loser stocks pushed prices below their fundamental value, predicting the relative overperformance of past losers and the reversal of the momentum strategy.
    JEL: G10 G14 G23
    Date: 2015

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