nep-mst New Economics Papers
on Market Microstructure
Issue of 2016‒06‒04
seven papers chosen by
Thanos Verousis

  1. Relevance of uncertainty on the volatility and trading volume in the US Treasury bond futures market By Laakkonen, Helinä
  2. Intraday Market Effects in Electronic Soybean Futures Market during Non-Trading and Trading Hour Announcements By Joseph, Kishore; Garcia, Philip
  3. Simple Nonparametric Estimators for the Bid-Ask Spread in the Roll Model By Xiaohong Chen; Oliver Linton; Stefan Schneeberger
  4. Informed trading in business groups, ownership concentration, and market liquidity By Leano,Miguel; Pedraza Morales,Alvaro Enrique
  5. Estimating the Location of World Wheat Price Determination By Janzen, Joseph P.; Adjemian, Michael K.
  6. Price Discovery and Price Transparency in the U.S. Cheese Industry By Bolotova, Yuliya V.
  7. Estimating relative price impact: The case of Brent and WTI By Ye, Shiyu; Karali, Berna

  1. By: Laakkonen, Helinä
    Abstract: This paper studies the impact of uncertainty on the investors' reactions to news on macroeconomic statistics. With daily data on realized volatility and trading volume, we show that the investors in the US Treasury bond futures market react significantly stronger to US macroeconomic news in times of low macroeconomic, financial and political uncertainty. We also find that investors are more sensitive to the uncertainty in the financial market compared to the macroeconomic and political uncertainties. Our results might partly explain the sudden freeze and low liquidity in some financial markets during the latest financial crisis.
    Keywords: ambiguity, uncertainty, volatility, trading volume, bond market, macroeconomic announcements
    JEL: G12 G14 C22
    Date: 2015–03–02
  2. By: Joseph, Kishore; Garcia, Philip
    Abstract: This paper investigates market reactions to major USDA announcements during trading and non-trading hours in the soybean futures market. The findings indicate that report releases during non-trading hours cause a large spike in volatility at the onset of trading which subsides quickly. In contrast, releases during trading hours result in a smaller volatility spike which extends for five to six minutes at a higher magnitude. Adjusting volatility by normal trading volatility indicates that trading hour volatility is higher in both immediate response and persistence. Return correlations provide little evidence to support systematic under- or overreaction in prices regardless of when the report is released, reflecting the efficiency of the market.
    Keywords: USDA report effects, Intraday volatility, Price discovery, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Crop Production/Industries, Demand and Price Analysis, Marketing, G13, Q11, Q13,
    Date: 2016–05–25
  3. By: Xiaohong Chen; Oliver Linton; Stefan Schneeberger
    Abstract: We propose new methods for estimating the bid-ask spread from observed transaction prices alone. Our methods are based on the empirical characteristic function instead of the sample autocovariance function like the method of Roll (1984). As in Roll (1984), we have a closed form expression for the spread, but this is only based on a limited amount of the model-implied identification restrictions. We also provide methods that take account of more identification information. We compare our methods theoretically and numerically with the Roll method as well as with its best known competitor, the Hasbrouck (2004) method, which uses a Bayesian Gibbs methodology under a Gaussian assumption. Our estimators are competitive with Roll’s and Hasbrouck’s when the latent true fundamental return distribution is Gaussian, and perform much better when this distribution is far from Gaussian. Our methods are applied to the E-mini futures contract on the S&P 500 during the Flash Crash of May 6, 2010. Extensions to models allowing for unbalanced order flow or Hidden Markov trade direction indicators or trade direction indicators having general asymmetric support or adverse selection are also presented, without requiring additional data.
    Date: 2016–03–18
  4. By: Leano,Miguel; Pedraza Morales,Alvaro Enrique
    Abstract: Business groups, which are collections of publicly traded companies with significant amount of common ownership, dominate private sector activity in developing countries. This paper studies how information flows within these groups by analyzing the trading behavior of pension fund managers in firms that belong to the same group. The paper shows that while pension fund managers are momentum traders on non-affiliated companies, they trade in anticipation of future abnormal returns in affiliated firms. Ownership concentration and business group ties exacerbate information asymmetries, discouraging investment and depressing stock market participation. Using the merger and acquisition activity among pension fund managers as a natural experiment, the paper provides evidence that increases in stock ownership concentration, via the threat of informed trading, adversely affect liquidity. The results indicate that cross-ownership structures and extensive investor-industry relations might curb the expected benefits from the presence of institutional investors, limiting market development.
    Keywords: Corporate Law,Debt Markets,Economic Theory&Research,Emerging Markets,Investment and Investment Climate
    Date: 2016–05–31
  5. By: Janzen, Joseph P.; Adjemian, Michael K.
    Abstract: The United States may be losing its leading role in the world wheat market. Rising trading volume in foreign futures markets and shifting shares of world trade are suggested as evidence of this shift, but neither necessitates that futures markets in the United States are any less important for wheat price discovery. This paper uses the Hasbrouck (1995) Information Shares method to estimate the proportion of price discovery occurring in wheat futures markets in Chicago and Paris. Our preliminary results suggest that both markets are important for price discovery, but the Chicago market still leads. The proportion of wheat price discovery in each market remained relative stable over the period 2007-2013.
    Keywords: Agricultural Finance, Demand and Price Analysis, Q11,
    Date: 2016
  6. By: Bolotova, Yuliya V.
    Abstract: The private Exchange spot cheese market has historically performed a primary price-discovery function in the U.S. cheese industry. Since 1997 the spot cheese trade takes place at the Chicago Mercantile Exchange (CME). The Exchange spot cheese prices have been used as reference prices in cheese contracts used to transact the vast majority of cheese produced in the country. Furthermore, the Exchange spot cheese prices have been influencing prices paid for milk used in cheese manufacturing within the system of Federal Milk Marketing Orders (FMMOs). The objective of this research is to analyze the conduct and performance of the Exchange spot cheese market during three FMMOs milk pricing regimes (1983-2015). First, the patterns of trading activities (actual sales, unfilled bids and uncovered offers) and the behavior of spot cheddar cheese prices are analyzed. Second, to evaluate the role of the Exchange spot cheese market in the entire U.S. cheese industry, the performance of the natural cheddar cheese industry segment is evaluated by analyzing changes in milk price, wholesale cheddar cheese price, retail price of natural cheddar cheese and associated margins over time.
    Keywords: cheese pricing, Chicago Mercantile Exchange, spot cheese market, milk pricing, public pricing system, thin market., Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Industrial Organization, Marketing, L1, L2, L5, L6, Q11, Q13, Q18.,
    Date: 2016–05
  7. By: Ye, Shiyu; Karali, Berna
    Keywords: Demand and Price Analysis,
    Date: 2016–05–25

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