nep-mst New Economics Papers
on Market Microstructure
Issue of 2016‒08‒21
three papers chosen by
Thanos Verousis

  1. General Semi-Markov Model for Limit Order Books: Theory, Implementation and Numerics By Anatoliy Swishchuk; Katharina Cera; Julia Schmidt; Tyler Hofmeister
  2. Trading Relationships in the OTC Market for Secured Claims : Evidence from Triparty Repos By Han, Song; Nikolaou, Kleopatra
  3. Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models By Schmitt, Noemi; Westerhoff, Frank

  1. By: Anatoliy Swishchuk; Katharina Cera; Julia Schmidt; Tyler Hofmeister
    Abstract: The paper considers a general semi-Markov model for Limit Order Books with two states, which incorporates price changes that are not fixed to one tick. Furthermore, we introduce an even more general case of the semi-Markov model for LimitOrder Books that incorporates an arbitrary number of states for the price changes. For both cases the justifications, diffusion limits, implementations and numerical results are presented for different Limit Order Book data: Apple, Amazon, Google, Microsoft, Intel on 2012/06/21 and Cisco, Facebook, Intel, Liberty Global, Liberty Interactive, Microsoft, Vodafone from 2014/11/03 to 2014/11/07.
    Date: 2016–08
  2. By: Han, Song; Nikolaou, Kleopatra
    Abstract: We use a new panel data set on intraday transactions of triparty repos (TPR) to study trading relationships in the over-the-counter market. We test the prediction that search frictions lead to relationship formation. We find that TPR trading parties form relationships with a broad number of counterparties but tend to focus their transaction volumes on only a small set of counterparties. We also find that having stable relationships and broader interactions across other funding markets positively shapes the relationships of investors with dealers in the TPR market. Finally, our results suggest that relationships affect the likelihood of a trade and terms of trade and help buffer demand and supply shocks to liquidity. Specifically, the Fed's Reverse Repurchase (RRP) exercise draws funds away from lenders in the TPR market, effectively generating a negative shock to the supply of funds for dealers. Meanwhile, Treasury auctions introduce a positive shock to the demand for funds by dealers. We find that in both cases, shocks are absorbed better by trade partners with stronger relationships.
    Keywords: Triparty repos ; OTC markets ; Trade relationships ; RRP exercise ; Treasury Auctions ; Search frictions
    JEL: G12 G24 E58
    Date: 2016–03
  3. By: Schmitt, Noemi; Westerhoff, Frank
    Abstract: We propose a novel agent-based financial market framework in which speculators usually follow their own individual technical and fundamental trading rules to determine their orders. However, there are also sunspot-initiated periods in which their trading behavior is correlated. We are able to convert our (very) simple large-scale agent-based model into a simple small-scale agent-based model and show that our framework is able to produce bubbles and crashes, excess volatility, fattailed return distributions, serially uncorrelated returns and volatility clustering. While lasting volatility outbursts occur if the mass of speculators switches to technical analysis, extreme price changes emerge if sunspots coordinate temporarily the behavior of speculators.
    Keywords: financial markets,stylized facts,agent-based models,technical and fundamental analysis,heterogeneity and coordination,sunspots and extreme events
    JEL: C63 D84 G15
    Date: 2016

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