nep-mst New Economics Papers
on Market Microstructure
Issue of 2017‒09‒17
two papers chosen by
Thanos Verousis
  1. Testing if the market microstructure noise is a function of the limit order book By Simon Clinet; Yoann Potiron
  2. Trading while sleepy? Circadian mismatch and excess volatility in a global experimental asset market By David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
  1. By: Simon Clinet; Yoann Potiron
    Abstract: In this paper, we build tests for the presence of error in a model where the market microstructure noise is a known parametric function of the limit order book. The tests compare two novel and distinct quasi-maximum likelihood estimators of volatility, where the related model includes an additive error in the market microstructure noise or not. The limit theory is investigated in a general nonparametric framework. When there is no error in the model, we provide a consistent estimator of the efficient price based on maximum likelihood estimation of the parameter. Furthermore, we show that realized volatility remains efficient when performed on the estimated price rather than on the efficient price.
    Date: 2017–09
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1709.02502&r=mst
  2. By: David L. Dickinson; Ananish Chaudhuri; Ryan Greenaway-McGrevy
    Abstract: Traders in global markets operate at different local times-of-day. Suboptimal times-of-day may produce sleepiness due to daily variations in sleep/wake patterns and possibly also increased accumulation of hours awake. Global asset markets imply significantly increased heterogeneity in circadian timing, and likely sleepiness, of trader decisions compared to localized markets. We examine these factors by administering single-location and global sessions of an online asset market experiment that regularly produces valuation bubble and crash events. Global sessions involved real time trades between subjects in two locations 16 time zones apart (i.e., “global” markets) and at varied local times of day across sessions. We find asset market bubbles occur in all sessions, but global markets had significantly more extreme and longer duration valuation bubbles. Additionally, subjects at the most suboptimal times-of-day held significantly more asset shares in their portfolios in late trading rounds compared to other subjects—a risky strategy with overvalued shares. Overall, our results highlight a unique but underappreciated factor present across traders in global market environments. They also point to the importance of a relatively common cognitive state (i.e., suboptimal time-of-day) in attempting to understand trader behavior and, ultimately, market outcomes. Key Words: Asset Markets, Experiments, Bubbles, Sleep, Circadian rhythm
    JEL: C92 G12 G15 D84
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:apl:wpaper:17-06&r=mst
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