nep-mst New Economics Papers
on Market Microstructure
Issue of 2017‒09‒24
three papers chosen by
Thanos Verousis

  1. A new approach to the modeling of financial volumes By Guglielmo D'Amico; Filippo Petroni
  2. Market Dynamics. On A Muse Of Cash Flow And Liquidity Deficit By Vladislav Gennadievich Malyshkin
  3. Financialization in Commodity Markets By V.V. Chari; Lawrence Christiano

  1. By: Guglielmo D'Amico; Filippo Petroni
    Abstract: In this paper we study the high frequency dynamic of financial volumes of traded stocks by using a semi-Markov approach. More precisely we assume that the intraday logarithmic change of volume is described by a weighted-indexed semi-Markov chain model. Based on this assumptions we show that this model is able to reproduce several empirical facts about volume evolution like time series dependence, intra-daily periodicity and volume asymmetry. Results have been obtained from a real data application to high frequency data from the Italian stock market from first of January 2007 until end of December 2010.
    Date: 2017–09
  2. By: Vladislav Gennadievich Malyshkin
    Abstract: The first attempt to obtain market directional information from non--stationary solution of the dynamic equation[1] "future price tend to the value maximizing the number of shares traded per unit time" is presented. We demonstrate that price impact concept is poorly applicable to market dynamics and execution flow $I=dV/dt$ operator with an "impact from the future" term, providing information about not yet executed trades to be considered instead. An impact from the future on $I$ can be directly estimated from already executed trades, after that directional information on price can be obtained from experimentally observed fact that $I$ and $p$ operators to have the same eigenfunctions (exact result in dynamic impact approximation $p=p(I)$). The condition of "no information about the future" is found and directional predictions quality is discussed. This work make a substantial progress toward the solution of ultimate market dynamics problem: an evidence of existence (or a proof of non--existence) of an automated trading machine, consistently making positive P&L trading on a free market as an autonomous agent, i.e. to decide whether market dynamics equation exist. Software with a reference implementation of the theory is provided.
    Date: 2017–09
  3. By: V.V. Chari; Lawrence Christiano
    Abstract: The financialization view is that increased trading in commodity futures markets is associated with increases in the growth rate and volatility of commodity spot prices. This view gained credence because in the 2000s trading volume increased sharply and many commodity prices rose and became more volatile. Using a large panel dataset we constructed, which includes commodities with and without futures markets, we find no empirical link between increased futures market trading and changes in price behavior. Our data sheds light on the economic role of futures markets. The conventional view is that futures markets provide one-way insurance by allowing outsiders, traders with no direct interest in a commodity, to insure insiders, traders with a direct interest. The data are not consistent with the conventional view and we argue that they point to an alternative mutual insurance view, in which all participants insure each other. We formalize this view in a model and show that it is consistent with key features of the data.
    JEL: E02 G12 G21
    Date: 2017–09

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