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on Market Microstructure |
| By: | Worapree Maneesoonthorn; Gael M Martin; Catherine S Forbes |
| Abstract: | This paper provides an extensive evaluation of high frequency jump tests and measures, in the context of using such tests and measures in the estimation of dynamic models for asset price jumps. Specifically, we investigate: i) the power of alternative tests to detect individual price jumps, most notably in the presence of volatility jumps; ii) the frequency with which sequences of dynamic jumps are correctly identified; iii) the accuracy with which the magnitude and sign of a sequence of jumps, including small clusters of consecutive jumps, are estimated; and iv) the robustness of inference about dynamic jumps to test and measure design. Substantial differences are discerned in the performance of alternative methods in certain dimensions, with inference being sensitive to these differences in some cases. Accounting for measurement error when using measures constructed from high frequency data to conduct inference on dynamic jump models is also shown to have an impact. The sensitivity of inference to test and measurement construction is documented using both artificially generated data and empirical data on both the S&P500 stock index and the IBM stock price. The paper concludes by providing guidelines for empirical researchers who wish to exploit high frequency data when drawing conclusions regarding dynamic jump processes. |
| Keywords: | price jump tests, nonparametric jump measures, Hawkes process, discretized jump diffusion model, volatility jumps, Bayesian Markov chain Monte Carlo |
| JEL: | C12 C22 C58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2018-17&r=mst |
| By: | Sylvain Carr\'e (EPFL); Pierre Collin-Dufresne (EPFL); Franck Gabriel |
| Abstract: | We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the demand of the insider and the price functions are in general non-linear and remain analytically tractable because the expected price function is linear. We use this result to investigate the trade off between price efficiency and 'fairness': we consider a regulator that wants to minimise post-trade standard deviation for a given level of uninformed traders' losses. The minimisation is over the function space of penalties; for each possible penalty, our existence and uniqueness theorem allows to define unambiguously the post-trade standard deviation and the uninformed traders' losses that prevail in equilibrium.Optimal penalties are characterized in closed-form. They must increase quickly with the magnitude of the insider's order for small orders and become flat for large orders: in cases where the fundamental realizes at very high or very low values, the insider finds it optimal to trade despite the high penalty. Although such trades-if they occur-are costly for liquidity traders, they signal extreme events and therefore incorporate a lot of information into prices. We generalize this result in two directions by imposing a budget constraint on the regulator and considering the cases of either non-pecuniary or pecuniary penalties. In the first case, we establish that optimal penalties are a subset of the previously optimal penalties: the patterns of equilibrium trade volumes and prices is unchanged. In the second case, we also fully characterize the constrained efficient points and penalties and show that new patterns emerge in the demand schedules of the insider trader and the associated price functions. |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1809.07545&r=mst |
| By: | Chichaibelu, Bezawit Beyene; Garbero, Alessandra |
| Keywords: | Risk and Uncertainty, Food and Agricultural Policy Analysis, Rural/Community Development |
| Date: | 2018–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea18:274460&r=mst |
| By: | José María Liberti; Mitchell A. Petersen |
| Abstract: | Information is a fundamental component of all financial transactions and markets, but it can arrive in multiple forms. We define what is meant by hard and soft information and describe the relative advantages of each. Hard information is quantitative, easy to store and transmit in impersonal ways, and its information content is independent of its collection. As technology changes the way we collect, process, and communicate information, it changes the structure of markets, design of financial intermediaries, and the incentives to use or misuse information. We survey the literature to understand how these concepts influence the continued evolution of financial markets and institutions. |
| JEL: | G2 G21 G3 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25075&r=mst |
| By: | Lee, Jaeram; Lee, Geul; Ryu, Doojin |
| Abstract: | This study examines the difference in the intraday return-volume relationships of spot and index futures. Quantile regression analyses show that the widening effect of the stock trading volume on the distribution of spot returns disappears within a short period of time, whereas that of the futures trading volume remains over the long term. The short-term effect of the stock volume and the long-term effect of the futures volume are both consistent for contemporaneous trading volumes. Furthermore, the futures volume has a significantly positive effect on the option-implied volatility, whereas the stock volume is only associated with the implied volatility of at-the-money options, which can be traded quickly. In contrast, the implied volatility of out-of-the-money options, which are highly speculative, is strongly related to the futures volume. The findings suggest that the stock volume is mainly induced by hedging demand or disagreements of opinion, whereas the futures volume contains information about price movements. |
| Keywords: | information channel,intraday information content,KOSPI 200 futures,option-implied volatility,return-volume relationship,quantile regression |
| JEL: | C22 G12 G14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201868&r=mst |