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on Market Microstructure |
| By: | Grimstvedt Meling, Tom (University of Bergen, Department of Economics) |
| Abstract: | I assess the causal impact of increasing the tick size on stock liquidity and trading volume in illiquid stocks. Using a regression discontinuity design at the Oslo Stock Exchange, I find that increasing the tick size has no impact on the transaction costs,order book depths, or trading volumes of illiquid stocks. These findings contradict recent theoretical predictions in the market microstructure literature as well as proposals by lawmakers in the United States to increase the tick size for illiquid stocks. |
| Keywords: | Equity Trading; Limit Order Markets; Tick Sizes |
| JEL: | G10 G20 |
| Date: | 2017–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2017_006&r=mst |
| By: | Grimstvedt Meling, Tom (University of Bergen, Department of Economics); Ødegård, Bernt Arne (University of Stavanger) |
| Abstract: | We show that competitive stock exchanges undercut other exchanges’ tick sizes to gain market share, and that this tick size competition increases investors’ trading costs. Our empirical analysis is focused on an event in 2009 where three stock exchanges, Chi-X, Turquoise, BATS Europe, reduced their tick sizes for stocks with an Oslo Stock Exchange (OSE) primary listing. We find that the tick size-reducing exchanges captured market shares from the large-tick OSE. Trading costs at the OSE increased while trading costs in the competing exchanges remained unchanged. High frequency trading appears to be the main driver behind the market share and trading cost results. Our findings suggest that unregulated stock markets can produce tick sizes that are excessively small. |
| Keywords: | Equity Trading; Limit Order Markets; Tick Sizes; High Frequency Trading |
| JEL: | G10 G20 |
| Date: | 2017–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2017_005&r=mst |
| By: | Grimstvedt Meling, Tom (University of Bergen, Department of Economics) |
| Abstract: | I explore a reform at the Oslo Stock Exchange to assess the causal effect of trader anonymity on liquidity and trading volume. Using a regression discontinuity approach, I find that anonymity leads to a reduction in bid-ask spreads by 40% and an increase in trading volume by more than 50%. The increase in trading volume is mostly accounted for by an increase in trading activity by institutional investors. These results are consistent with theoretical frameworks where informed traders supply and improve liquidity in anonymous markets. |
| Keywords: | Equity Trading; Limit Order Markets; Anonymous trading |
| JEL: | G10 G20 |
| Date: | 2017–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2017_007&r=mst |
| By: | Panayi, Efstathios; Peters, Gareth W.; Danielsson, Jon; Zigrandd, Jean-Pierre |
| Abstract: | Financial exchanges provide incentives for limit order book (LOB) liquidity provision to certain market participants, termed designated market makers or designated sponsors. While quoting requirements typically enforce the activity of these participants for a certain portion of the day, an argument that liquidity demand throughout the trading day is far from uniformly distributed is made, and thus this liquidity provision may not be calibrated to the demand. Furthermore, it is propose that quoting obligations also include requirements about the speed of liquidity replenishment, and then a recommendation that use of the Threshold Exceedance Duration (TED) for this purpose be considered. To support this argument a comprehensive regression modelling approach using GLM and GAMLSS models to relate the TED to the state of the LOB and identify the regression structures that are best suited to modelling the TED is presented. Such an approach can be used by exchanges to set target levels of liquidity replenishment for designated market makers. |
| Keywords: | Limit order bookLiquidityResilienceGLMGAMLSS |
| JEL: | F3 G3 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90424&r=mst |
| By: | Andreas Karpf (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Stefano Battiston (CAMS - Centre d'analyse et de mathématique sociale - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper presents an analysis of the European Emission Trading System as a transaction network. It is shown that, given the lack of well-identified trading institutions, industrial actors had to resort to local connections and financial intermediaries to participate in the market. This gave rise to a hierarchical structure in the transaction network. It is then shown that the asymmetries in the network induced market inefficiencies (e.g., increased bid-ask spread) and informational asymmetries, that have been exploited by central agents at the expense of less central ones. Albeit the efficiency of the market has improved from the beginning of Phase II, the asymmetry persists, imposing unnecessary additional costs on agents and reducing the effectiveness of the market as a mitigation instrument. |
| Keywords: | Network,Carbon market,Climate change,Microstructure |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01905985&r=mst |
| By: | Yui Mukoyama (Bank of Japan); Naoya Kikuta (Bank of Japan); Kazuaki Washimi (Bank of Japan) |
| Abstract: | Japanese retail investors in foreign exchange margin trading have long been known to be contrarian and are expected to reduce price fluctuations to a certain degree. In contrast, a recent survey among these investors suggests that 70 percent of them adopt a trend-following strategy. Given that these trend followers are expected to both buy and sell in a very short time frame, this report examines the investment patterns of retail investors by investment time horizon using high-frequency transaction data. The result confirms a contrarian pattern for trading where positions are held overnight or longer. However, a trend-following pattern can be observed for trading within a day depending on the market situation (while a contrarian pattern is observed as a whole), which implies that trading within a day does not necessarily reduce intraday fluctuations. |
| Date: | 2018–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev18e03&r=mst |
| By: | Hai-Chuan Xu; Wei-Xing Zhou |
| Abstract: | Price changes are induced by aggressive market orders in stock market. We introduce a bivariate marked Hawkes process to model aggressive market order arrivals at the microstructural level. The order arrival intensity is marked by an exogenous part and two endogenous processes reflecting the self-excitation and cross-excitation respectively. We calibrate the model for an SSE stock. We find that the exponential kernel with a smooth cut-off (i.e. the subtraction of two exponentials) produces much better calibration than the monotonous exponential kernel (i.e. the sum of two exponentials). The exogenous baseline intensity explains the $U$-shaped intraday pattern. Our empirical results show that the endogenous submission clustering is mainly caused by self-excitation rather than cross-excitation. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.08076&r=mst |