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on Market Microstructure |
| By: | Lorenzo Dall’amico (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Antoine Fosset (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Jean-Philippe Bouchaud (SPEC - UMR3680 - Service de physique de l'état condensé - CEA - Commissariat à l'énergie atomique et aux énergies alternatives - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Michael Benzaquen (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Latent order book models have allowed for significant progress in our understanding of price formation in financial markets. In particular they are able to reproduce a number of stylized facts, such as the square-root impact law. An important question that is raised-if one is to bring such models closer to real market data-is that of the connection between the latent (unobservable) order book and the real (observable) order book. Here we suggest a simple, consistent mechanism for the revelation of latent liquidity that allows for quantitative estimation of the latent order book from real market data. We successfully confront our results to real order book data for over a hundred assets and discuss market stability. One of our key theoretical results is the existence of a market instability threshold, where the conversion of latent order becomes too slow, inducing liquidity crises. Finally we compute the price impact of a metaorder in di erent parameter regimes. |
| Keywords: | models of financial markets,market impact,market microstructure,quantitative finance,agent-based models |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02323373&r=all |
| By: | Anastasios Demertzidis (University of Kassel) |
| Abstract: | The focus of this paper lies in the study of the intraday distribution of the number of transactions and transaction volume (absolute and mean per transaction) in the interbank credit market e-MID in different market states around the events of the financial crisis of 2007. The results show that the distributions of the number and of the volume of transactions can be characterized as U-shaped and the distribution of the mean per transaction as three-peaked. However, there are important differences when it comes to the comparison of the different market states and the differentiation between sell and buy transactions. Moreover, this study detects stylized facts about the market regarding the number of trades and the volume during the day. Sell transactions are higher in each market state. This highlights the fact that this market is used widely to deposit excessive liquidity in all intervals during the day. Furthermore, differences within these variables during different market states can be observe, which highlights the importance of this analysis. This study can strengthen our understanding of the interbank credit market as it is important for policy makers and the daily trading strategies of banks. Additionally, implications can be seen as the basis for further empirical and econometric research. |
| Keywords: | Interbank credit market, e-MID, intraday frequency, financial crisis |
| JEL: | C46 G01 G12 G15 Y10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201932&r=all |
| By: | Fédéric Bucci; Michael Benzaquen (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Fabrizio Lillo; Jean-Philippe Bouchaud |
| Abstract: | Using a large database of 8 million institutional trades executed in the U.S. equity market, we establish a clear crossover between a linear market impact regime and a square-root regime as a function of the volume of the order. Our empirical results are remarkably well explained by a recently proposed dynamical theory of liquidity that makes specific predictions about the scaling function describing this crossover. Allowing at least two characteristic timescales for the liquidity ("fast" and "slow") enables one to reach quantitative agreement with the data. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02323405&r=all |
| By: | Frédéric Bucci; Iacopo Mastromatteo (SISSA / ISAS - Scuola Internazionale Superiore di Studi Avanzati / International School for Advanced Studies); Michael Benzaquen (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Jean-Philippe Bouchaud (SPEC - UMR3680 - Service de physique de l'état condensé - CEA - Commissariat à l'énergie atomique et aux énergies alternatives - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The notion of market impact is subtle and sometimes misinterpreted. Here we argue that impact should not be misconstrued as volatility. In particular, the so-called "square-root impact law", which states that impact grows as the square-root of traded volume, has nothing to do with price diffusion, i.e. that typical price changes grow as the square-root of time. We rationalise empirical findings on impact and volatility by introducing a simple scaling argument and confronting it to data. |
| Date: | 2019–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02323182&r=all |
| By: | Karolis Liaudinskas |
| Abstract: | Can humans achieve rationality, as defined by the expected utility theory, by automating their decision making? We use millisecond-stamped transaction-level data from the Copenhagen Stock Exchange to estimate the disposition effect – the tendency to sell winning but not losing stocks – among algorithmic and human professional day-traders. We find that: (1) the disposition effect is substantial among humans but virtually zero among algorithms; (2) this difference is not fully explained by rational explanations and is, at least partially, attributed to prospect theory, realization utility and beliefs in mean-reversion; (3) the disposition effect harms trading performance, which further deems such behavior irrational. |
| Keywords: | disposition effect, algorithmic trading, financial markets, rationality, automation |
| JEL: | D8 D91 G11 G12 G23 O3 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1133&r=all |