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on Market Microstructure |
| By: | Jacopo Staccioli (Scuola Superiore Sant'Anna, Pisa, Italy); Mauro Napoletano (OFCE, Sciences Po, Paris, France) |
| Abstract: | We build an agent based model of a financial market that is able to jointly reproduce many of the stylized facts at different time-scales. These include properties related to returns (leptokurtosis, absence of linear autocorrelation, volatility clustering), trading volumes (volume clustering, correlation betwenn volume and volatility), and timing of trades (number of price changes, autocorrelation of durations between subsequent trades, heavy tails in their distribution, order-side clustering). With respect to previous contributions we introduce a strict event scheduling borrowed from the Euronext exchange, and an endogenous rule for traders participation. We show that such a rule is crucial to match stylized facts. |
| Keywords: | Intra-day financial dynmaics, stylized facts, agent-based artificial stock markets, Market microstructure |
| JEL: | C63 E12 E22 E32 O4 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1834&r=all |
| By: | David O. Lucca (Federal Reserve Bank); Or Shachar |
| Abstract: | Stock market circuit breakers halt trading activity on a single stock or an entire exchange if a sudden large price move occurs. Their purpose is to forestall cascading trading activity caused by gaps in liquidity or order errors. Whether circuit breakers achieve this goal is contentious. This post adds to the debate by analyzing intraday price formation on the Tokyo Stock Exchange (TSE) on May 23, 2013?the pinnacle of this past year?s volatility in Japanese stock markets. While no circuit breakers were triggered on the TSE, we focus on trading conditions before and after the daily lunch break, which halted trading amid heightened market volatility on that day. The data seem to indicate that the break did not stem price volatility; rather, its anticipation may have worsened trading conditions. |
| Keywords: | equity markets; financial markets; Nikkei index; stock market liquidity; stock market volatility; stock-market circuit breakers |
| JEL: | G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86937&r=all |
| By: | Marc van Kralingen; Diego Garlaschelli; Karolina Scholtus; Iman van Lelyveld |
| Abstract: | Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree of trading overlap among any two investors in that stock. We investigate the effect of crowded trades on stock price stability and show that market clustering has a causal effect on the properties of the tails of the stock return distribution, particularly the positive tail, even after controlling for commonly considered risk drivers. Reduced investor pool diversity could thus negatively affect stock price stability. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.03319&r=all |
| By: | Arne Lokka; Junwei Xu |
| Abstract: | In a general one-sided limit order book where the unaffected price process follows a Levy process, we consider the problem for an investor with constant absolute risk aversion to optimally liquidate a given large position of shares. Since liquidation normally takes place within a short period of time, modelling the risk as a Levy process should provide a realistic model with good statistical fit to observed market data, thus providing a realistic reflection of the investors market risk. We can reduce the optimisation problem to a deterministic two-dimensional singular problem, to which we are able to derive an explicit solution in terms of the model data. In particular we find an expression for the optimal intervention boundary, which completely characterise the optimal liquidation strategy. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.03379&r=all |
| By: | Frank M. Keane; Ernst Schaumburg; Michael J. Fleming |
| Abstract: | The recent Joint Staff Report on October 15, 2014, exploring an episode of unprecedented volatility in the U.S. Treasury market, revealed that primary dealers no longer account for most trading volume on the interdealer brokerage (IDB) platforms. This shift is noteworthy because dealers contribute to long-term liquidity provision via their willingness to hold positions across days. However, a large share of Treasury security trading occurs elsewhere, in the dealer-to-customer (DtC) market. In this post, we show that primary dealers maintain a majority share of secondary market trading volume when DtC trading is taken into account. We also use survey data on large dealers to characterize activity in the DtC market and discuss some of the gaps in the available Treasury trading volume data. |
| Keywords: | Treasury; Trading volume; Dealer |
| JEL: | G1 G2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87100&r=all |