nep-mst New Economics Papers
on Market Microstructure
Issue of 2021‒01‒18
five papers chosen by
Thanos Verousis

  1. Systemic Risk in Market Microstructure of Crude Oil and Gasoline Futures Prices: A Hawkes Flocking Model Approach By Hyun Jin Jang; Kiseop Lee; Kyungsub Lee
  2. Fragmentation in trader preferences among multiple markets: Market coexistence versus single market dominance By Robin Nicole; Aleksandra Alori\'c; Peter Sollich
  3. OTC discount By de Roure, Calebe; Mönch, Emanuel; Pelizzon, Loriana; Schneider, Michael
  4. Does it Matter where you Search? Twitter versus Traditional News Media By Costas Milas; Theodore Panagiotidis; Theologos Dergiades
  5. Ambiguity and investor behavior By Kostopoulos, Dimitrios; Meyer, Steffen; Uhr, Charline

  1. By: Hyun Jin Jang; Kiseop Lee; Kyungsub Lee
    Abstract: We propose the Hawkes flocking model that assesses systemic risk in high-frequency processes at the two perspectives -- endogeneity and interactivity. We examine the futures markets of WTI crude oil and gasoline for the past decade, and perform a comparative analysis with conditional value-at-risk as a benchmark measure. In terms of high-frequency structure, we derive the empirical findings. The endogenous systemic risk in WTI was significantly higher than that in gasoline, and the level at which gasoline affects WTI was constantly higher than in the opposite case. Moreover, although the relative influence's degree was asymmetric, its difference has gradually reduced.
    Date: 2020–12
  2. By: Robin Nicole; Aleksandra Alori\'c; Peter Sollich
    Abstract: Technological advancement has lead to an increase in number and type of trading venues and diversification of goods traded. These changes have re-emphasized the importance of understanding the effects of market competition: does proliferation of trading venues and increased competition lead to dominance of a single market or coexistence of multiple markets? In this paper, we address these questions in a stylized model of Zero Intelligence traders who make repeated decisions at which of three available markets to trade. We analyse the model numerically and analytically and find that parameters that govern traders' decisions -- memory length and intensity of choice, e.g. how strongly decisions are based on past success -- make the key distinctions between consolidated and fragmented steady states of the population of traders. All three markets coexist with equal shares of traders only when either learning is too weak and traders choose randomly, or when markets are identical. In the latter case, the population of traders is fragmented across the markets. For the more general case of markets with different biases, we note that market dominance is the more typical scenario. These results are interesting because previously either strong differentiation of markets or heterogeneity in the needs of traders was found to be a necessary condition for market coexistence. We show that, in contrast, these states can emerge simply as a consequence of co-adaptation of an initially homogeneous population of traders.
    Date: 2020–12
  3. By: de Roure, Calebe; Mönch, Emanuel; Pelizzon, Loriana; Schneider, Michael
    Abstract: We document a sizable OTC discount in the interdealer market for German sovereign bonds where exchange and over-the-counter trading coexist: the vast majority of OTC prices are favorable with respect to exchange quotes. This is a challenge for theories of OTC markets centered around search frictions but consistent with models of hybrid markets based on information frictions. We show empirically that proxies for both frictions determine variation in the discount, which is largely passed on to customers. Dealers trade on the exchange for immediacy and via brokers for opacity and anonymity, highlighting the complementary roles played by the different protocols.
    Keywords: Market Microstructure,Hybrid Markets,Venue Choice,Interdealer Brokerage,Fixed-Income,OTC Markets,Search Frictions,Information Frictions
    JEL: D4 D47 G1 G14 G24
    Date: 2020
  4. By: Costas Milas (University of Liverpool); Theodore Panagiotidis (University of Macedonia); Theologos Dergiades (Department of International and European Studies, University of Macedonia)
    Abstract: We compare news in Twitter with traditional news outlets and emphasize their differential impact on Eurozone’s sovereign bond market. We reveal a two-way information flow between Twitter’s Grexit tweets and Grexit mentions in traditional news which suggests not only that both types of news serve as important empirical predictors for the sovereign bond market but also that the old (traditional news) and the new (Twitter) media are connected; however, the influence of Twitter on traditional news is stronger. Grexit tweets raise the Greek spread more than Grexit mentions in traditional news. Weak contagion effects are recorded for Portugal and Ireland.
    Keywords: Grexit, Twitter, Traditional news outlets, Sovereign spreads.
    JEL: C10 G01 G12
    Date: 2021–02
  5. By: Kostopoulos, Dimitrios; Meyer, Steffen; Uhr, Charline
    Abstract: We relate time-varying aggregate ambiguity (V-VSTOXX) to individual investor trading. We use the trading records of more than 100,000 individual investors from a large German online brokerage from March 2010 to December 2015. We find that an increase in ambiguity is associated with increased investor activity. It also leads to a reduction in risk-taking which does not reverse over the following days. When ambiguity is high, the effect of sentiment looms larger. Survey evidence reveals that ambiguity averse investors are more prone to ambiguity shocks. Our results are robust to alternative survey-, newspaper- or market-based ambiguity measures.
    Keywords: ambiguity,uncertainty,individual investor,risk-taking,trading behavior
    JEL: D10 D81 D90 G11 G40
    Date: 2020

This nep-mst issue is ©2021 by Thanos Verousis. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.