nep-mst New Economics Papers
on Market Microstructure
Issue of 2022‒10‒31
three papers chosen by
Thanos Verousis

  1. Credible Decentralized Exchange Design via Verifiable Sequencing Rules By Matheus V. X. Ferreira; David C. Parkes
  2. Sentiment Analysis of ESG disclosures on Stock Market By Sudeep R. Bapat; Saumya Kothari; Rushil Bansal
  3. Silence is not Golden Anymore? Social media activity and stock market valuation in Europe By Christophe J. GODLEWSKI; Katarzyna BYRKA-KITA; Renata GOLA; Jacek CYPRYJANSKI

  1. By: Matheus V. X. Ferreira; David C. Parkes
    Abstract: Trading on decentralized exchanges has been one of the primary use cases for permissionless blockchains with daily trading volume exceeding billions of U.S.~dollars. In the status quo, users broadcast transactions and miners are responsible for composing a block of transactions and picking an execution ordering -- the order in which transactions execute in the exchange. Due to the lack of a regulatory framework, it is common to observe miners exploiting their privileged position by front-running transactions and obtaining risk-fee profits. In this work, we propose to modify the interaction between miners and users and initiate the study of {\em verifiable sequencing rules}. As in the status quo, miners can determine the content of a block; however, they commit to respecting a sequencing rule that constrains the execution ordering and is verifiable (there is a polynomial time algorithm that can verify if the execution ordering satisfies such constraints). Thus in the event a miner deviates from the sequencing rule, anyone can generate a proof of non-compliance. We ask if there are sequencing rules that limit price manipulation from miners in a two-token liquidity pool exchange. Our first result is an impossibility theorem: for any sequencing rule, there is an instance of user transactions where the miner can obtain non-zero risk-free profits. In light of this impossibility result, our main result is a verifiable sequencing rule that provides execution price guarantees for users. In particular, for any user transaction $A$, it ensures that either (1) the execution price of $A$ is at least as good as if $A$ was the only transaction in the block, or (2) the execution price of $A$ is worse than this ``standalone'' price and the miner does not gain (or lose) when including $A$ in the block.
    Date: 2022–09
  2. By: Sudeep R. Bapat; Saumya Kothari; Rushil Bansal
    Abstract: In this paper, we look at the impact of Environment, Social and Governance related news articles and social media data on the stock market performance. We pick four stocks of companies which are widely known in their domain to understand the complete effect of ESG as the newly opted investment style remains restricted to only the stocks with widespread information. We summarise live data of both twitter tweets and newspaper articles and create a sentiment index using a dictionary technique based on online information for the month of July, 2022. We look at the stock price data for all the four companies and calculate the percentage change in each of them. We also compare the overall sentiment of the company to its percentage change over a specific historical period.
    Date: 2022–10
  3. By: Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg); Katarzyna BYRKA-KITA (Institute of Economics and Finance, Uniwersytet Szczecinski); Renata GOLA (Institute of Economics and Finance, Uniwersytet Szczecinski); Jacek CYPRYJANSKI (Institute of Economics and Finance, Uniwersytet Szczecinski)
    Abstract: We investigate the link between social media activity and market valuation of listed European companies over the period January 2018 – June 2020. Using a large novel dataset from 39 European capital markets, we first provide a comprehensive “big picture” of social media activity of European listed companies, using data from all European capital markets. Second, we show that greater Twitter activity is associated with increased shareholders’ returns. Third, we find that portfolios with a larger number of tweets posted by a company exhibit larger market risks. Our findings support the idea that investors should consider social media activity when implementing investment strategies.
    Keywords: stock markets, valuation, CAPM, Twitter, social media, investor attention, information asymmetry, disclosure.
    Date: 2022

This nep-mst issue is ©2022 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.
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