nep-mst New Economics Papers
on Market Microstructure
Issue of 2022‒11‒28
four papers chosen by
Thanos Verousis

  1. Cross impact in derivative markets By Mehdi Tomas; Iacopo Mastromatteo; Michael Benzaquen
  2. Links between government bond and futures markets: dealer-client relationships and price discovery in the UK By Di Gangi, Domenico; Lazarov, Vladimir; Mankodi, Aakash; Silvestri, Laura
  3. Gambling on Momentum By Marius Ötting; Christian Deutscher; Carl Singleton; Luca De Angelis
  4. Modelling the Bitcoin prices and the media attention to Bitcoin via the jump-type processes By Ekaterina Morozova; Vladimir Panov

  1. By: Mehdi Tomas; Iacopo Mastromatteo; Michael Benzaquen (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We introduce a linear cross-impact framework in a setting in which the price of some given financial instruments (derivatives) is a deterministic function of one or more, possibly tradeable, stochastic factors (underlying). We show that a particular cross-impact model, the multivariate Kyle model, prevents arbitrage and aggregates (potentially non-stationary) traded order flows on derivatives into (roughly stationary) liquidity pools aggregating order flows traded on both derivatives and underlying. Using E-Mini futures and options along with VIX futures, we provide empirical evidence that the price formation process from order flows on derivatives is driven by cross-impact and confirm that the simple Kyle cross-impact model is successful at capturing parsimoniously such empirical phenomenology. Our framework may be used in practice for estimating execution costs, in particular hedging costs.
    Date: 2022
  2. By: Di Gangi, Domenico (Institute of Information Science and Technologies, National Research Council of Italy); Lazarov, Vladimir (Bank of England); Mankodi, Aakash (Bank of England); Silvestri, Laura (Bank of England)
    Abstract: We use transaction-level data to study trading and clearing relationships between dealers (ie, Gilt-edged Market Makers and clearing members) and their clients, and price discovery in the UK gilt cash and futures markets in 2016. Using a network approach we analyse the distribution of trading and clearing relationships between dealers and clients, the concentration of the associated volumes and how these change over time. We find that volumes in each market are concentrated in a few key dealers, that clients tend to have relationships with a limited number of dealers and that such relationships and volumes were resilient during most of 2016, including around the EU referendum and subsequent policy announcements. We also assess the systemic risk that could be caused by the inability of those dealers operating across the two markets to perform their roles as clearing member and market maker, finding that there may be some scope for spillover effects from potential disruption in the cash market to the futures market through this channel. Finally, we find that order flows (that we proxy using net volume traded) of clients in the UK gilt futures market can affect cash prices, suggesting that the futures market plays a role in price discovery in the cash market.
    Keywords: Gilt cash and futures markets; price discovery; network analysis; financial stability; resilience
    JEL: G10 G20
    Date: 2022–07–15
  3. By: Marius Ötting (Deparment of Business Administration and Economics and Department of Sport Science, Bielefeld University); Christian Deutscher (Deparment of Business Administration and Economics and Department of Sport Science, Bielefeld University); Carl Singleton (Department of Economics, University of Reading); Luca De Angelis (Department of Economics, University of Bologna)
    Abstract: Sports betting markets are proven real-world laboratories to test theories of asset pricing anomalies and risky behaviour. Using a high-frequency dataset provided directly by a major bookmaker, containing the odds and amounts staked throughout German Bundesliga football matches, we test for evidence of momentum in the betting and pricing behaviour after equalising goals. We find that bettors see value in teams that have the apparent momentum, staking about 40\% more on them than teams that just conceded an equaliser. Still, there is no evidence that such perceived momentum matters on average for match outcomes or is associated with the bookmaker offering favourable odds. We also confirm that betting on the apparent momentum would lead to substantial losses for bettors.
    Keywords: Behavioural bias, Betting markets, Market efficiency, Momentum, Risk-taking
    JEL: G14 G41 L83 Z2
    Date: 2022–11–11
  4. By: Ekaterina Morozova; Vladimir Panov
    Abstract: In this paper, we present a new bivariate model for the joint description of the Bitcoin prices and the media attention to Bitcoin. Our model is based on the class of the L\'evy processes and is able to realistically reproduce the jump-type dynamics of the considered time series. We focus on the low-frequency setup, which is for the L\'evy - based models essentially more difficult than the high-frequency case. We design a semiparametric estimation procedure for the statistical inference on the parameters and the L\'evy measures of the considered processes. We show that the dynamics of the market attention can be effectively modelled by the L\'evy processes with finite L\'evy measures, and propose a data-driven procedure for the description of the Bitcoin prices.
    Date: 2022–10

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