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on Market Microstructure |
| By: | Jurkatis, Simon (Bank of England); Schrimpf, Andreas (BIS and CEPR); Todorov, Karamfil (BIS); Vause, Nicholas (Bank of England) |
| Abstract: | We find that clients with stronger past trading relationships with a dealer receive consistently better prices in corporate bond trading. The top 1% of relationship clients enjoy transaction costs that are 51% lower than those of the median client – an effect which was particularly beneficial when transaction costs spiked during the Covid-19 turmoil. We find clients’ liquidity provision to be a key motive why dealers grant relationship discounts: clients to whom balance-sheet constrained dealers can turn as a source of liquidity are rewarded with relationship discounts. Another important motive for dealers to give discounts to relationship clients is because these clients generate the bulk of dealers’ profits. Finally, we find no evidence that extraction of information from clients’ order flow is related to relationship discounts. |
| Keywords: | : Corporate bonds; Covid-19; dealers; over-the-counter markets; trading relationships |
| JEL: | G12 G14 G23 G24 |
| Date: | 2023–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1049&r=mst |
| By: | Karol Szafranek; Michał Rubaszek; Gazi Salah Uddin |
| Abstract: | We quantify intraday volatility connectedness between oil and key financial assets and assess how it is related to uncertainty and sentiment measures. For that purpose, we integrate the well-known spillover methodology with a TVP VAR model estimated on a unique, vast dataset of roughly 300 thousand 5 minute quotations for crude oil, the US dollar, S&P 500 index, gold and US treasury prices. This distinguishes our investigation from previous studies, which usually employ relatively short samples of daily or weekly data and focus on connectedness between two asset classes. We contribute to the literature across three margins. First, we document that market connectedness at intraday frequency presents new picture on markets co-movement compared to the estimates obtained using daily data. Second, we show that at 5 minute frequency volatility is mostly transmitted from the stock market and absorbed by the bond and dollar markets, with oil and gold markets being occasionally important for volatility transmission. Third, we present evidence that daily averages of intraday connectedness measures respond to changes in sentiment and market-specific uncertainty. Interestingly, our results contrast with earlier findings, as they show that connectedness among markets decreases in periods of high volatility owing to market-specific factors. Our study points to the importance of using high-frequency data in order to better understand market dynamics. |
| Keywords: | volatility connectedness, uncertainty and sentiment, oil market, intraday data, TVP-VAR model |
| JEL: | C32 C58 D80 Q31 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2023095&r=mst |
| By: | Mitra, Manipushpak (Economic Research Unit, Indian Statistical Institute); Ray, Indrajit (Cardiff Business School, Cardiff University); Roy, Souvik (Applied Statistics Unit, Indian Statistical Institute) |
| Abstract: | For a strategic market game (as introduced by Shapley and Shubik), following Dubey and Rogawski (1990), we provide a full explicit characterisation of the set of trading equilibria (in which all goods are traded at a positive price), for both the “buy and sell†and the “buy or sell†versions of this model under standard assumptions on the utility functions. We interpret and illustrate our equilibrium-characterising conditions; we also provide simple examples of trading equilibria, including those of non-interior strategy profiles (in which at least one trader is using the whole endowment in at least one good or money). |
| Keywords: | strategic market game ; trading equilibrium ; interior profile ; buy and sell ; buy or sell JEL codes: C72 ; D44 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:83&r=mst |
| By: | Vladimir Skavysh; Jacob Sharples; Sofia Priazhkina; Salman H. Hasham |
| Abstract: | Centralized trading platforms, or exchanges, are playing an increasingly important role in expanding the global crypto ecosystem. In contrast with their counterparts in traditional financial markets, these exchanges are vertically integrated and solely responsible for the execution, clearing and settlement of transactions. Moreover, exchanges often act as the custodian of users’ assets, which exacerbates the risk borne by its users. In this note, we provide an introduction to the functions that cryptoasset exchanges typically perform and contrast their design with infrastructure used in traditional financial markets. We also discuss several emerging trends in regulation and financial innovation that help address the problems cryptoasset exchanges face. |
| Keywords: | Digital currencies and fintech; Payment clearing and settlement systems |
| JEL: | G15 L1 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:24-2&r=mst |
| By: | Bohan Ma; Yiheng Wang; Yuchao Lu; Tianzixuan Hu; Jinling Xu; Patrick Houlihan |
| Abstract: | Amidst ongoing market recalibration and increasing investor optimism, the U.S. stock market is experiencing a resurgence, prompting the need for sophisticated tools to protect and grow portfolios. Addressing this, we introduce "Stockformer, " a cutting-edge deep learning framework optimized for swing trading, featuring the TopKDropout method for enhanced stock selection. By integrating STL decomposition and self-attention networks, Stockformer utilizes the S&P 500's complex data to refine stock return predictions. Our methodology entailed segmenting data for training and validation (January 2021 to January 2023) and testing (February to June 2023). During testing, Stockformer's predictions outperformed ten industry models, achieving superior precision in key predictive accuracy indicators (MAE, RMSE, MAPE), with a remarkable accuracy rate of 62.39% in detecting market trends. In our backtests, Stockformer's swing trading strategy yielded a cumulative return of 13.19% and an annualized return of 30.80%, significantly surpassing current state-of-the-art models. Stockformer has emerged as a beacon of innovation in these volatile times, offering investors a potent tool for market forecasting. To advance the field and foster community collaboration, we have open-sourced Stockformer, available at https://github.com/Eric991005/Stockforme r. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.06139&r=mst |
| By: | Dimos Andronoudis (no affiliation - no affiliation); Diogenis Baboukardos (Audencia Business School); Fanis Tsoligkas (University of Bath [Bath]) |
| Abstract: | According to its advocates, integrated reporting (IR) aims to enhance firms' information environment by placing financial reporting into a much broader perspective in which interrelated non‐financial information of firms' activities are taken into consideration. We examine whether this intended outcome of IR embeds into the stock pricing process using a sample of South African listed firms that mandatorily adopted IR in 2011. Unlike previous studies that explore market valuation implications of IR, we examine the channel through which the IR‐related information flows into firm value. Specifically, we quantify the effects of revisions of expectation about future cash flows (prompted by financial reporting information), revisions of expectation about discount rates (prompted by non‐financial reporting information) and their interconnectedness. We hypothesize and empirically show that the adoption of an IR approach prompted greater market revisions of expectations about future discount rates and a stronger interconnectedness between market revisions of expectations about future cash flows and discount rates. Thus, the change in the stock pricing process after the adoption of IR is determined by non‐financial reporting information and its strong interconnectedness with financial reporting information. We also show that our results are stronger for firms with greater earnings opacity, suggesting that investors find IR more useful when firms' financial reporting is opaque. Results indicate to researchers, practitioners and regulators that IR enhances the firm‐level information environment by providing informative non‐financial reporting which is also well integrated with financial reporting. |
| Keywords: | Integrated Reporting, Discount Rate News, Pricing Process, South Africa |
| Date: | 2024–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04389552&r=mst |