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on Market Microstructure |
| By: | Guanlin Li; Xiyan Chen; Yingzheng Liu |
| Abstract: | Lead-lag relationships, integral to market dynamics, offer valuable insights into the trading behavior of high-frequency traders (HFTs) and the flow of information at a granular level. This paper investigates the lead-lag relationships between stock index futures contracts of different maturities in the Chinese financial futures market (CFFEX). Using high-frequency (tick-by-tick) data, we analyze how price movements in near-month futures contracts influence those in longer-dated contracts, such as next-month, quarterly, and semi-annual contracts. Our findings reveal a consistent pattern of price discovery, with the near-month contract leading the others by one tick, driven primarily by liquidity. Additionally, we identify a negative feedback effect of the "lead-lag spread" on the leading asset, which can predict returns of leading asset. Backtesting results demonstrate the profitability of trading based on the lead-lag spread signal, even after accounting for transaction costs. Altogether, our analysis offers valuable insights to understand and capitalize on the evolving dynamics of futures markets. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.03171 |
| By: | Emilio Barucci; Adrien Mathieu; Leandro S\'anchez-Betancourt |
| Abstract: | We characterise the solutions to a continuous-time optimal liquidity provision problem in a market populated by informed and uninformed traders. In our model, the asset price exhibits fads -- these are short-term deviations from the fundamental value of the asset. Conditional on the value of the fad, we model how informed traders and uninformed traders arrive in the market. The market maker knows of the two groups of traders but only observes the anonymous order arrivals. We study both, the complete information and the partial information versions of the control problem faced by the market maker. In such frameworks, we characterise the value of information, and we find the price of liquidity as a function of the proportion of informed traders in the market. Lastly, for the partial information setup, we explore how to go beyond the Kalman-Bucy filter to extract information about the fad from the market arrivals. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.03658 |
| By: | Smolinski, Pawel Robert; Januszewicz, Joseph; Winiarski, Jacek; Pawłowska, Barbara |
| Abstract: | This study introduces Market Importance-Performance Analysis (MIPA), a new comparative analysis approach that extends traditional Importance-Performance Analysis (IPA) to analyze multiple competing products simultaneously. We propose two standardized metrics—Market Standardized Performance (MSP) and Market Standardized Importance (MSI) scores—that compare products across attributes relative to market trends and heterogeneity. We also develop a novel visualization and interpretation framework leveraging MIPA matrices that enables intuitive understanding of product or service market positions and competitive advantages. We validate MIPA through a case study of the social media communication platforms market (N = 614), which reveals four distinct market positions: Performance Maximizers (e.g., Facebook Messenger), Default Market Products (e.g., Instagram), Successful Differentiators (e.g., Signal), and Underperformers (e.g., Twitter). The results demonstrate how MIPA effectively identifies competitive advantages, market positioning, and differentiation strategies. Our method maintains consistent interpretations across measurement scales and contexts while providing clear mathematical interpretations and intuitive visualizations through MIPA matrices and radar plots. We discuss limitations regarding the static nature of analysis and data collection methods, and propose future research directions incorporating digital data sources. |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:xa5mh |
| By: | Bian, Jiangze; Da, Zhi; He, Zhiguo; Lou, Dong; Shue, Kelly; Zhou, Hao |
| Abstract: | Using granular data covering both regulated (brokerage-financed) and unregulated (shadowfinanced) margin accounts in China, we provide novel evidence on retail investors’ margin trading behavior and its price implications. First, we show that retail investors’ decisions to lever up in stock trading despite the hefty borrowing cost is related to their lottery preferences. We then show that margin borrowing affects investors’ trading behavior: investors are more likely to liquidate their holdings as they inch closer to margin calls. Third, we show that margin-induced trading aggregates to affect asset prices and contributes to shock spillovers across stocks (for example, from lottery stocks to non-lottery stocks). |
| Keywords: | margin-induced trading; leverage; liquidation; contagion |
| JEL: | G11 G12 G14 |
| Date: | 2024–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126110 |