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on Market Microstructure |
| By: | Jaeho Kim (Sogang University); Scott C. Linn (University of Oklahoma); Sora Chon (Inha University) |
| Abstract: | We show that conclusions drawn from widely used measures of price discovery are highly sensitive to the presence of price outliers in the calculations. We demonstrate using simulation studies however that the long-run information share (LFS) measure of price discovery location proposed by Kim and Linn (2022), coupled with Bayesian estimation of a Vector Error Correction Model (VECM) allowing for outliers, provides the most robust and reliable metric for evaluating price discovery in the presence of outliers. A separate empirical analysis of the spot and futures prices of non-ferrous metals shows the pervasive presence of price outliers. Implementation of our proposed estimation of a VECM using Bayesian methods allowing for outliers and the subsequent calculation of LFS, provides strong evidence that both spot and futures markets for non-ferrous metals contribute significantly to the price discovery process when daily price data are employed. |
| Keywords: | Price discovery; Cointegration; Outliers; Robust estimation; Heavytailed distributions. |
| JEL: | C11 C32 C58 G14 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:inh:wpaper:2025-1 |
| By: | Xiaoyu Zhou (University of Nottingham); Lawrence Choo (University of Macau); Todd R. Kaplan (University of Haifa) |
| Abstract: | Markets have the ability to aggregate information even under difficult conditions. What is not known is whether fragmented markets can also achieve information aggregation when differently-informed traders do not participate in the same market. We experimentally test this by extending the Arrow-Debreu version of the Plott and Sunder (1988) framework to two separate markets, adding uninformed market intermediaries who can trade in both markets. We find that indeed markets are able to aggregate information, but more experience is necessary when there is less competition among the intermediaries. The rate of convergence does not differ systematically across treatments once traders gain sufficient experience. Convergence arises through intermediaries’ cross-market trading in competitive settings, whereas in less competitive settings it relies more on non-price signals. However, despite price convergence, intermediaries earn profits similar to those of informed traders in competitive markets and higher profits than informed traders in less competitive markets. |
| Keywords: | fragmented markets;cross-market trading |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:not:notcdx:2025-03 |
| By: | Anderson, Andrew E.; McKenzie, Andrew; Noyes, Emmie |
| Abstract: | An important role of the futures market is to synthesis information into price signals. The efficient market hypothesis predicts that information will be incorporated into the futures price instantly and there will be no opportunity for arbitrage. This study aims to test this immediacy assertion in agricultural commodity markets after the release of the World Agricultural Supply and Demand Estimates (WASDE) report. We leverage intra-day futures price data for corn and soybeans in an event study framework to estimate price reactions at progressively larger intervals from the report release time. We find significant and directionally appropriate price reactions 30 minutes after the report release time. Further, we find that the price reaction for soybeans continues to increase after 30 minutes. These results have implications for understanding market efficiency. This information may also be useful for traders to develop profitable strategies around report releases. |
| Keywords: | Agricultural and Food Policy, Demand and Price Analysis |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ags:nccc24:379003 |