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on Market Microstructure |
| By: | Ole E. Barndorff-Nielsen; Silja Kinnebrock; Neil Shephard |
| Abstract: | We propose a new measure of risk, based entirely on downwards moves measured using high frequency data. Realised semivariances are shown to have important predictive qualities for future market volatility. The theory of these new measures is spelt out, drawing on some new results from probability theory. |
| Keywords: | Market frictions; Quadratic variation; Realised variance; Semimartingale; Semivariance |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:sbs:wpsefe:2008fe01&r=mst |
| By: | Wölfle, Marco |
| Abstract: | This study provides empirical evidence verifying the theory of price discovery for Eastern European enterprises based on their cross-listing on Western European exchanges. Despite the fact that the crosslisting behavior of companies has been analyzed very actively since the mid-70s, many competing hypotheses exist, and the debate is far from reaching an end. Cumulative average residuals (CARs) document increased information efficiency after the listing in Frankfurt or London. This result is supported by a stylized microstructure model. To be precise, competition for order flow alleviates informational frictions and reduces dealers’ market power. These properties, however, are unevenly distributed among the auction system Frankfurt and the market maker system London. GARCH volatility spillovers strongly support these results and quantify a dominant role for home markets in information discovery. Moreover, they provide information on the relative functions of Frankfurt and London. |
| Keywords: | Cross-Listing, Cumulative Average Residuals, Eastern Europe, Information Discovery, Time Series |
| JEL: | C32 D53 F36 G14 G15 G30 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:6887&r=mst |
| By: | Cespa, Giovanni (Queen Mary University of London); Vives, Xavier (IESE Business School) |
| Abstract: | We investigate the dynamic of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We look at the bias of prices as estimators of fundamental value in relation to traders' average expectations and note that prices are more (less) biased than average expectations if and only if traders over- (under-) rely on public information with respect to optimal statistical weights. We find that prices are biased in relation to average expectations whenever traders speculate on short-run price movements. In a market with long traders, over-reliance on public information obtains if noise trader increments are correlated enough and/or there is low enough residual uncertainty in the payoff. This defines a "Keynesian" region; the complementary region is "Hayekian" in that prices are less biased than average expectations in the estimation of fundamental value. The standard case of no residual uncertainty and noise trading following a random walk is on the frontier of the two regions. With short-term traders there typically are two equilibria, with the stable (unstable) one displaying over (under-) reliance on public information. |
| Keywords: | Price bias; long and short-term trading; multiple equilibria; average expectations; higher order beliefs; over-reliance on public information; |
| JEL: | G10 G12 G14 |
| Date: | 2007–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:iesewp:d-0716&r=mst |
| By: | Özer Karagedikli; Pierre L. Siklos (Reserve Bank of New Zealand) |
| Abstract: | We conduct a high frequency event analysis to estimate the effects of monetary policy surprises, data surprises, and central bank verbal statements on the New Zealand-US dollar and the New Zealand-Australian dollar exchange rates. We find data surprises and monetary policy surprises have significant and large effects on exchange rate movements. More importantly, RBNZ interest rate decisions have a largely permanent impact on the exchange rate. Significantly, the impact of the published interest rate track seems to explain some 10 per cent additional variation in the exchange rate. |
| JEL: | E43 E44 E52 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2008/02&r=mst |
| By: | Saran Rene (METEOR) |
| Abstract: | We introduce trustworthy traders in bilateral trading. Trustworthy traders do not misrepresent their private information. We prove that an increase in the levels of trust (probabilities that traders are trustworthy) can reduce the maximum attainable probability of trade among the strategic traders in the set of k-double auctions. In contrast, if the levels of trust increase, then we can construct direct mechanisms with a higher probability of trade among the strategic traders. In fact, there exist ex-post efficient direct mechanisms if the levels of trust are high but k-double auctions are inefficient for all levels of trust. We prove that k-double auctions are constraint-inefficient for generic levels of trust when players have uniform priors. |
| Keywords: | microeconomics ; |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2007049&r=mst |
| By: | J. Isaac Miller (Department of Economics, University of Missouri-Columbia) |
| Abstract: | We consider a cointegrating regression in which the integrated regressors are messy in the sense that they contain data that may be mismeasured, missing, observed at mixed frequencies, or have other irregularities that cause the econo- metrician to observe them with possibly nonstationary noise. We motivate the notion of messy data with a nontechnical example using linear interpolation. Even with such a straightforward DGP, we show that the resulting noise is mildly nonstationary. We adopt a unified theoretical approach to avoid strict distributional assumptions and to allow for such nonstationarity. Least squares estimation of the cointegrating vector is consistent under general conditions, even though the estimator is neither asymptotically normal nor unbiased. In order to allow valid statistical inference, we construct a canonical cointegrating regression (CCR) using standard consistent nonparametric variance estimators, and we show that least squares estimation of the CCR provides consistent and asymptotically normal estimation even with nonstationary disturbances. We briefly examine large- and small-sample properties of the estimator when linear interpolation is the specific driver behind the messiness. |
| Keywords: | cointegration, canonical cointegrating regression, messy data, miss- ing data, mixed-frequency data, nonclassical measurement error, interpolation, near-epoch dependence |
| JEL: | C13 C14 C32 |
| Date: | 2007–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:0722&r=mst |