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on Market Microstructure |
| By: | Torben G. Andersen (Kellogg School of Management, Northwestern University and CREATES); Viktor Todorov (Kellogg School of Management, Northwestern University) |
| Abstract: | This paper reviews basic notions of return variation in the context of a continuous-time arbitrage-free asset pricing model and discusses some of their applications. We first define return variation in the infeasible continuous-sampling case. Then we introduce realized measures obtained from high-frequency observations which provide consistent and asymp- totically normal estimates of the underlying return variation. The paper discusses applications of these measures for reduced-form volatility mod- eling and forecasting as well as testing for the presence of jumps. |
| Keywords: | realized volatility, multipower variation, jumps, quadratic variation, volatility estimation, volatility forecasting, jump testing, continuous-time stochastic volatility model. |
| JEL: | C22 C51 C52 G12 |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2009-49&r=mst |
| By: | Fabrice Rousseau (Economics, National University of Ireland, Maynooth); Laurent Germain (Toulouse Business School, France); Fabrice Rousseau (Economics, National University of Ireland, Maynooth); Anne Vanhems (Toulouse Business School, France) |
| Abstract: | We analyze a model where irrational and rational traders exchange a risky asset with competitive market makers. Irrational traders misperceive the mean of prior information (optimistic/pessimistic bias), the variance of prior information (better/lower than average effect)and the variance of the noise in their private signal (overconfidence/underconfidence bias). When market makers are rational we obtain results identical to Kyle and Wang (1997). However if market makers are irrational, we obtain that moderately underconfident traders can outperform rational ones and that irrational market makers can fare better than rational ones. Lastly we find that extreme level of confidence implies high trading volume. |
| Keywords: | Irrationality |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n1870108.pdf&r=mst |
| By: | Xiao-Hui Ni (ECUST); Zhi-Qiang Jiang (ECUST); Gao-Feng Gu (ECUST); Fei Ren (ECUST); Wei Chen (SZSE); Wei-Xing Zhou (ECUST) |
| Abstract: | The order submission and cancelation processes are two crucial aspects in the price formation of stocks traded in order-driven markets. We investigate the dynamics of order cancelation by studying the statistical properties of inter-cancelation durations defined as the waiting times between consecutive order cancelations of 22 liquid stocks traded on the Shenzhen Stock Exchange of China in year 2003. Three types of cancelations are considered including cancelation of any limit orders, of buy limit orders and of sell limit orders. We find that the distributions of the inter-cancelation durations of individual stocks can be well modeled by Weibulls for each type of cancelation and the distributions of rescaled durations of each type of cancelations exhibit a scaling behavior for different stocks. Complex intraday patterns are also unveiled in the inter-cancelation durations. The detrended fluctuation analysis (DFA) and the multifractal DFA show that the inter-cancelation durations possess long-term memory and multifractal nature, which are not influenced by the intraday patterns. No clear crossover phenomenon is observed in the detrended fluctuation functions with respect to the time scale. These findings indicate that the cancelation of limit orders is a non-Poisson process, which has potential worth in the construction of order-driven market models. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:0911.0057&r=mst |
| By: | Paola Paiardini (School of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | In this paper we investigate the presence of asymmetric information in the parallel trading of ten-year government fixed rate bonds (BTP) on two secondary electronic platforms: the business-to-business (B2B) MTS platform and the business-to-customer (B2C) BondVision one. The two platforms are typified by a different degree of transparency. We investigate whether the probability to encounter an informed trader on the less transparent market is higher than the corresponding probability on the more transparent one. Our results show that on BondVision, that is the less transparent platform, the probability of encountering an informed trader is higher. Finally we perform a series of tests to check the robustness of our estimates. Two tests do not meet the hypothesis of independence. Nevertheless, these findings do not controvert the hypothesis of our model, but call for further analysis. |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0908&r=mst |
| By: | Kenjiro Hirayama (Kwansei Gakuin University); Yoshiro Tsutsui (Graduate School of Economics, Osaka University) |
| Abstract: | Intraday minute-by-minute data from the Tokyo, Shanghai, and Shenzhen stock exchanges from January 7, 2008, to January 23, 2009, are analyzed to investigate the interaction between the Japanese and Chinese stock markets. We focus on two windows of time during which all three stock exchanges trade shares simultaneously, and specify appropriate lags in vector autoregression (VAR) estimations. Granger causality tests, variance decompositions, and impulse response functions show that, while Tokyo is impacted by Chinese stock price movements, China is relatively isolated. This implies that investors in Japan are more internationally oriented and alert to foreign markets than those in China. |
| Keywords: | international linkage of stock prices, high frequency data, inefficiency, overreaction, China |
| JEL: | G14 G15 F36 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0935&r=mst |