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on Market Microstructure |
| By: | Raphael Flepp (Department of Business Administration, University of Zurich); Stephan Nüesch (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich) |
| Abstract: | This paper examines how liquidity affects market efficiency in a market environ- ment where securities’ fundamental values are revealed at a predetermined point in time. We employ differences in minimum tick sizes at the betting exchange Betfair which induce exogenous variation in liquidity. The results show that liquidity signif- icantly decreases market efficiency for bets on weekend matches but not for bets on weekday matches. As uninformed noise bettors are more likely to bet on weekends than on weekdays, the type of liquidity seems to matter for market efficiency. |
| Keywords: | Liquidity, Market Efficiency, Noise Trading, Betting Market |
| JEL: | G12 G14 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:zrh:wpaper:341&r=mst |
| By: | Yusaku Nishimura (Institute of International Economy, University of International Business and Economics); Yoshiro Tsutsui (Graduate School of Economics, Osaka University); Kenjiro Hirayama (School of Economics, Kwansei Gakuin University) |
| Abstract: | We analyze the mechanism of return and volatility spillover effects from the Chinese to the Japanese stock market. We construct a stock price index comprised of those companies that have substantial operations in China. This China-related index responds to changes in the Shanghai Composite Index more strongly than does the TOPIX (the market index of the Tokyo Stock Exchange). This result suggests that China has a large impact on Japanese stocks via China-related firms in Japan. Furthermore, we find evidence that this response has become stronger as the Chinese economy has gained importance in recent years. |
| Keywords: | return and volatility spillover; China related stock index; high-frequency data; intraday periodicity; long memory |
| JEL: | G10 G14 G15 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1401&r=mst |
| By: | Olivier Damette (BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université de Strasbourg - Université Nancy II); Stéphane Goutte (LED - Laboratoire d'Economie Dionysien - Université Paris VIII - Vincennes Saint-Denis : EA3391) |
| Abstract: | This article extends the previous literature on the Tobin tax and financial transaction tax. We investigate the linkages between trading volumes and transaction costs using both a linear and a nonlinear methodology. In stark contrast with previous studies, we consider the possibility that our model may exhibit threshold effects or regime dependency by estimating a Markov Switching (MS) model. This paper is the first contribution to specify the trading volume of the Forex through different (low and high volatility) regimes. Our empirical investigation looks at the EUR/USD currency market. Our results show evidence of nonlinear patterns for trading volumes and transaction costs on the Forex. The Tobin tax would not have a monotonic impact on trading activity across market conditions. However, the change in elasticity between low and high volatility regimes is slight (-0.17 versus -0.21). We may suggest that the low-variance regime might be the fundamentalist regime and the high- variance regime (lower Tobin tax elasticity) might be the chartist regime. This study is a first step towards understanding which categories of agents dominate the market under the various market regimes and how they would react to the introduction of a tax. This means our results are consistent with Tobin's underlying thinking (1974, 1978, 1996). Since a tax would penalize chartists more than fundamentalists, it could reduce exchange rate volatility. |
| Keywords: | Tobin tax, trading volume, Forex, transaction costs, global financial crisis, Markov switching. |
| Date: | 2014–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00926805&r=mst |
| By: | Worapree Maneesoonthorn; Catherine S. Forbes; Gael M. Martin |
| Abstract: | This paper investigates the dynamic behaviour of jumps in financial prices and volatility. The proposed model is based on a standard jump diffusion process for price and volatility augmented by a bivariate Hawkes process for the two jump components. The latter process specifies a joint dynamic structure for the price and volatility jump intensities, with the intensity of a volatility jump also directly affected by a jump in the price. The impact of certain aspects of the model on the higher-order conditional moments for returns is investigated. In particular, the differential effects of the jump intensities and the random process for latent volatility itself, are measured and documented. A state space representation of the model is constructed using both financial returns and non-parametric measures of integrated volatility and price jumps as the observable quantities. Bayesian inference, based on a Markov chain Monte Carlo algorithm, is used to obtain a posterior distribution for the relevant model parameters and latent variables, and to analyze various hypotheses about the dynamics in, and the relationship between, the jump intensities. An extensive empirical investigation using data based on the S&P500 market index over a period ending in early-2013 is conducted. Substantial empirical support for dynamic jump intensities is documented, with predictive accuracy enhanced by the inclusion of this type of specification. In addition, movements in the intensity parameter for volatility jumps are found to track key market events closely over this period. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1401.3911&r=mst |
| By: | Alexeev, Vitali (School of Economics and Finance, University of Tasmania); Dungey, Mardi (School of Economics and Finance, University of Tasmania) |
| Abstract: | Investors wishing to achieve a particular level of diversification may be misled on how many stocks to hold in a portfolio by assessing the portfolio risk at different data frequencies. High frequency intradaily data provide better estimates of volatility, which translate to more accurate assessment of portfolio risk. Using 5-minute, daily and weekly data on S&P500 constituents for the period from 2003 to 2011 we ?nd that for an average investor wishing to diversify away 85% (90%) of the risk, equally weighted portfolios of 7 (10) stocks will suffice, irrespective of the data frequency used or the time period considered. However, to assure investors of a desired level of diversification 90% of the time, instead of on average, using low frequency data results in an exaggerated number of stocks in a portfolio when compared with the recommendation based on 5-minute data. This difference is magnified during periods when financial markets are in distress, as much as doubling during the 2007-2009 financial crisis |
| Keywords: | Portfolio diversification, high frequency, realized variance, realized correlation |
| JEL: | G11 C63 |
| Date: | 2013–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:17316&r=mst |
| By: | Raphael Flepp (Department of Business Administration, University of Zurich); Stephan Nüesch (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich) |
| Abstract: | This paper investigates the puzzling coexistence of the quote-driven market struc- ture characterized by traditional bookmakers and the order-driven market structure characterized by betting exchanges in the betting industry. Even though betting exchanges are considered as the superior business model due to less operational risk and lower information costs, bookmakers continue to be successful. We show that liquidity, which is only guaranteed at the bookmaker market, significantly improves the bookmakers’ price competitiveness. Using matched panel data of both book- maker and betting exchange odds for 17,682 soccer matches played worldwide, we find that a major bookmaker offers more favorable odds than a major betting ex- change in the early pre-play betting period and less favorable odds shortly before match start. |
| Keywords: | Market Structure, Market Performance, Liquidity, Betting Market |
| JEL: | D40 L10 L83 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:zrh:wpaper:342&r=mst |
| By: | Jan Hanousek; Evžen Kočenda; Jan Novotný |
| Abstract: | We analyze the dynamics of price jumps and the impact of the European debt crisis using the high-frequency data reported by selected stock exchanges on the European continent during the period January 2008 to June 2012. We employ two methods to identify price jumps: Method 1 minimizes the probability of false jump detection (the Type-II Error-Optimal price jump indicator) and Method 2 maximizes the probability of successful jump detection (the Type-I Error-Optimal price jump indicator). We show that individual stock markets exhibited differences in price jump intensity before and during the crisis. We also show that in general the variance of price jump intensity could not be distinguished as different in the pre-crisis period from that during the crisis. Our results indicate that, contrary to common belief, the intensity of price jumps does not uniformly increase during a period of financial distress. However, there do exist differences in price jump dynamics across stock markets and investors have to model emerging and mature markets differently to properly reflect their individual dynamics. |
| Keywords: | European stock markets, price jump indicators, non-parametric testing, clustering analysis, financial econometrics, emerging markets. |
| JEL: | C14 C58 F37 G15 G17 |
| Date: | 2013–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2013-1059&r=mst |
| By: | Baule, Rainer; Korn, Olaf; Saßning, Sven |
| Abstract: | Option-implied betas are a promising alternative to historical beta estimators, because they are inherently forward-looking and can incorporate new information immediately and fully. Recently, different implied beta estimators have been developed in previous literature, but very little is known about their properties and information content. This paper presents a first systematic comparison between six different implied beta estimators, which provides some guidance for applications and identifies directions for further improvements. The main results of the empirical study reveal that betas derived from implied variances are better predictors of realized betas than betas obtained from implied skewness, and that cross-sectional information from all stocks in the market improves beta estimation significantly. We also find that option-implied betas generally have a higher information content in periods of relatively high trading activity in options markets. -- |
| Keywords: | beta,option-implied information |
| JEL: | G11 G12 G13 G14 G17 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1311&r=mst |