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on Market Microstructure |
| By: | Alexander Aue (Department of Statistics - University of California, Davis-Livermore); Lajos Horváth (Mathematics department - University of Utah); Clifford Hurvich (IOMS - Information, Operations and Management Science - New York University); Philippe Soulier (MODAL'X - Modélisation aléatoire de Paris X - Université Paris X - Paris Ouest Nanterre La Défense) |
| Abstract: | We consider pure-jump transaction-level models for asset prices in continuous time, driven by point processes. In a bivariate model that admits cointegration, we allow for time deformations to account for such effects as intraday seasonal patterns in volatility, and non-trading periods that may be different for the two assets. We also allow for asymmetries (leverage effects). We obtain the asymptotic distribution of the log-price process. We also obtain the asymptotic distribution of the ordinary least-squares estimator of the cointegrating parameter based on data sampled from an equally-spaced discretization of calendar time, in the case of weak fractional cointegration. For this same case, we obtain the asymptotic distribution for a tapered estimator under more |
| Keywords: | Point processes; fractional cointegration; |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00583372&r=mst |
| By: | Hynek Lavicka; Tomas Lichard; Jan Novotny |
| Abstract: | The recent crisis revived interest in financial transaction taxes (FTTs) as a means to offset negative risk externalities. However, up-to-date academic research does not provide sufficient insights into the effects of transaction taxes on financial markets as the literature has here-to-fore been focused too narrowly on Gaussian variance as a measure of volatility. In this paper, we argue that it is imperative to understand the relationship between price jumps, Gaussian variance, and FTTs. While Gaussian variance is not necessarily a problem in itself, the non-normality of return distribution caused by price jumps affects not only the performance of many risk-hedging algorithms but directly influences the frequency of catastrophic market events. To study the aforementioned relationship, we use an agent-based model of financial markets. Its results show that FTTs may increase the variance while decreasing the impact of price jumps. This result implies that regulators may face a trade-off between overall variance and price jumps when designing optimal tax. However, the results are not robust to the size of the artificial market as non-linearities emerge when the size of the market is increased. |
| Keywords: | price jumps; financial transaction taxes; agent-based modeling; Monte Carlo; volatility; |
| JEL: | C15 C16 C61 G17 G18 H23 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp511&r=mst |
| By: | Andrea Attar (Toulouse School of Economics); Thomas Mariotti (Toulouse School of Economics); François Salanié (Toulouse School of Economics) |
| Abstract: | Many financial markets rely on a discriminatory limit-order book to balance supply and demand. We study these markets in a static model in which uninformed market makers compete in nonlinear tariffs to trade with an informed insider, as in Glosten (1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze the case where tariffs are unconstrained and the case where tariffs are restricted to be convex. In both cases, we show that pure-strategy equilibrium tariffs must be linear and, moreover, that such equilibria only exist under exceptional circumstances. These results stand in stark contrast with those obtained so far in the literature, reflecting different assumptions about the richness of the insider's information. |
| Keywords: | Adverse Selection, Competing Mechanisms, Limit-Order Book |
| JEL: | D43 D82 D86 |
| Date: | 2014–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:314&r=mst |