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on Market Microstructure |
| By: | Lijian Wei (Finance Discipline Group, UTS Business School, University of Technology, Sydney); Wei Zhang (Tianjin University); Xiong Xiong (Tianjin University); Lei Shi (Finance Discipline Group, UTS Business School, University of Technology, Sydney) |
| Abstract: | The aim of this paper is to find the optimal level of position limit for the Chinese Stock Index (CSI) 300 futures market. A small position limit helps to prevent price manipulations in the spot market, thus able to keep the magnitude of instantaneous price changes within policy makers' tolerance range. However, setting the position limit too small may also have negative effects on market quality. We propose an articial limit order market with heterogeneous and interacting agents to examine the impact of different levels of position limit on market quality, which is measured by liquidity, return volatility, efficiency of information dissemination and trading welfare. The simulation model is based on realistic trading mechanism, investor structure and order submission behavior observed in the CSI 300 futures market. Our results show that based on the liquidity condition in September 2010, raising the position limit from 100 to 300 can signicantly improve market quality and at the same time keep maximum absolute price change per 5 seconds under the 2% tolerance level. However, the improvement becomes only marginal when further increasing the position limit beyond 300. Therefore, we believe that raising the position limit a moderate level can enhance the functionality of the CSI 300 futures market, which benets the development of the Chinese nancial system. |
| Keywords: | position limit; stock index futures; agent-based modeling; market quality |
| JEL: | G14 C63 D44 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:uts:rpaper:349&r=mst |
| By: | Heumesser, Christine; Staritz, Cornelia |
| Abstract: | The financialisation of commodity derivative markets, reflected in the increased presence of financial investors, and its effects on commodity prices and the fundamental roles of these markets, i.e. price discovery and price risk management for commercial traders, have been controversially discussed. This working paper provides an analysis of the microstructure of commodity derivative markets with a focus on the commodities coffee, cotton, wheat and aluminium. Two questions are in the center: firstly, how, in the context of financialisation, have the composition of traders and their trading strategies changed, and, secondly, how have the increasing presence and trading strategies of financial investors affected commercial traders, price discovery and hedging. The analysis builds on interviews with different types of market participants and relevant stakeholders. The paper finds that the increasing and often dominating role of financial investors has changed the microstructure of commodity derivative markets in terms of trading volumes and open interest positions, market participants, investment products and strategies, speed and complexity. The common classification of traders put forward by the US Commodity Trading Futures Commission seems to abstract too much from the reality in commodity markets given the multiple and interrelated roles of traders.Financial investors may have multiple roles, which include physical trading, and large commercial traders such as multinational trading houses typically pursue hedging and speculative trading strategies. Though financial investors are widely believed to increase the likelihood of excessive short term price fluctuations and commercial traders take into account their presence and strategies in their own trading behavior, they impact commercial traders in different ways. Large commercial traders seem not to be concerned about their increasing role or even perceive their presence as advantageous. But smaller commercial traders that do not have the resources and capacity to interact actively with derivative markets seem to find it more difficult to use markets for hedging given the increased complexity, speed and short-terminism and related higher risks and costs. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:oefsew:44&r=mst |
| By: | Yan Dolinsky; Yuri Kifer |
| Abstract: | We study partial hedging for game options in markets with transaction costs bounded from below. More precisely, we assume that the investor's transaction costs for each trade are the minimum between proportional transaction costs and a fixed transaction costs. We prove that in the continuous time Black--Scholes (BS) model, there exists a trading strategy which minimizes the shortfall risk. Furthermore, the trading strategy is given by a dynamical programming algorithm. |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1408.3774&r=mst |
| By: | Song, Zhaogang (Board of Governors of the Federal Reserve System (U.S.)); Zhu, Haoxiang (MIT Sloan School of Management) |
| Abstract: | The Federal Reserve (Fed) uses a unique auction mechanism to purchase U.S. Treasury securities in implementing its quantitative easing (QE) policy. In this paper, we study the outcomes of QE auctions and participating dealers' bidding behaviors from November 2010 to September 2011, during which the Fed purchased $780 billion Treasury securities. Our data include the transaction prices and quantities of each traded bond in each auction, as well as dealers' identities. We find that: (1) In QE auctions the Fed tends to exclude bonds that are liquid and on special, but among included bonds, purchase volumes gravitate toward more liquid bonds; (2) The auction costs are low on average: the Fed pays around 0.7 cents per $100 par value above the secondary market ask price on auction dates; (3) The heterogeneity of Fed's costs across bonds relates to their liquidity and specialness, suggesting that dealers respond to both valuation and information uncertainties; (4) Dealers exhibit strong heterogeneity in their participation, trading volumes, and profits in QE auctions; (5) Auction bidding variables forecast bond returns only one day after the auction, suggesting that dealers have price-relevant information but the information decays quickly. |
| Keywords: | Auction; quantitative easing; Federal Reserve; treasury bond; specialness |
| JEL: | G12 G13 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-48&r=mst |
| By: | Martin Hoesli; Anjeza Kadilli; Kustrim Reka |
| Abstract: | We conduct an empirical investigation of the pricing and economic sources of commonality in liquidity in the U.S. REIT market. Taking advantage of the specific characteristics of REITs, we analyze three types of commonality in liquidity: within-asset commonality, cross-asset commonality (with the stock market), and commonality with the underlying property market. We find evidence that the three types of commonality in liquidity are priced in REIT returns but only during bad market conditions. We also find that using a linear approach, rather than a conditional, would have underestimated the role of commonality in liquidity risk. This explains (at least partly) the small impact of commonality on asset prices documented in the extant literature. Finally, our analysis of the determinants of commonality in liquidity favors a demand-side explanation. |
| Keywords: | Real Estate Securities; REITs; Commonality in Liquidity; Liquidity Risk; Asset Pricing; Threshold Regression; Panel Data |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:gen:geneem:14051a&r=mst |