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Essays On And Beyond Market Microstructure

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Essays On And Beyond Market Microstructure

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Author : Yenan Wang
language : en
Publisher:
Release Date : 2021

Essays On And Beyond Market Microstructure written by Yenan Wang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.

My dissertation consists of two parts. The first part examines standard microstructure topics from new perspectives. Chapter 2 investigates the market implications of high-frequency trading focusing on an ignored channel that existing market makers might reduce the capital exploited in market making facing the competition from high-frequency traders. I find that more high-frequency trading might not improve market quality exactly because of this channel. My model also generates several policy suggestions in improving the market quality with the presence of high-frequency trading. Chapter 3 studies the large traders' execution problem to understand whether electronic trading brings execution advantage. I find that although an increase in trading frequency improves their executions, losing the ability to adopt reputation-based trading strategies due to the prevalence of anonymous trading in this electronic trading era can be so costly that large traders become worse-off in execution. Chapter 4 considers an insider trading problem with uncertainty over the insider's existence. The competitive market making assumption is not consistent with this new element because the insider can achieve an unbounded payoff by taking advantage of the competition. Instead, I construct and analyze the equilibrium under the assumption of monopolistic market making. The model can explain the heterogeneous changes in liquidity of different stocks after a regulation.The second part of my dissertation study two elements outside the scope of current microstructure literature but (in my opinion) are important and should be incorporated to achieve a comprehensive understanding of financial markets. Chapter 5 studies an attention allocation problem under the context of contract and information design. The principal needs to jointly design compensation for the agent and his attention allocation in acquiring signals to motivate the agent to exert the unobservable effort. The flexibility to allocate attention can lead to perpetual cooperation between the principal and the agent. Chapter 6 studies belief updating when the state space contains elements that we are not aware of with an axiomatic approach. The agent can learn from what he is currently aware of and updates his belief when awareness is related to the state realization. In this case, besides leading to Bayesian updating, the arrival of a new signal can also expand the agent's awareness and trigger further updating. Its implication is discussed under the context of persuasion.

Essays In Market Microstructure

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Author : Michael Brolley
language : en
Publisher:
Release Date : 2015

Essays In Market Microstructure written by Michael Brolley and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

Essays In Market Microstructure

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Author :
language : en
Publisher:
Release Date : 2009

Essays In Market Microstructure written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.

The first essay investigates whether there is an informational linkage between option trading activities and underlying stock depths. I find that option trading activities and underlying stock depths are informative for predicting each other, indicating that a linkage does exist. I further find that underlying stock depths beyond best prices contain more information than same-side depths at best prices for predicting future option trading activities, which is corroborated by my additional finding that institutional investors are more likely to place underlying stock limit orders less aggressively than individual investors. My findings indicate that standing underlying stock limit orders play an important role in price discovery between options and underlying stock markets. The second essay empirically examines whether specialists face adverse selection and evaluates the performance of the six measures of adverse selection or trade informativeness. I find that specialists face adverse selection. I find that the Glosten-Harris (1988) measure is the most reliable, that the Huang-Stoll (1997) measure is the least reliable, and that the ranking among the George-Kaul-Nimalendran (1991), Lin-Sanger-Booth (1995), PIN (1996), and Hasbrouck (1991b) measures is ambiguous.

Essays On Behavioral Finance And Market Microstructure

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Author : Jie Lu
language : en
Publisher:
Release Date : 2009

Essays On Behavioral Finance And Market Microstructure written by Jie Lu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with Efficient market theory categories.

This dissertation is comprised of three essays that study behavioral finance and market microstructure. The first essay models a game of individual day traders' interactions in a stock trading chat room and empirically tests the model's conclusions. Trading behaviors are analyzed in an Internet chat room with free entry but secure identity, and traders' interactions are modeled as a dynamic game with informed traders, momentum traders, arbitragers and noise traders. Three empirical predictions are generated in the model's equilibrium. The unique data set consists of stock trading chat room posts of more than 1,000 individual semi-professional day traders and their interactions and transactions are investigated in a time series. All the three predictions from the model's equilibrium are affirmed by empirical tests. The second essay assesses the effects of the entire limit order book and analyzes the market impacts of the quotes in the Shanghai and Shenzhen Stock Exchange in China, where the stock market has a pure order-driven trading mechanism without market makers. Firstly, in the empirical modeling the limit order books, the structural vector autoregressive model of Hasbrouck (1991) is used and extended to incorporate more information beyond the inside quotes. Secondly, the market impact of stocks is also analyzed cross sectionally with market capitalization, tick frequency, turnover, average price, etc. Finally, the market impacts and order imbalance of small trades are distinguished. Small trades, usually linked with individual investors, have proportionally small market impact. Besides, the volume-weighted daily order imbalances of small trades and next-day's and contemporaneous daily returns are negatively related with each other. This is in accordance with the 'pain theory' of the individual traders. The third essay investigates microstructure characteristics of the Credit Default Swap (CDS) market. During the sample period, April 2006 -- March 2008, CDS are traded on the over-the-counter (OTC) market, through brokers' voice-based or electronic-based systems. The study analyzes CDS spread, trade-to-quote ratio, bid-ask spread, the frequency that the orders fall between the quotes, and the relationship between the order imbalance and the daily change of CDS spread.