Price Formation and Liquidity Provision in Short-Term Fixed Income Markets 1

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Price Formation and Liquidity Provision in Short-Term Fixed Income Markets 1"

Transcription

1 Price Formaion and Liquidiy Provision in Shor-Term Fixed Income Markes 1 Chris D Souza 2 Financial Markes Deparmen Bank of Canada Ingrid Lo Financial Markes Deparmen Bank of Canada Sephan Sapp Ivey School of Business Universiy of Wesern Onario April 2, 26 Absrac This paper examines price and liquidiy dynamics in shor-erm European and Canadian governmen securiies markes. The informaion conen of rades, relaive limi orders deph and s are examined. Order flow and relaive order book alances are comparaively informaive for European securiies lised on he dominan elecronic inerdealer rading plaform in Europe. In Canada, s are highly informaive. In general, informaion is usually fully incorporaed ino prices over a couple of hours. Lasly, we find ha prices do no adjus insananeously o heir fundamenal value in response o macro news innovaions. Raher, here is an induced effec hrough rades, orders and s. JEL Classificaion Numbers: G12, G14, G15 Keywords: Price discovery, liquidiy, governmen securiies markes, order flow, limi-orders 1 The views expressed in his paper are hose of he auhors, and no responsibiliy for hem should be aribued o he Bank of Canada. We wish o acknowledge he excellen research assisance of Jessica Liang. All remaining errors are our own. 2 Correspondence: Chris D Souza, 234 Wellingon Sree, Oawa, ON, Canada, K1A G9.

2 1. Inroducion Efficien and liquid governmen securiies markes are ofen viewed as imporan o a counry s economic well-being because hey perform a number of key roles. For example, given heir virually defaul-free naure, governmen securiies are used as benchmarks for he pricing and hedging of oher fixed-income securiies. In he shorerm ineres rae secor, liquid governmen markes allow financial marke paricipans o cos-effecively build posiions based on heir views of he expeced fuure pah of overnigh ineres raes. Moneary policy makers, concerned abou disorderly markes, can deermine if fuure ineres rae-seing decisions will surprise financial markes. Individual marke paricipans can examine he differences beween heir own forecas regarding he direcion and magniude of fuure rae changes and he overall marke s forecas. Only if shor-erm ineres rae markes are efficien, can accurae measures of marke expecaions be calculaed. 3 Governmen securiies markes, even hose ouside he U.S. Treasury marke, are usually hough o be highly liquid and efficien. This assumpion is esed wih new rade and quoe daa. In his paper, we examine how informaion is incorporaed ino European and Canadian governmen bond prices, how prices and liquidiy are joinly deermined, and he process by which news is incorporaed ino prices. I is imporan o accoun for he srucure and organizaion of a financial marke when invesigaing how prices and liquidiy evolve over ime. Albanesi and Rindi (2) find ha liquidiy and he process of price discovery improved once he posing of limi-orders became anonymous on he Mercao Telemaico dei Tioli de Sao (MTS) plaform---he dominan elecronic plaform for inerdealer rading of governmen securiies in Europe. Recenly, wih he inroducion of he euro in 1999, a liquidiy pac was adoped by 3 Johnson (23) describes how simple expecaions-based models can be uilized o exrac expecaions. Usually, securiies wih mauriies less wo years are employed in his exercise. 2

3 dealers and issuers of securiies lised on MTS. Marke makers of designaed securiies mus coninuously pos buy and sell limi-orders wihin a maximum bid-ask, for a minimum quoe amoun on boh sides of he marke, for a leas 5 hours each day. According o advocaes of he liquidiy pac, he accord should increases liquidiy in governmen securiies markes and hereby reduces he coss o governmens of funding heir deb. In Canada, a large proporion of governmen securiies rading ake place via inerdealer brokers (IDBs). While here are no quoing obligaions in Canada, dealers in he marke, usually represening financial insiuions, commi hemselves o rade coninuously in he marke by posing a bid price and an ask price for each governmen securiy. In eiher geographic region, dealers observe order flow, limi orders and s in he marke. In his paper, high-frequency rade and quoe daa from a number of shor-erm European and Canadian governmen securiies wih mauriy less han or equal o 2-years are analysed. Our paper invesigaes he relaionship beween price changes, order flow, relaive limi order deph and s. Green (24), Brand and Kavajecz (24) and Pasquariello and Vega (24) demonsrae ha order flow is informaive in fixed-income markes. In addiion o order flow, we also examine he role of liquidiy supply in price formaion process. Since relaive liquidiy supply provides an indicaion of how much dealers are willing o buy versus sell, i should convey informaion. Angel (1994) and Bloomfield, O Hara and Saar (23) illusrae how informed raders will use boh marke and limi orders sraegically. While Chordia, Sarkar and Subrahmanyam (25) also examine reurn and liquidiy dynamics across U.S. equiy and long-daed U.S. Treasury bond markes, very lile is known abou he price discovery process and liquidiy dynamics in governmen fixedincome markes for securiies wih mauriies less han wo years. This is especially rue of securiies issued ouside he U.S. Treasury marke. 3

4 The exisence of informed rading and liquid markes are relaed. Admai and Pfleiderer (1988) and Foser and Viswanahan (199) predic ha here will be a clusering of liquidiy and informed raders. Kim and Verrecchia (1994) argue ha, if informed raders possess an informaional advanage afer an even, liquidiy will remain low as long as hose informed raders mainain ha advanage. The supply of liquidiy in markes affecs he speed wih which informaion is incorporaed ino prices. In general, liquidiy should be viewed as endogenous. Moivaed by quesions associaed wih he relaionship beween price changes, order flow, relaive limi order deph and s, we uilize he framework of Hasbrouck (1991a, b) and Chordia, Roll and Subrahmanyam (2, 21). A reduced form vecor auoregression (VAR), in which each variable depends on he lagged values of he all oher variables, is esimaed. The persisen impac on prices from shocks o oher variables in he sysem is assumed o arise from asymmeric informaion. Our findings indicae ha here is a high degree of auocorrelaion in each variable which is consisen wih lagged adjusmen and/or invenory conrol effecs. Resuls sugges ha order flow and order book alances can have a permanen impac on prices. Unlike European securiies, s are paricularly informaive in he Canadian marke. Neverheless, in erms of he ime i akes markes o adjus, Canadian securiies are similar o hose of European securiies. We also examine he price and liquidiy dynamics in imes of macroeconomic news releases. These announcemens are public informaion which should affec prices immediaely before anyone can rade on hem. There may be a role for rades and orders in he price discovery process if paricipans differ abou how o inerpre macroeconomic news, or alernaively, if some raders are beer able o process public informaion. In his environmen, privae informaion will dissipae once i is firs refleced in rades and orders, and hen subsequenly in prices. Fleming and Remolona (1999) and Balduzzi, Elon, and Green (21) find ha U.S. Treasury markes reac o public macroeconomic informaion wih a sharp reducion in liquidiy combined wih rapid price changes as informaion is absorbed, and hen a 4

5 subsequen surge in rading aciviy as paricipans rade on heir differing views regarding he inerpreaion of he new informaion. Green (24) looks a he role of rading around macroeconomics news announcemens and finds ha informaion asymmery rises in he wake of an imporan macroeconomic news announcemen. Evans and Lyons (24) find ha news-induced rades las for days, and have persisen effecs on foreign exchange raes. In his paper, we examine he effecs of news innovaions and he reacion of order flow, order book alances and s. Like Evans and Lyons, we also find ha news generaes informed order flow bu uninformaive order book alance and s effecs. In he nex secion of he paper, Secion 2, we describe in more deail he insiuional srucure of he MTS elecronic rading plaform, he Canadian inerdealer brokered marke, and he daa employed in our sudy. In Secion 3, we discuss he empirical model esimaed. Our resuls and heir significance are explained in Secion 4. In Secion 5, we conclude. 2. Insiuional Srucure and Daa In Europe, he rading plaform in fixed-income securiies is he MTS, which is he dominan elecronic rading plaform. 4 Inerdealer rading accouns for more ha half of all rading volumes. 5 There are generally wo ypes of marke paricipans on MTS: primary dealers and dealers. Primary dealers mus fulfill a number of requiremens under a liquidiy pac wih issuers. These primary dealers mus coninuously pos buy and sell limi-orders wihin a maximum bid-ask, for a minimum quoe amoun, and for a given period of ime each day. In reurn for meeing hese obligaions, he primary dealers have access o primary aucions and enjoy privileged relaions wih he issuing 4 MTS was creaed in 1988 by he Ialian Treasury and he Bank of Ialy wih he objecive of increasing compeiion and efficiency in he marke for governmen deb. MTS became a privae company in EuroMTS was inroduced in The Bond Marke Associaion (TBMA, 25). 5

6 auhoriies. They also receive privae informaion abou he rading aciviy on MTS, marke and economic condiions, and policy informaion from issuers. European governmen bonds can be lised on a domesic MTS plaform (such as MTS France) and/or he EuroMTS elecronic rading sysem. Those fixed income securiies ha saisfy a number of lising requiremens, such as exceeding a required principal amoun ousanding and cerificaion ha a number of dealers ha will ac as markes marker in ha securiy, can be lised on EuroMTS. All governmen markeable securiies, in addiion o benchmarks, are lised on heir respecive domesic MTS plaform (subjec o a given ousanding principal amoun). Cheung, de Jong and Rindi (25) find ha rading coss are similar on boh plaforms. In our sudy, we examine rading and quoing informaion for Treasury bills from he domesic marke plaform since almos all rading of shor-daed securiies occurs on he domesic plaform. CanPx is a daa service ha consolidaes and disseminaes o ineresed subscribers anonymous rade and quoe daa submied by Canada s fixed-income inerdealer brokers (IDBs). Based on dealer saisics repored o he Invesmen Dealers Associaion (IDA), he Canadian inerdealer deb marke represened approximaely 46 per cen of he oal secondary Governmen of Canada bond marke rading volume during 22, of which IDB rading accouned for 86 per cen (up from 5 per cen in 1991 and 75 per cen in 1997). The CanPx daa se is relaively complee, in ha i receives informaion from all of he Canadian IDBs. Dealers leave firm quoes wih he brokers, along wih a minimum size ha hey are willing o rade. The bes quoes across all he paricipaing dealers are posed. Unlike MTS, dealer behaviour is no governed by rules ha limi bid/ask s. Daa This paper uses quoe and ransacion daa from he MTS rading plaform and CanPX. The MTS daase includes he updaes of he bes quoe, ransacion prices and signed quaniies raded along wih ime samps corresponding o he ransacions enering he marke. Informaion abou deph is available up o, and including, he hird bes ask and 6

7 bid prices. Our analysis below focuses on Treasury bills lised on he four larges MTS plaforms: MTS Ialy, MTS Germany, MTS France and MTS Belgium. We analyse shorerm governmen bill daa for securiies wih a mauriy from 6 monhs o 2 years. The MTS daa se spans he period from 1 April, 23 o 31 December 24. The MTS marke opens from 8:15 o 17:3 (Cenral European Time, CET) 6. We divide he rading day ino 3-minue inervals from 8: (CET) onwards. The bonds analysed in our sudy include: he 6-monh Ialian Treasury Cerificae (BOT), he 6-monh French Treasury Bill (FTB), he 6-monh German Treasury Cerificaes (GTC), he 1-year Belgian Treasury Cerificae, he 1-year Ialian Treasury Cerificaes (BOT), he 1-year French Treasury Bills (FTB), and he 2-year German Treasury Bond (Schäze). Daa from he Canadian bond marke comes from CanPx. We focus on he 2-year Canadian bond. 7 The CanPx daase spans from 1 s Ocober 23 o 31 s Ocober 24. We divide he rading day ino 3-minue inervals from 8: (Easern Dayligh Time, EDT) onwards. The following rade and quoe informaion relaing o a paricular securiy is available on he CanPX screen: he price and/or yield of he bes bid and offer; he oal amoun offered and bid a each of he bes inside quoes (across all of he IDB screens); he ime a which he bes bid and offer were las updaed; wheher a buyeriniiaed or seller-iniiaed rade is currenly being conduced; and, when a rade is compleed, he rade oucome and he name of he IDB where he rade ook place. One of he reasons we examine shor-erm insrumens is because lile is known abou he price and rade dynamics associaed wih hese securiies. The fixed-income marke microsrucure lieraure has usually focused on bonds wih more han 2 years o mauriy. We explore how privae informaion, order flow, and relaive liquidiy supply, order book alance (defined below), affec he shor-end of he yield curve. 6 There is a pre-rade session in he MTS marke from 7:45 o 8:15 (CET). During his ime, dealers can pos limi orders bu hey are no allowed o rade on hese orders. 7 We do no use he Canadian 6-monh and 1-year bill because he quoe and ransacion frequency is very low on he CanPx sysem. 7

8 Economic Announcemens All of he macroeconomic news announcemens we consider occur a, or afer, 8:3 a.m. EDT or CET. The announcemen daa, including he survey expecaion of he announcemens, are disseminaed by Bloomberg. We use real-ime daa on he expecaions and announced macro variables. The European sample includes EU-wide, Belgium, Ialy, France, Germany and US scheduled news. The Canadian sample includes Canada and US scheduled news. Boh he European and he Canadian news iems are lised in Table 6. For each announcemen we consruc he sandardized news, η i,, on half-hour inerval as, η i, N i, Ei, = (1) ˆ σ i where N, is he value announced of announcemen i, i expecaion of announcemen i, and E i, is he median of survey σˆ i is he sample sandard deviaion of se η on half-hour inervals on days wihou macroeconomic announcemen. i, = N i, E. We Variables and Descripive Saisics We consruc he following variables o examine price, informaion arrival and liquidiy dynamics: he 3-minue price change, alance, defined as where, and bes bid-ask, midquoe p, order flow,, order book. The change in he bes mid-quoe is = ( mid quoe mid quoe 1) *1 mid quoe is he average of he bes ask quoe and he bes bid quoe a he beginning of each period. Order book alance is defined as (deph a bes bid price *bes bid price deph a he bes ask price *bes ask price ) = 1 in which deph is measured in million. I capures he relaive supply of liquidiy on he wo sides of he marke. Order flow of he bond,, is he defined as he 8

9 aggregae volume of buyer-iniiaed orders minus ha seller-iniiaed order during he hour inerval. As shown in previous sudies (for example, Green (24), Brand and Kavajecz (24) and Pasquello and Vega (26) in fixed-income markes, order flow capures he arrival of informaion. The bes bid ask is defined as he difference beween he bes ask price and he bes bid price, ( bes ask price bes bid price) * 1 =. Table 1 presens he descripive saisics for he variables we model. European shorerm bills have lower serial correlaion in change in mid-quoe and higher serial correlaion in order book alance han Canadian 2-year bond. This may arise from he requiremen ha dealers in he MTS marke have o provide quoe for minimum quaniy for boh sides of marke for 5 hours per rading day. So dealers adjus heir quoe relaive quickly. From he correlaion marix, order flow is posiively correlaed wih changes in he mid-quoe over all securiies. Adjusmen of Time-Series Daa As we are using inra-day daa of 3-minue inerval, we deseasonalize he endogenous variables using he mehod proposed by Gallan, Rossi and Tauchen (1992). The firs sep is o regress each variable on a series of adjusmen variables as follows: x = d' λ + u (2) The adjusmen variables we use are half-hourly dummies, one for each of he hours beween 9: (GMT) and 5:3 (GMT) daily dummies, one for each from Monday o Thursday monhly dummies, one for each from February o December To remove he heeroscedasiciy in our variables, he residuals are used in he regression log( u 2 ) = d' θ + v (3) The adjused or deseasonalized variables are hen calculaed as follows 9

10 x ˆ uˆ = x δ x, (5) exp( d' θ / 2) adj + where x is he unadjused sample mean of he variables and δˆ x is he unadjused sample sandard deviaion. The adjused series have he same sample mean and variance as he unadjused series, bu he effec of seasonaliy on he mean and variance is removed. Table 2 shows he regressions coefficiens of Equaion (2). For European securiies, is highes a he beginning of he day. I drops as he rading day proceeds and hen rises slighly again before he closing of he marke. The resul is consisen wih he noion ha informaion asymmery is highes a he beginning of he day. Dealers wan o proec hemselves agains overnigh posiions before he marke closes so hey se a higher during hese imes. Spread is also in general higher on Friday. The findings conras wih ha of Canadian 2-year bond: is no saisically differen from he opening half-hour of he marke, excep for one half-hour inerval in he afernoon. 3. Mehodology: Economeric Specificaion Since marke orders, limi-orders and s are inerrelaed; he impac of an innovaion in one variable on prices canno be deermined by regressing prices on curren and lagged erms. In paricular, he execuion of a marke order will direcly affec he deph of limi orders on ha one side of he marke. Marke orders will also affec he fuure placemen and cancellaion of limi-orders. In reverse, marke orders may only be execued if a cerain amoun of deph is available in he marke. Complicaing hings furher, even afer allowing for causaliy in boh direcions beween order flow and order book alances, his relaionship will depend on he size of he bid-ask s in he marke a he ime of he marke order. In order o deermine he implied impac of a marke order, or a change in he relaive deph of he limi order book, i is necessary o capure he overall dynamic relaionship beween all variables. 1

11 In he paper, we use a vecor auoregression (VAR) model o capure he ineremporal associaions beween price, order flow, order book alance and. Hasbrouck (1991a, 1991b) proposed using wo saisics derived from he VAR specificaion o deermine he effecs of order flow on prices: impulse response funcions summarize he permanen impac of a variable on prices. Examining impulse response funcions, besides he esimaed coefficiens of a VAR, provide addiional insighs abou he behaviour of prices. Impulse response funcions represen he expeced fuure values of a sysem of equaions condiional on an iniial shock. By looking he impulse response funcion of price, informaion and liquidiy measures, we could examine he ineremporal dynamics of hese variables hrough ime in more deail. The second measure we use is variance decomposiions, which measure he relaive imporance of each variable in explaining he variabiliy in he endogenous variables. We examine he long-run response of an innovaion in a variable explain he error variance of mid-quoe change. The variance of he expeced value of all fuure prices changes can be hough of as he variance of he random walk componen implici in all asse prices. By examining he long-run response of price, informaion and liquidiy variables o innovaions in he sysem, variance decomposiion allows us o isolae he long-run impac hese variables from ransiory effec. These wo saisics are employed in our analysis o deermine he impac of innovaion in price, informaion and liquidiy measures on he marke qualiy of each governmen bond marke. We firs examine he dynamics of price, order flow and liquidiy measures on days wihou news announcemen by esimaing he following VAR sysem, where y is defined as = A1 y 1 + A2 y AP y P v, (1) y + y = [,,, p ]' and he A p s are (p p) coefficien marices of he endogenous variables, y. The disurbance, v is a column vecor wih mean zero, E( v ) = and serially uncorrelaed disurbances, and covariance marix E [ v v '] = Ω. The parameers A p and Ω are unknown and have o be esimaed before he necessary impulse response and variance 11

12 decomposiion saisics can be calculaed. Esimaes of hese parameers can be obained from leas squares. See Hamilon (1994) and Judge e al. (1982) for a discussion of hese mehods. We choose he order of Equaion (1) on he basis of he Akaike Informaion Crierion (AIC) and he Schwarz Informaion Crierion (SIC). We choose he minimum lag lengh from he wo crieria. We nex examine how he price, order flow and liquidiy measures respond o news announcemens. We esimae he following sysem: = A1 y 1 + A2 y AP y P + Bη v, y + where η is he (n 1) vecor of sandardized news variables from Equaion (1), where n denoes he number of macro economic news announcemen.. The (p n) coefficien marix of he news variables, is represened by B Thus he effec of announcemens on he dynamics of he endogenous variables is given by he B coefficiens. Our model enables us o examine on inraday basis how long he effecs of news announcemen persiss on price, order flow and liquidiy measures. 4. Empirical Resuls VAR Esimaion Resuls on Days wihou Macro News Announcemens The VAR specificaion described in he previous secion is esimaed for each of he eigh securiies in our sample. I consiss of four equaions ha model he ineracion beween he change in mid-quoe, s, order book alances, and order flow. The coefficien esimaes are repored in Table 3. The sysem of equaions is esimaed wih one or wo lags. For he Ialian 6-monh, he Ialian 12-monh, and he German 2-year bills only one lag was necessary. Table 4 shows he value of he objecive funcion a various lags for each VAR. Esimaion resuls are quie similar across securiies, and can be summarized as follows. There is evidence of posiive and significan order flow, order book alance, and 12

13 auocorrelaion. The coefficien of he firs lag for hese hree variables is in general posiively significan (a 1% significance level or lower) for all securiies. The resul associaed wih order flow suggess ha ha here exiss momenum in buying and selling. Auocorrelaion in s and order book alances can arise for a couple of reasons: (1) uncerainy of he securiy value persiss in he marke; or (2) a consrain exiss on he maximum imposed by MTS marke makers. The change in prices is significanly negaively auocorrelaed (a 1% significance level or lower) in he French 6-monh bill, he Ialian 6-monh bill, he German 6-monh bill and he Canadian 2-year bond. These resuls sugges he exisence of invenory conrol and lagged adjusmen effecs in hese markes. Turning o he cross-effecs of he endogenous variables in he price equaions, lag order flow has a significan impac on price dynamics in hree markes: he Ialian 6-monh bill, he French 1-year bill and he Canadian 2-year bond while lag order book alance has a posiive significan (a 1% level or lower) impac on he pricing of bonds expec in he German 6-monh bill, he Belgium 1-year bill and he Canada 2-year bond. These resuls sugges ha order flow and he relaive liquidiy supply se by dealers may convey informaion abou he pricing of securiies in he fixed income markes. One of he key quesions ha can be addressed wih a VAR is how useful are some variables in forecasing oher variables. Table 4 also shows he resuls of pair-wise Granger-causaliy ess beween each of he endogenous variables. One variable is said o Granger-cause anoher variable if he informaion in pas and presen helps o improve he forecass of he variable. We es he null hypohesis ha variable x1 does no Granger-cause variable x2 by esing wheher he lag coefficiens of x1 are joinly zero in he equaion wih x2 as dependen variable. For he French 6-monh bond, Wald es saisics indicae ha here is wo-way causaliy beween order book alances and price changes. For he Ialian 6-monh securiy, boh order flow and order book alances Granger-cause price change. There is no evidence of causaliy in he opposie direcion. In he German 6-monh marke, s, order book alance and order flow do no Granger cause price. Alhough here is wo-way 13

14 causaliy beween order flow and order book alances, and order book alances and s. The resuls of he Belgian 12-monh bill are similar o he German 6-monh bill: order flow, order book alance and variables do no Granger-cause price. For he Ialian 12-monh securiy, s and order book alances Granger-cause price changes in he VAR, hough here is no evidence he oher way around. For he 12-monh French marke, order flow and order book alance Granger-cause price. Again here is no evidence of causaliy in he oher direcion. For he German 2-year bond, order book alance Granger-cause price. Lasly, for he Canadian 2-year bond, here is evidence of wo-way causaliy beween price and s, and order flow is shown o Granger-causes prices. Overall, order book alances and order flow forecas price changes excep in he German 6-monh bill and he Belgian 1-year bill markes. Two-way causaliy exiss beween prices and all oher variables in he French 6-monh bill. Since here is in general a lack of uniformiy across securiies, we include all four variables in he VAR in all markes. We now examine he dynamics associaed wih innovaions in prices, order flow, order book alances and s. For each securiy marke, impulse response funcions are calculaed o race ou he effec of a one-ime shock o order flow, order book alance, and innovaions. Because he innovaions are correlaed, we orhogonalize he impulse using he inverse of he Cholesky decomposiion. We presen he resuls of he following ordering: order flow, order book alance, and price change. 8 The ordering was chosen for wo reasons. Firs, i is consisen wih he heoreical lieraure suggesing ha rades are informaive in he price formaion process. Therefore order flow is placed firs. Second, pair-wise Granger-causaliy ess provide evidence ha order book alances forecas price changes. Accordingly, order book alance is placed second, afer order flow, in he VAR ordering. 8 In general, he chosen VAR ordering can influence he resuls. Our resuls are very similar across orderings. 14

15 Figure 1 show he cumulaive effec on he change in prices from hree ypes of shocks: a one-sandard deviaion shock o order flow, a one-sandard deviaion shock o order book alances, and a one-sandard deviaion shock o s. Two sandards errors bounds of each impulse response funcion are also shown he graphs. The long-erm cumulaive implied price change ha occurs subsequen o an innovaion in each variable may be inerpreed as he informaional conen of ha variable. An order flow shock has a permanen and posiive impac on he prices of all European securiies and Canadian 2- year bond. This finding is consisen wih previous findings in he fixed-income microsrucure lieraure suggesing ha order flow is informaive and has a permanen impac in he price discovery process. Excep for he Belgium 1-year bill, order book alances have an iniial negaive impac on prices. The effec evenually dies ou wih prices revering back o he original level (or higher han heir original level in he case of French 1-year bill). The iniial drop in price is inconsisen wih our usual inuiion ha larger deph on he buy (bid) side of he marke should ac as a suppor level pushing prices upward. One explanaion for he iniial drop in price could be due o he feedback effec of order flow. A rise in deph on he buy side of he book reduces he marginal cos of selling a securiy. Dealers aemping o manage heir excess invenories are more inclined o immediaely execue marke sell orders raher han use limi orders. The execuion of sell may in urn convey negaive informaion o oher dealers abou he value of he securiy which may hen reduce prices. Only once dealers deermine ha he sell marke orders are no informaive does price rever o is iniial long-run level. The innovaion in s generally has no impac on prices amongs he European securiies excep in he Ialian 1-year bill marke. Spreads have a significanly posiive impac on he Ialian 1-year bill. For he res of he securiies, he impac of s is no saisically differen from zero, 5 hours afer he iniial impac. In conras, Canadian 2- year bond innovaions have a significan impac on price dynamics. An increase in s resuls in a permanen reducion in prices. From an informaional perspecive, large s in he marke may convince dealers ha informed raders may exis in he 15

16 marke. If liquidiy decreases as a resul, price may fall subsequenly. Spreads, much like order flow, seems o be informaive o dealers in he Canadian marke. Nex, we briefly discuss he ineracions beween order flow, order book alances and s. The impulse response funcion (no repored here) shows ha boh order book alances and s are posiively relaed own innovaions. Furher, he response of an order book alance innovaion on order flow is significanly negaive in he Ialian 6-monh bill, he Ialian 12-monh bill and he German 2-year bond. A negaive change in order book alances means ha he ask deph deepens a he bes ask price. The resul suggess ha dealers supply addiional liquidiy on he ask side upon observing more buy marke orders (wih posiive order flow) enering he marke. The response of order book alance o shock in order flow is quie differen in he German 6-monh marke. I is significanly posiive. This implies ha dealers deepens he bid deph, or wihdraw liquidiy from he ask deph, upon observing posiive order flow. For Belgium 1-year bill, he French 1-year bill and he Canadian 2-year bond, order book alance does no respond o innovaions in order flow. Turning o s, we find ha hey do no reac o innovaions in order flow excep for he Ialian 6-monh bill marke. The of Ialian 6-monh bill, he French 12-monh bill and he German 2-year bond reac posiively o innovaion in order book alance. Spreads do no reac o innovaions in order book alance in he res of he securiies. To furher deermine which variables are informaive in he price discovery process, we also examine he variance decomposiion of price changes. Table 5 shows he decomposiion of he 1-period ahead forecas variance of prices in erms of each componen variable in he sysem. We examine his paricular forecas so as o isolae any ransien effecs, focusing only on he long-run, or permanen, explanaory power of each variable in he VAR sysem. If a variable explains only shor-run ransien variaions in exchange rae changes, i will no perform well in he variance decomposiions. Since he variance decomposiion is based on he Cholesky idenificaion, i is affeced by he ordering of he variables. Table 5 displays he upper- and lower-bound esimaes of he 16

17 variance decomposiion for each endogenous variable from all possible ordering combinaions of order flow, order book alance, and s. The second column conains he forecas error of he variable a he given forecas horizon. The source of his forecas error is he variaion in he curren and fuure values of he innovaions o each endogenous variable in he VAR. The remaining columns give he percenage of he forecas variance due o each innovaion, wih each row adding up o 1. The conribuion of order flow, order book alances and s in explaining he error variance in price change differs across counries. Order flow s explanaory power on error variance of price change is close o 2 % for he Ialian 6-monh and 1-year bill, he Belgium one-year bill and he Canadian 2-year bond. Bu i has less han 1% of explanaory power in he German 6-monh bill and 2-year bond markes. This may be due o he fac ha, as described in Cheung, de Jong and Rindi (25), rading of German fixed-income securiies is concenraed in he fuures marke and rading on fuures is more liquid in he EUREX marke. As a resul, price discovery occurs in he fuures marke and he rading of he spo carries less informaion. Turning o order book alance, i has he highes explanaory power in he French 6- monh bill (above 7%) and he French 1-year bill (around 4%) markes. I also has lowes explanaory power on error variance of price in he Canadian marke. This could be due o he fac ha he Canadian marke is a voice-brokered sysem and here are no consrains imposed on s or he minimum quaniy supplied o he marke. As a resul, dealers can adjus boh s and relaive liquidiy supplies in imes of uncerainy. Thus relaive liquidiy supply order book alance has less weigh in explaining price dynamics. For s, he resuls sugges a very small role for s in he long-run pricediscovery process in European securiies. Since minimum s are resriced in Europe hrough he liquidiy pac, here informaion conen of on price is lower. The variaion in s may be exclusively relaed o manage invenories. Impulse response funcions of innovaion of on price confirm he finding as here is no permanen 17

18 impac of a shock on prices. For he Canadian 2-year bond, he resuls are significanly differen. Spreads explain beween 22 and 23% of he long-erm variabiliy in prices. The resul suggess ha s in he Canadian bond marke are relaed o innovaions in fundamenal informaion. Impulse Response Funcions and News Innovaions In his secion, we characerize he behaviour of prices, order flows, order book alances and s subsequen o news releases. Specifically, we focus on analysis on how news affecs each of he variables in our VAR sysem beyond he announcemen ime. We aemp o deermine if news induces changes in order flow, order book alances, s, which hen affec prices laer hrough ime. While macroeconomic news announcemens will affecs prices direcly before anyone can rade on i, afer he announcemen is made, privae informaion may sill exis if paricipans differ on how o inerpre he macroeconomic news. Green (24) finds ha informaion asymmery rises in he wake of an imporan macroeconomic news announcemen. Over ime, privae informaion in he marke will dissipae once i is refleced in rades and order flow, and hen subsequenly in prices. Evans and Lyons (24) find ha here is evidence of an indirec channel beween news and prices hrough order flow in he FX marke. Table 6 repors he esimaed coefficiens, B, and heir significance, of news innovaion on each endogenous variable in he VAR in Equaion (2). These coefficiens deermine he average effec of news shocks on innovaions in he VAR. U.S. Non-farm Produciviy and he German IFO index survey of business climae have he larges significan impac on European securiy prices. U.S. Non-farm Produciviy has a significanly posiive impac on he price change of all European securiies excep he Ialian 6-monh bill and he German 6-monh bill. A posiive one sandard deviaion shock o Non-farm Produciviy leads o price change of more han 3 cens on Ialian 1- year bill and German 2-year bond. The German IFO index survey of business climae has a significanly negaive impac on he price change of all European securiies excep he Ialian 6-monh bill and he German 6-monh bill. A posiive shock of one sandard 18

19 deviaion o German IFO Index Survey of Business Climae leads o more han 2 cens decline on Ialian 1-year bill and German 2-year bond. Order book alances and s are affeced by a wide range of news innovaions. The French Consumer Confidence Indicaor, French Non-farm Payrolls, French PPI, he CPI and PPI of Ialy, Germany and US are among he mos imporan macroeconomic news variables affecing order book alances and s. As in he case of price changes, here is a significan cross-counry news innovaions impac on each of he oher variables in he VAR sysem. For example, an innovaion in he French Consumer Confidence Indicaor has a significanly negaive impac on he order book alances of he Ialian 1-year bond. The magniude of he impac is second only o he French 6- monh bill. Similarly, he innovaions in French Non farm Payrolls and PPI have he greaes impac on he order book alances of he Belgium 1-year bill and he of he German 2-year bond. In erms of he Canadian 2-year secor, ou of all he macroeconomic news evens ha were hough o have an impac on governmen fixed income markes, only a few had a saisically significan conemporaneous impac on prices. The price dynamics of he Canadian 2-year bond is no significanly affeced by any news innovaions. Canadian indusrial producion prices (PPI) and U.S. Non-farm Employmen Produciviy are shown o have posiive and saisically significan impac on order flow. U.S. Reail Sales and Housing Sars have a saisically significan impac on Canadian s. To deermine if here is a persisen impac of news on he endogenous variables in our sysem, we presen he resuls of several macroeconomic news innovaions ha have been shown o have a conemporaneous effec. U.S. Non-farm Produciviy French PPI, German IFO Index of Business Climae, and Ialian CPI have a saisically significan impac on a leas one variable in one endogenous variable across each European securiy. Boh U.S. Non-farm Produciviy and Canadian Indusrial Producion Prices boh have an impac on he price of he Canadian 2-year on-he-run bond. Figure 2 summarize he 19

20 dynamics of prices, order flow, order book alances and s following he arrival of each news evens hrough an examinaion of impulse response funcions. In a number of cases here is a delayed order flow, order book alance and response afer he news even. Prices do no converge o long-run value insananeously. In he firs figure he reacion o a one-sandard deviaion innovaion in French PPI on he accumulaed prices change, accumulaed order flow, order book alances, and s in each securiy marke is ploed. Noe ha price changes and order flow are illusraed in cumulaive amouns since hey are flow variables in he VAR sysem. Judging from he op-righ-hand-side plo, cumulaive order flow is increasing even afer 6 inervals, or 3 hours. In he firs wo inervals prices are also adjusing, parly direcly hrough a lagged adjusmen in own prices, bu also indirecly hough order flow. Spreads and alances (lower plos in Figure 2) adjus over a longer period of ime. The German 2- year bond usually has he larges emporary adjusmen in s and order book alances o a news innovaion. There is a similar reacion o news innovaions in he Canadian 2-year bond marke. Prices do no adjus insananeously o long-run value in response o innovaion in news, bu adjus over he nex one o wo hours. There is also evidence ha here is induced order flow which indirecly affecs prices. Much like he reacion of European securiies o news, boh order book alances and s adjus over a period of 3-hours. Since prices have adjused in inerim, hese dynamics are probably associaed wih invenory conrol affecs. 5. Summary and Conclusion Liquid and efficien governmen securiies markes are imporan o a counry s overall economic well-being. They are necessary o ensure ha savings and invesmen decisions are made opimally. In his paper, we examined he dynamics of price, order flow, order book alance and on shor-erm European and Canadian governmen securiies. 2

21 We also analysed he relaionship beween price and liquidiy dynamics on days wih macroeconomic news announcemens. On non-announcemen days, consisen wih he res of he lieraure, order flow has a permanen and posiive impac on price. A shock in order book alance leads o an iniial drop in price bu hen price revers back o he long-run level. A shock o s does no have a significan long-run impac excep in he Canadian markes. One imporan feaure of governmen deb markes is he exen o which hey are driven by public news, and, in paricular, macroeconomic news. The informaion in scheduled macroeconomic news releases is scruinized by he marke, whose paricipans seek o deermine he fuure cos of capial. One way in which markes process informaion is by observing order flow, order book alances and s. We found ha liquidiy measures have delayed response o news innovaions. I may akes some ime before news is fully refleced in prices. Wihou a larger sample of securiies, and addiional cross-secional informaion abou each securiies marke, we canno make addiional commens abou he conribuion of marke srucures o price discovery and liquidiy dynamics, or more imporanly wheher a liquidiy pac is needed in he Canadian governmen securiies marke. Overall, our resuls sugges ha, while here are some differences in dynamics, Canadian and European shor-erm fixed-income marke are relaively liquid; hey reflec fundamenal informaion in a imely fashion; and hey reac o news in a manner consisen wih evidence from oher financial markes. In fuure research we will build on resuls of his paper and explore how prices and relaive liquidiy supplies are joinly deermined across on-he-run and off-he-run securiies markes. Since dealers in fixed-income marke usually manage a porfolio of securiies wihin a given mauriy secor, if securiies are similar, a dealer can have a long posiion in one securiy and an offseing shor posiion in anoher and bear lile invenory risk. Primary dealers of boh on- and off-he-run securiies can manage risk in heir porfolio by adjusing prices and liquidiy supplies of he wo securiies joinly. We 21

22 will also seek o deermine if privae informaion learned abou one securiy is used in he pricing decisions of oher similar securiies. Invenory conrol effecs may link on- and off-he-run securiies. 22

23 References Admai, A., Pfleiderer, P A heory of inraday paerns: volume and price. Review of Financial Sudies 1, 3-4. Albanesi, S., Rindi, B., 2. The qualiy of he Ialian Treasury bond marke, asymmeric informaion and ransacion coss. Annales d Economie e de Saisique 6, Angel, J., Limi versus marke orders. Georgeown Universiy Working. Balduzzi, P., Elon, E., Green, C., 21. Economic news and bond prices: evidence from he U.S. Treasury marke. Journal of Financial and Quaniaive Analysis 36, Bloomfield, R., O Hara, M. and Saar, G., 23, The make or ake decision in an elecronic marke: Evidence on he evoluion of liquidiy. Journal of Financial Economics, forhcoming Brand, M., Kavajecz, K. 24. Price discovery in he U.S. Treasury marke: The impac of order flow and liquidiy on he yield curve. Journal of Finance, 59, Cheung, Y., de Jong, F., Rindi, B., 25. Trading European sovereign bonds. The microsrucure of he MTS rading plaform. ECB working paper. Chordia, T., Roll, R., Subrahmanyam, A., 2. Commonaliy in liquidiy. Journal of Financial Economics 56. Chordia, T., Roll, R., Subrahmanyam, A., 21. Trading aciviy and expeced sock reurns. Journal of Financial Economics 59, Chordia, T., Sarkar, A., Subrahmanyam, A., 24. An empirical analysis of sock and bond marke liquidiy. Review of Financial Sudies, forhcoming. Evans, M., Lyons, R., 24. Do currency markes absorb news quickly? U.C. Berkeley Unpublished working paper. Fleming, M., Remolona, E., Price formaion and liquidy in he U.S. Treasury marke: The response o public informaion. Journal of Finance 54, Foser, F., Viswanahan, S., 199. A heory of inerday variaions in volumes, variances and rading coss in securiies markes. Review of Financial Sudies 4, Gallan, A. Rossi, P., Tauchen, G., Sock prices and volume. Review of Financial Sudies

24 Greene, W., Economeric Analysis, 5h Ediion. Upper Saddle River, NJ: Prenice- Hall. Hamilon, J., Time series analysis. Princeon Universiy Press, Princeon, New Jersey. Hasbrouck, J., Measuring he informaional conen of sock rades. Journal of Finance 46, Hasbrouck, J., 1991, The summary informaiveness of sock rades: An economeric analysis, Review of Financial Sudies Johnson, G., 23. Measuring ineres rae expecaions in Canada. Bank of Canada working paper Judge, G., Hill, R., Griffihs, W., Lkepohl, H., Lee, T., Inroducion o he heory and pracice of economerics, Wiley, New York. Kim, O., Verrecchia, R Marke liquidiy and volume around earnings announcemens. Journal of Accouning and Economics Pasquariello, P., Vega, C., 24. Informed and sraegic order flow in he bond markes. Unpublished working paper. The Bond Marke Associaion (TBMA) and he European Primary Dealers Associaion, 25. European bond pricing sources and services: Implicaions for price ransparency in he European bond marke. 24

25 Table 1: Summary Saisics Tables and Figures Summary saisics for French 6-monh bill, Ialian 6-monh bill, German 6-monh bill, Belgium 1-year bill, French 1-year bill, Ialy 1-year bill, German 2-year bond and Canadian 2-year bond. The mid-quoe change, p, is he 3-minue change in mid-quoe imes 1. Order book alance is defined as (deph a bes bid price *bes bid price deph a he bes ask price *bes ask price ) = 1 in which deph is measured in million. Order flow of he bond,, is he defined as he aggregae volume of buyer-iniiaed orders minus ha seller-iniiaed order during he hour inerval. The bes bid ask is defined as he difference beween he bes ask price and he bes bid price. mean sd ρ 1 ρ 2 ρ 3 p France 6-monh bill p Ialy 6-monh bill p Germany 6monh bill p Belgium 1-year bill p Ialy 1-year bill p

26 France 1-year bill p Germany 2-year bond p Canada 2-year bond p

27 Table 2: Adjused Regressions of Price Change, Order Flow, Order Book Imbalance and Spreads The mid-quoe change, p, is he 3-minue change in mid-quoe imes 1. Order book alance is defined as (deph a bes bid price *bes bid price deph a he bes ask price *bes ask price ) = 1 in which deph is measured in million. Order flow of he bond,, is he defined as he aggregae volume of buyer-iniiaed orders minus ha seller-iniiaed order during he hour inerval. The bes bid ask is defined as he difference beween he bes ask price and he bes bid price. We deseasonalize p,, and using he mehod proposed by Gallan, Rossi and Tauchen (1992). We regress each variable on a series of adjusmen variables as follows: x = d' λ + u (2) The adjusmen variables we use are half-hourly dummies, one for each of he hours beween 9: (GMT) and 5:3 (GMT) daily dummies, one for each from Monday o Thursday monhly dummies, one for each from February o December Esimaion is done via ordinary leas squares. Esimaes wih * are significan a 1% significance level and esimaes wih ** are significan a 5% significance level. 27

28 Panel A: French 6-monh bill p inercep **.79* 9:- 9: ** 9:3-1: ** 1:-1: ** 1:3-11: ** 11:-11: ** 11:3-12: ** 12:-12: * -.33** 12:3-13: ** -.31** 13:-13: ** 13:3-14: ** 14:-14: ** 14:3-1 5: ** 15:-15: * -.3** 15:3-16: * -.25** 16:-16: ** 16:3-17: * -.22** 17::17: ** Monday -.11** ** Tuesday ** Wednesday -.1* ** -.8** Thursday -.11** ** Feb **.1** Mar **.1** Apr **.31** May.1.7* ** Jun **.29** Jul **.36** Aug **.16** Sep **.16** Oc **.19** Nov **.4** Dec **.32** Panel B: Ialian 6-monh bill p inercep * 9:- 9: ** 9:3-1: ** 1:-1: ** 1:3-11: ** 11:-11: * -.46** 11:3-12: ** 12:-12: ** 12:3-13: ** 13:-13: ** 13:3-14: ** 14:-14: ** 14:3-15: ** 15:-15: ** 15:3-16: ** 16:-16: ** 16:3-17: ** 17::17:3 1.48** * Monday -.52** ** Tuesday -.42* ** Wednesday -.45* ** Thursday -.52** ** Feb Mar *.3 Apr ** May.79* * Jun * 1.45*.93** Jul ** Aug ** Sep * Oc Nov * -.3 Dec *.11

29 Panel C: German 6-monh bill p inercep 2.98** 1.3* -6.93** 1.11** 9:- 9:3-3.28** ** 9:3-1:3-3.1** 1.83** ** 1:-1:3-3.15** ** 1:3-11: -3.34** ** 11:-11:3-3.22** ** 11:3-12: -3.15** ** 12:-12:3-3.17** ** -.26** 12:3-13: -3.2** ** 13:-13:3-3.2** ** 13:3-14: -3.25** ** 14:-14:3-3.29** ** 14:3-15: -3.27** ** 15:-15:3-3.16** ** 15:3-16: -3.2** ** 16:-16:3-3.8** ** 16:3-17: -3.3** ** 17::17:3-3.27** ** Monday ** ** Tuesday ** -1.94** -.7** Wednesday * -2.16** -.3** Thursday * -1.4** -.2* Feb ** -.13** Mar * 5.87** -.14** Apr ** -.1 May ** -.1** Jun ** -.16** Jul ** -.11** Aug ** -.13** Sep 1.61* ** -.13** Oc ** 5.3** -.19** Nov * 8.76** -.14** Dec **.5** Panel D: Belgium 1-year bond p inercep ** 9:- 9: ** 9:3-1:3.79** ** 1:-1:3.76** ** 1:3-11: ** 11:-11: ** -.57** 11:3-12:.6* * -.57** 12:-12:3.68** ** 12:3-13: ** 13:-13:3.62* ** -.56** 13:3-14:.59* ** -.57** 14:-14: * -.37** 14:3-15: ** 15:-15:3 1.5** ** 15:3-16:.7** ** 16:-16: * -.38** 16:3-17:.66** ** -.26** 17::17:3.69** **.6 Monday -.35* * Tuesday ** Wednesday ** Thursday * -.7** Feb ** Mar ** Apr **.31** May * * Jun ** Jul ** Aug Sep Oc *.12** Nov ** Dec **

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand

Market Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand 36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,

More information

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas

The Greek financial crisis: growing imbalances and sovereign spreads. Heather D. Gibson, Stephan G. Hall and George S. Tavlas The Greek financial crisis: growing imbalances and sovereign spreads Heaher D. Gibson, Sephan G. Hall and George S. Tavlas The enry The enry of Greece ino he Eurozone in 2001 produced a dividend in he

More information

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR

DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios

More information

Vector Autoregressions (VARs): Operational Perspectives

Vector Autoregressions (VARs): Operational Perspectives Vecor Auoregressions (VARs): Operaional Perspecives Primary Source: Sock, James H., and Mark W. Wason, Vecor Auoregressions, Journal of Economic Perspecives, Vol. 15 No. 4 (Fall 2001), 101-115. Macroeconomericians

More information

Chapter 8: Regression with Lagged Explanatory Variables

Chapter 8: Regression with Lagged Explanatory Variables Chaper 8: Regression wih Lagged Explanaory Variables Time series daa: Y for =1,..,T End goal: Regression model relaing a dependen variable o explanaory variables. Wih ime series new issues arise: 1. One

More information

Ownership structure, liquidity, and trade informativeness

Ownership structure, liquidity, and trade informativeness Journal of Finance and Accounancy ABSTRACT Ownership srucure, liquidiy, and rade informaiveness Dan Zhou California Sae Universiy a Bakersfield In his paper, we examine he relaionship beween ownership

More information

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation

Bid-ask Spread and Order Size in the Foreign Exchange Market: An Empirical Investigation Bid-ask Spread and Order Size in he Foreign Exchange Marke: An Empirical Invesigaion Liang Ding* Deparmen of Economics, Macaleser College, 1600 Grand Avenue, S. Paul, MN55105, U.S.A. Shor Tile: Bid-ask

More information

Journal Of Business & Economics Research September 2005 Volume 3, Number 9

Journal Of Business & Economics Research September 2005 Volume 3, Number 9 Opion Pricing And Mone Carlo Simulaions George M. Jabbour, (Email: jabbour@gwu.edu), George Washingon Universiy Yi-Kang Liu, (yikang@gwu.edu), George Washingon Universiy ABSTRACT The advanage of Mone Carlo

More information

Hedging with Forwards and Futures

Hedging with Forwards and Futures Hedging wih orwards and uures Hedging in mos cases is sraighforward. You plan o buy 10,000 barrels of oil in six monhs and you wish o eliminae he price risk. If you ake he buy-side of a forward/fuures

More information

Usefulness of the Forward Curve in Forecasting Oil Prices

Usefulness of the Forward Curve in Forecasting Oil Prices Usefulness of he Forward Curve in Forecasing Oil Prices Akira Yanagisawa Leader Energy Demand, Supply and Forecas Analysis Group The Energy Daa and Modelling Cener Summary When people analyse oil prices,

More information

Revisions to Nonfarm Payroll Employment: 1964 to 2011

Revisions to Nonfarm Payroll Employment: 1964 to 2011 Revisions o Nonfarm Payroll Employmen: 1964 o 2011 Tom Sark December 2011 Summary Over recen monhs, he Bureau of Labor Saisics (BLS) has revised upward is iniial esimaes of he monhly change in nonfarm

More information

Why Did the Demand for Cash Decrease Recently in Korea?

Why Did the Demand for Cash Decrease Recently in Korea? Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in

More information

Investor sentiment of lottery stock evidence from the Taiwan stock market

Investor sentiment of lottery stock evidence from the Taiwan stock market Invesmen Managemen and Financial Innovaions Volume 9 Issue 1 Yu-Min Wang (Taiwan) Chun-An Li (Taiwan) Chia-Fei Lin (Taiwan) Invesor senimen of loery sock evidence from he Taiwan sock marke Absrac This

More information

THE IMPACT OF CUBES ON THE MARKET QUALITY OF NASDAQ 100 INDEX FUTURES

THE IMPACT OF CUBES ON THE MARKET QUALITY OF NASDAQ 100 INDEX FUTURES Invesmen Managemen and Financial Innovaions, Volume 3, Issue 3, 2006 117 THE IMPACT OF CUBES ON THE MARKET QUALITY OF NASDAQ 100 INDEX FUTURES Seyfein Unal, M. Mesu Kayali, Cuney Koyuncu Absrac Using Hasbrouck

More information

Morningstar Investor Return

Morningstar Investor Return Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion

More information

Price elasticity of demand for crude oil: estimates for 23 countries

Price elasticity of demand for crude oil: estimates for 23 countries Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh

More information

Foreign Exchange Market Microstructure

Foreign Exchange Market Microstructure Foreign Exchange Marke Microsrucure Marin.. Evans 1 Georgeown Universiy and NBER Absrac This paper provides an overview of he recen lieraure on Foreign Exchange Marke Microsrucure. Is aim is no o survey

More information

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift?

Small and Large Trades Around Earnings Announcements: Does Trading Behavior Explain Post-Earnings-Announcement Drift? Small and Large Trades Around Earnings Announcemens: Does Trading Behavior Explain Pos-Earnings-Announcemen Drif? Devin Shanhikumar * Firs Draf: Ocober, 2002 This Version: Augus 19, 2004 Absrac This paper

More information

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments

BALANCE OF PAYMENTS. First quarter 2008. Balance of payments BALANCE OF PAYMENTS DATE: 2008-05-30 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se

More information

LIQUIDITY, PRICE IMPACT AND TRADE INFORMATIVENESS EVIDENCE FROM THE LONDON STOCK EXCHANGE

LIQUIDITY, PRICE IMPACT AND TRADE INFORMATIVENESS EVIDENCE FROM THE LONDON STOCK EXCHANGE ECONOMIC ANNALS, Volume LVI, No. 188 / January March 011 UDC: 3.33 ISSN: 0013-364 Scienific Papers DOI:10.98/EKA1188091T Naaša Teodorović* LIQUIDITY, PRICE IMPACT AND TRADE INFORMATIVENESS EVIDENCE FROM

More information

Commission Costs, Illiquidity and Stock Returns

Commission Costs, Illiquidity and Stock Returns Commission Coss, Illiquidiy and Sock Reurns Jinliang Li* College of Business Adminisraion, Norheasern Universiy 413 Hayden Hall, Boson, MA 02115 Telephone: 617.373.4707 Email: jin.li@neu.edu Rober Mooradian

More information

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction.

JEL classifications: Q43;E44 Keywords: Oil shocks, Stock market reaction. Applied Economerics and Inernaional Developmen. AEID.Vol. 5-3 (5) EFFECT OF OIL PRICE SHOCKS IN THE U.S. FOR 1985-4 USING VAR, MIXED DYNAMIC AND GRANGER CAUSALITY APPROACHES AL-RJOUB, Samer AM * Absrac

More information

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal

II.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.

More information

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya.

Principal components of stock market dynamics. Methodology and applications in brief (to be updated ) Andrei Bouzaev, bouzaev@ya. Principal componens of sock marke dynamics Mehodology and applicaions in brief o be updaed Andrei Bouzaev, bouzaev@ya.ru Why principal componens are needed Objecives undersand he evidence of more han one

More information

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?

Supplementary Appendix for Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? Supplemenary Appendix for Depression Babies: Do Macroeconomic Experiences Affec Risk-Taking? Ulrike Malmendier UC Berkeley and NBER Sefan Nagel Sanford Universiy and NBER Sepember 2009 A. Deails on SCF

More information

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA

GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA Journal of Applied Economics, Vol. IV, No. (Nov 001), 313-37 GOOD NEWS, BAD NEWS AND GARCH EFFECTS 313 GOOD NEWS, BAD NEWS AND GARCH EFFECTS IN STOCK RETURN DATA CRAIG A. DEPKEN II * The Universiy of Texas

More information

Resiliency, the Neglected Dimension of Market Liquidity: Empirical Evidence from the New York Stock Exchange

Resiliency, the Neglected Dimension of Market Liquidity: Empirical Evidence from the New York Stock Exchange Resiliency, he Negleced Dimension of Marke Liquidiy: Empirical Evidence from he New York Sock Exchange Jiwei Dong 1 Lancaser Universiy, U.K. Alexander Kempf Universiä zu Köln, Germany Pradeep K. Yadav

More information

4. International Parity Conditions

4. International Parity Conditions 4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency

More information

Market-makers supply and pricing of financial market liquidity

Market-makers supply and pricing of financial market liquidity Economics Leers 76 (00) 53 58 www.elsevier.com/ locae/ econbase Marke-makers supply and pricing of financial marke liquidiy Pu Shen a,b, *, Ross M. Sarr a Research Deparmen, Federal Reserve Bank of Kansas

More information

Evidence from the Stock Market

Evidence from the Stock Market UK Fund Manager Cascading and Herding Behaviour: New Evidence from he Sock Marke Yang-Cheng Lu Deparmen of Finance, Ming Chuan Universiy 250 Sec.5., Zhong-Shan Norh Rd., Taipe Taiwan E-Mail ralphyclu1@gmail.com,

More information

No. 2011/03 Is BEST Really Better? Internalization of Orders in an Open Limit Order Book. Joachim Grammig and Erik Theissen

No. 2011/03 Is BEST Really Better? Internalization of Orders in an Open Limit Order Book. Joachim Grammig and Erik Theissen No. 2011/03 Is BEST Really Beer? Inernalizaion of Orders in an Open Limi Order Book Joachim Grammig and Erik Theissen Cener for Financial Sudies Goehe-Universiä Frankfur House of Finance Grüneburgplaz

More information

The impact of the trading systems development on bid-ask spreads

The impact of the trading systems development on bid-ask spreads Chun-An Li (Taiwan), Hung-Cheng Lai (Taiwan)* The impac of he rading sysems developmen on bid-ask spreads Absrac Following he closure, on 30 June 2005, of he open oucry sysem on he Singapore Exchange (SGX),

More information

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs

Contrarian insider trading and earnings management around seasoned equity offerings; SEOs Journal of Finance and Accounancy Conrarian insider rading and earnings managemen around seasoned equiy offerings; SEOs ABSTRACT Lorea Baryeh Towson Universiy This sudy aemps o resolve he differences in

More information

Chapter 6: Business Valuation (Income Approach)

Chapter 6: Business Valuation (Income Approach) Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he

More information

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE

PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees

More information

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR

MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry

More information

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012

Estimating Time-Varying Equity Risk Premium The Japanese Stock Market 1980-2012 Norhfield Asia Research Seminar Hong Kong, November 19, 2013 Esimaing Time-Varying Equiy Risk Premium The Japanese Sock Marke 1980-2012 Ibboson Associaes Japan Presiden Kasunari Yamaguchi, PhD/CFA/CMA

More information

Option Trading Costs Are Lower Than You Think

Option Trading Costs Are Lower Than You Think Opion Trading Coss Are Lower Than You Think Dmiriy Muravyev Boson College Neil D. Pearson Universiy of Illinois a Urbana-Champaign March 15, 2015 Absrac Convenionally measured bid-ask spreads of liquid

More information

Price Discovery in the Absence of Trading: A Look at the Malta Stock Exchange Pre-opening Period

Price Discovery in the Absence of Trading: A Look at the Malta Stock Exchange Pre-opening Period Price Discovery in he Absence of rading: A Look a he Mala Sock Exchange Pre-opening Period Michael Bowe Suar Hyde Ike Johnson Absrac his paper sudies he conribuion of he pre-opening period o he daily price

More information

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005

Measuring macroeconomic volatility Applications to export revenue data, 1970-2005 FONDATION POUR LES ETUDES ET RERS LE DEVELOPPEMENT INTERNATIONAL Measuring macroeconomic volailiy Applicaions o expor revenue daa, 1970-005 by Joël Cariolle Policy brief no. 47 March 01 The FERDI is a

More information

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets?

Can Individual Investors Use Technical Trading Rules to Beat the Asian Markets? Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weak-form of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien

More information

Do Futures Lead Price Discovery in Electronic Foreign Exchange Markets?

Do Futures Lead Price Discovery in Electronic Foreign Exchange Markets? Do Fuures Lead Price Discovery in Elecronic Foreign Exchange Markes? Juan Cabrera Tao Wang Jian Yang Juan Cabrera is a Ph.D. candidae in he Deparmen of Economics a he Graduae School of he Ciy Universiy

More information

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**

Relationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith** Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia

More information

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework

SPEC model selection algorithm for ARCH models: an options pricing evaluation framework Applied Financial Economics Leers, 2008, 4, 419 423 SEC model selecion algorihm for ARCH models: an opions pricing evaluaion framework Savros Degiannakis a, * and Evdokia Xekalaki a,b a Deparmen of Saisics,

More information

Monetary Policy & Real Estate Investment Trusts *

Monetary Policy & Real Estate Investment Trusts * Moneary Policy & Real Esae Invesmen Truss * Don Bredin, Universiy College Dublin, Gerard O Reilly, Cenral Bank and Financial Services Auhoriy of Ireland & Simon Sevenson, Cass Business School, Ciy Universiy

More information

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years.

What is a swap? A swap is a contract between two counter-parties who agree to exchange a stream of payments over an agreed period of several years. Currency swaps Wha is a swap? A swap is a conrac beween wo couner-paries who agree o exchange a sream of paymens over an agreed period of several years. Types of swap equiy swaps (or equiy-index-linked

More information

UNIVERSITY of PIRAEUS Department of Banking and Financial Management Postgraduate Program

UNIVERSITY of PIRAEUS Department of Banking and Financial Management Postgraduate Program UNIVERSITY of PIRAEUS Deparmen of Banking and Financial Managemen Posgraduae Program Maser Thesis: Trading aciviy and sock price volailiy: Evidence from he Greek sock marke by Mpoumpoukioi Efichia MXRH/0417

More information

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.

Duration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613. Graduae School of Business Adminisraion Universiy of Virginia UVA-F-38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised

More information

NATIONAL BANK OF POLAND WORKING PAPER No. 120

NATIONAL BANK OF POLAND WORKING PAPER No. 120 NATIONAL BANK OF POLAND WORKING PAPER No. 120 Large capial inflows and sock reurns in a hin marke Janusz Brzeszczyński, Marin T. Bohl, Dobromił Serwa Warsaw 2012 Acknowledgemens: We would like o hank Ludwig

More information

I. Basic Concepts (Ch. 1-4)

I. Basic Concepts (Ch. 1-4) (Ch. 1-4) A. Real vs. Financial Asses (Ch 1.2) Real asses (buildings, machinery, ec.) appear on he asse side of he balance shee. Financial asses (bonds, socks) appear on boh sides of he balance shee. Creaing

More information

Cointegration: The Engle and Granger approach

Cointegration: The Engle and Granger approach Coinegraion: The Engle and Granger approach Inroducion Generally one would find mos of he economic variables o be non-saionary I(1) variables. Hence, any equilibrium heories ha involve hese variables require

More information

Option Put-Call Parity Relations When the Underlying Security Pays Dividends

Option Put-Call Parity Relations When the Underlying Security Pays Dividends Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 225-23 Opion Pu-all Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,

More information

Appendix D Flexibility Factor/Margin of Choice Desktop Research

Appendix D Flexibility Factor/Margin of Choice Desktop Research Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\223489-00\4

More information

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES

SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Inernaional Journal of Accouning Research Vol., No. 7, 4 SURVEYING THE RELATIONSHIP BETWEEN STOCK MARKET MAKER AND LIQUIDITY IN TEHRAN STOCK EXCHANGE COMPANIES Mohammad Ebrahimi Erdi, Dr. Azim Aslani,

More information

Risk Modelling of Collateralised Lending

Risk Modelling of Collateralised Lending Risk Modelling of Collaeralised Lending Dae: 4-11-2008 Number: 8/18 Inroducion This noe explains how i is possible o handle collaeralised lending wihin Risk Conroller. The approach draws on he faciliies

More information

Does informed trading occur in the options market? Some revealing clues

Does informed trading occur in the options market? Some revealing clues Does informed rading occur in he opions marke? Some revealing clues Blasco N.(1), Corredor P.(2) and Sanamaría R. (2) (1) Universiy of Zaragoza (2) Public Universiy of Navarre Absrac This paper analyses

More information

Chapter 8 Student Lecture Notes 8-1

Chapter 8 Student Lecture Notes 8-1 Chaper Suden Lecure Noes - Chaper Goals QM: Business Saisics Chaper Analyzing and Forecasing -Series Daa Afer compleing his chaper, you should be able o: Idenify he componens presen in a ime series Develop

More information

Performance Center Overview. Performance Center Overview 1

Performance Center Overview. Performance Center Overview 1 Performance Cener Overview Performance Cener Overview 1 ODJFS Performance Cener ce Cener New Performance Cener Model Performance Cener Projec Meeings Performance Cener Execuive Meeings Performance Cener

More information

A Note on the Impact of Options on Stock Return Volatility. Nicolas P.B. Bollen

A Note on the Impact of Options on Stock Return Volatility. Nicolas P.B. Bollen A Noe on he Impac of Opions on Sock Reurn Volailiy Nicolas P.B. Bollen ABSTRACT This paper measures he impac of opion inroducions on he reurn variance of underlying socks. Pas research generally finds

More information

Asymmetric Information, Perceived Risk and Trading Patterns: The Options Market

Asymmetric Information, Perceived Risk and Trading Patterns: The Options Market Asymmeric Informaion, Perceived Risk and Trading Paerns: The Opions Marke Guy Kaplanski * Haim Levy** March 01 * Bar-Ilan Universiy, Israel, Tel: 97 50 696, Fax: 97 153 50 696, email: guykap@biu.ac.il.

More information

An Empirical Comparison of Asset Pricing Models for the Tokyo Stock Exchange

An Empirical Comparison of Asset Pricing Models for the Tokyo Stock Exchange An Empirical Comparison of Asse Pricing Models for he Tokyo Sock Exchange Absrac In his sudy we compare he performance of he hree kinds of asse pricing models proposed by Fama and French (1993), Carhar

More information

Flight-to-Liquidity and Global Equity Returns

Flight-to-Liquidity and Global Equity Returns Fligh-o-Liquidiy and Global Equiy Reurns Ruslan Goyenko and Sergei Sarkissian * Firs draf: November 2007 This draf: May 2008 * The auhors are from he Faculy of Managemen, McGill Universiy, Monreal, QC

More information

The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns

The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns The Informaion Conen of Implied kewness and urosis Changes Prior o Earnings Announcemens for ock and Opion Reurns Dean Diavaopoulos Deparmen of Finance Villanova Universiy James. Doran Bank of America

More information

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S.

SPECIAL REPORT May 4, Shifting Drivers of Inflation Canada versus the U.S. Paul Ferley Assisan Chief Economis 416-974-7231 paul.ferley@rbc.com Nahan Janzen Economis 416-974-0579 nahan.janzen@rbc.com SPECIAL REPORT May 4, 2010 Shifing Drivers of Inflaion Canada versus he U.S.

More information

The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements. by Nikolay Kosturov* and Duane Stock**

The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements. by Nikolay Kosturov* and Duane Stock** The Sensiiviy of Corporae Bond Volailiy o Macroeconomic nnouncemens by Nikolay Kosurov* and Duane Sock** * Michael F.Price College of Business, Universiy of Oklahoma, 307 Wes Brooks, H 205, Norman, OK

More information

The Behavior of China s Stock Prices in Response to the Proposal and Approval of Bonus Issues

The Behavior of China s Stock Prices in Response to the Proposal and Approval of Bonus Issues The Behavior of China s Sock Prices in Response o he Proposal and Approval of Bonus Issues Michelle L. Barnes a* and Shiguang Ma b a Federal Reserve Bank of Boson Research, T-8 600 Alanic Avenue Boson,

More information

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements

11/6/2013. Chapter 14: Dynamic AD-AS. Introduction. Introduction. Keeping track of time. The model s elements Inroducion Chaper 14: Dynamic D-S dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuing-edge

More information

Financial Market Microstructure and Trading Algorithms

Financial Market Microstructure and Trading Algorithms Financial Marke Microsrucure and Trading Algorihms M.Sc. in Economics and Business Adminisraion Specializaion in Applied Economics and Finance Deparmen of Finance Copenhagen Business School 2009 Jens Vallø

More information

Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence

Does Stock Price Synchronicity Represent Firm-Specific Information? The International Evidence Does Sock Price Synchroniciy Represen Firm-Specific Informaion? The Inernaional Evidence Hollis Ashbaugh-Skaife Universiy of Wisconsin Madison 975 Universiy Avenue Madison, WI 53706 608-63-7979 hashbaugh@bus.wisc.edu

More information

The impact of short selling on the volatility and liquidity of stock markets: evidence from Hong Kong market

The impact of short selling on the volatility and liquidity of stock markets: evidence from Hong Kong market The impac of shor selling on he volailiy and liquidiy of sock markes: evidence from Hong Kong marke Miaoxin Chen 1 Zhenlong Zheng 2 1 Deparmen of Finance, Xiamen Universiy, China. cuecmx@163.com 2 Deparmen

More information

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? *

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? * Does Opion Trading Have a Pervasive Impac on Underlying Sock Prices? * Neil D. Pearson Universiy of Illinois a Urbana-Champaign Allen M. Poeshman Universiy of Illinois a Urbana-Champaign Joshua Whie Universiy

More information

William E. Simon Graduate School of Business Administration. IPO Market Cycles: Bubbles or Sequential Learning?

William E. Simon Graduate School of Business Administration. IPO Market Cycles: Bubbles or Sequential Learning? Universiy of Rocheser William E. Simon Graduae School of Business Adminisraion The Bradley Policy Research Cener Financial Research and Policy Working Paper No. FR 00-21 January 2000 Revised: June 2001

More information

Market Efficiency or Not? The Behaviour of China s Stock Prices in Response to the Announcement of Bonus Issues

Market Efficiency or Not? The Behaviour of China s Stock Prices in Response to the Announcement of Bonus Issues Discussion Paper No. 0120 Marke Efficiency or No? The Behaviour of China s Sock Prices in Response o he Announcemen of Bonus Issues Michelle L. Barnes and Shiguang Ma May 2001 Adelaide Universiy SA 5005,

More information

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of

The Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world

More information

Order Flows, Delta Hedging and Exchange Rate Dynamics

Order Flows, Delta Hedging and Exchange Rate Dynamics rder Flows Dela Hedging and Exchange Rae Dynamics Bronka Rzepkowski # Cenre d Eudes rospecives e d Informaions Inernaionales (CEII) ABSTRACT This paper proposes a microsrucure model of he FX opions and

More information

CALCULATION OF OMX TALLINN

CALCULATION OF OMX TALLINN CALCULATION OF OMX TALLINN CALCULATION OF OMX TALLINN 1. OMX Tallinn index...3 2. Terms in use...3 3. Comuaion rules of OMX Tallinn...3 3.1. Oening, real-ime and closing value of he Index...3 3.2. Index

More information

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES

INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchange-raded ineres rae fuures and heir opions are described. The fuure opions include hose paying

More information

Influence of the Dow returns on the intraday Spanish stock market behavior

Influence of the Dow returns on the intraday Spanish stock market behavior Influence of he Dow reurns on he inraday Spanish sock marke behavior José Luis Miralles Marcelo, José Luis Miralles Quirós, María del Mar Miralles Quirós Deparmen of Financial Economics, Universiy of Exremadura

More information

The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks

The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks The Idenificaion of he Response of Ineres Raes o Moneary Policy Acions Using Marke-Based Measures of Moneary Policy Shocks Daniel L. Thornon Federal Reserve Bank of S. Louis Phone (314) 444-8582 FAX (314)

More information

Chapter 1.6 Financial Management

Chapter 1.6 Financial Management Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1

More information

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO.

WORKING PAPER SERIES STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MEASURING INTERNATIONAL FINANCIAL TRANSMISSION NO. WORKING PAPER SERIES NO. 452 / MARCH 25 STOCKS, BONDS, MONEY MARKETS AND EXCHANGE RATES MSURING INTERNATIONAL FINANCIAL TRANSMISSION by Michael Ehrmann, Marcel Frazscher and Robero Rigobon WORKING PAPER

More information

Markit Excess Return Credit Indices Guide for price based indices

Markit Excess Return Credit Indices Guide for price based indices Marki Excess Reurn Credi Indices Guide for price based indices Sepember 2011 Marki Excess Reurn Credi Indices Guide for price based indices Conens Inroducion...3 Index Calculaion Mehodology...4 Semi-annual

More information

Migration, Spillovers, and Trade Diversion: The Impact of Internationalization on Domestic Stock Market Activity

Migration, Spillovers, and Trade Diversion: The Impact of Internationalization on Domestic Stock Market Activity Migraion, Spillovers, and Trade Diversion: The mpac of nernaionalizaion on Domesic Sock Marke Aciviy Ross Levine and Sergio L. Schmukler Firs Draf: February 10, 003 This draf: April 8, 004 Absrac Wha is

More information

Working Paper The dynamics of trading duration, volume and price volatility: A vector MEM model

Working Paper The dynamics of trading duration, volume and price volatility: A vector MEM model econsor www.econsor.eu Der Open-Access-Publikaionsserver der ZBW Leibniz-Informaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Xu, Yongdeng Working

More information

Forecasting, Ordering and Stock- Holding for Erratic Demand

Forecasting, Ordering and Stock- Holding for Erratic Demand ISF 2002 23 rd o 26 h June 2002 Forecasing, Ordering and Sock- Holding for Erraic Demand Andrew Eaves Lancaser Universiy / Andalus Soluions Limied Inroducion Erraic and slow-moving demand Demand classificaion

More information

Market Maker Inventories and Stock Prices

Market Maker Inventories and Stock Prices Marke Maker Invenories and Sock Prices Terrence Hendersho U.C. Berkeley Mark S. Seasholes U.C. Berkeley This Version March 3, 2006 Absrac This paper examines daily invenory/asse price dynamics using 11

More information

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation

A Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion

More information

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith

The Effect of Monetary Policy on Private Money Market Rates in Jamaica: An Empirical Microstructure Study. Derek Leith The Effec of Moneary Policy on Privae Money Marke Raes in Jamaica: An Empirical Microsrucure Sudy Derek Leih Research Services Deparmen Research and Economic Programming Division Bank of Jamaica Absrac

More information

Journal of Financial and Strategic Decisions Volume 12 Number 1 Spring 1999

Journal of Financial and Strategic Decisions Volume 12 Number 1 Spring 1999 Journal of Financial and Sraegic Decisions Volume 12 Number 1 Spring 1999 THE LEAD-LAG RELATIONSHIP BETWEEN THE OPTION AND STOCK MARKETS PRIOR TO SUBSTANTIAL EARNINGS SURPRISES AND THE EFFECT OF SECURITIES

More information

Cloud Computing Spot Pricing Dynamics: Latency and Limits to Arbitrage

Cloud Computing Spot Pricing Dynamics: Latency and Limits to Arbitrage Cloud Compuing Spo Pricing Dynamics: Laency and Limis o Arbirage by Hsing Kenneh Cheng, Zhi Li, and Andy Naranjo* *Warringon College of Business Adminisraion Hough Graduae School of Business Universiy

More information

expressed here and the approaches suggested are of the author and not necessarily of NSEIL.

expressed here and the approaches suggested are of the author and not necessarily of NSEIL. I. Inroducion Do Fuures and Opions rading increase sock marke volailiy Dr. Premalaa Shenbagaraman * In he las decade, many emerging and ransiion economies have sared inroducing derivaive conracs. As was

More information

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry

Measuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan

More information

Efficiency of Price Discovery in Thinly Traded Stocks: Evidence from Dual Listings in Tel Aviv and the OTC*

Efficiency of Price Discovery in Thinly Traded Stocks: Evidence from Dual Listings in Tel Aviv and the OTC* Efficiency of Price Discovery in Thinly Traded Socks: Evidence from Dual Lisings in Tel Aviv and he OTC* Shmuel Hauser Ben Gurion Universiy of he Negeve and Israel Securiies Auhoriy, Israel Azriel Levy

More information

The Liquidity and Volatility Impacts of Day Trading by Individuals in. the Taiwan Index Futures Market

The Liquidity and Volatility Impacts of Day Trading by Individuals in. the Taiwan Index Futures Market The Liquidiy and Volailiy Impacs of Day Trading by Individuals in he Taiwan Index Fuures Marke Robin K. Chou Professor, Deparmen of Finance, Naional Chengchi Universiy George H. K. Wang Research Professor

More information

Stock Market Liquidity and the Macroeconomy: Evidence from Japan

Stock Market Liquidity and the Macroeconomy: Evidence from Japan WP/05/6 Sock Marke Liquidiy and he Macroeconomy: Evidence from Japan Woon Gyu Choi and David Cook 2005 Inernaional Moneary Fund WP/05/6 IMF Working Paper IMF Insiue Sock Marke Liquidiy and he Macroeconomy:

More information

THE ROLE OF ASYMMETRIC INFORMATION AMONG INVESTORS IN THE FOREIGN EXCHANGE MARKET

THE ROLE OF ASYMMETRIC INFORMATION AMONG INVESTORS IN THE FOREIGN EXCHANGE MARKET INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS In. J. Fin. Econ. (2008) Published online in Wiley InerScience (www.inerscience.wiley.com)..367 THE ROLE OF ASYMMETRIC INFORMATION AMONG INVESTORS IN THE FOREIGN

More information

Why does the correlation between stock and bond returns vary over time?

Why does the correlation between stock and bond returns vary over time? Why does he correlaion beween sock and bond reurns vary over ime? Magnus Andersson a,*, Elizavea Krylova b,**, Sami Vähämaa c,*** a European Cenral Bank, Capial Markes and Financial Srucure Division b

More information

MARKET LIQUIDITY AND DEPTH ON FLOOR-TRADED AND E-MINI INDEX FUTURES: AN ANALYSIS OF THE S&P 500 AND NASDAQ 100

MARKET LIQUIDITY AND DEPTH ON FLOOR-TRADED AND E-MINI INDEX FUTURES: AN ANALYSIS OF THE S&P 500 AND NASDAQ 100 80 Invesmen Managemen and Financial Innovaions, Volume 4, Issue 4, 2007 MARKET LIQUIDITY AND DEPTH ON FLOOR-TRADED AND E-MINI INDEX FUTURES: AN ANALYSIS OF THE S&P 500 AND NASDAQ 100 Yu-shan Wang *, Huimin

More information

Florida State University Libraries

Florida State University Libraries Florida Sae Universiy Libraries Elecronic Theses, Treaises and Disseraions The Graduae School 2008 Two Essays on he Predicive Abiliy of Implied Volailiy Consanine Diavaopoulos Follow his and addiional

More information

One dictionary: Native language - English/English - native language or English - English

One dictionary: Native language - English/English - native language or English - English Faculy of Social Sciences School of Business Corporae Finance Examinaion December 03 English Dae: Monday 09 December, 03 Time: 4 hours/ 9:00-3:00 Toal number of pages including he cover page: 5 Toal number

More information