When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through an Ornstein-Uhlenbeck (OU) process. Market makers provide liquidity in an attempt to monetize this oscillation. They enter a long position when a security is priced below its estimated equilibrium level, and they enter a short position when a security is priced above its estimated equilibrium level. They hold that position until one of three outcomes occur: (1) they achieve the targeted profit; (2) they experience a maximum tolerated loss; (3) the position is held beyond a maximum tolerated horizon. All market makers are confronted with the problem of defining profit-taking and stop-out levels. More generally, all execution traders holding a particular position for a client must determine at what levels an order must be fulfilled. Those optimal levels can be determined by maximizing the trader's Sharpe ratio in the context of OU processes via Monte Carlo experiments. This paper develops an analytical framework and derives those optimal levels by using the method of heat potentials.
{"title":"A Closed-Form Solution for Optimal Mean-Reverting Trading Strategies","authors":"A. Lipton, Marcos M. López de Prado","doi":"10.2139/ssrn.3534445","DOIUrl":"https://doi.org/10.2139/ssrn.3534445","url":null,"abstract":"When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through an Ornstein-Uhlenbeck (OU) process. \u0000 \u0000Market makers provide liquidity in an attempt to monetize this oscillation. They enter a long position when a security is priced below its estimated equilibrium level, and they enter a short position when a security is priced above its estimated equilibrium level. They hold that position until one of three outcomes occur: (1) they achieve the targeted profit; (2) they experience a maximum tolerated loss; (3) the position is held beyond a maximum tolerated horizon. \u0000 \u0000All market makers are confronted with the problem of defining profit-taking and stop-out levels. More generally, all execution traders holding a particular position for a client must determine at what levels an order must be fulfilled. Those optimal levels can be determined by maximizing the trader's Sharpe ratio in the context of OU processes via Monte Carlo experiments. This paper develops an analytical framework and derives those optimal levels by using the method of heat potentials.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73939472","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we show that synchronised market data across different venues can be of great help to better understand orderbook dynamics. We introduce a new measure for main European trading destinations: the “limit evasiveness”. It characterises the propensity of a limit to be cancelled without being emptied to prevent participants from consuming the liquidity displayed on the first limit. We show that Primary limits are less evasive than Cboe-ChiX.
Lastly, we highlight the “leading venues”, by observing which the most frequent venues are when a trade is done at a better price compared to all the previous orderbooks’ best limits observed before this new trade. We show that Cboe-ChiX is overrepresented in leading instances, thus providing better effective prices to participants.
It thus seems that MTFs are faster to cancel as well as to create new limits than primary markets.
All these analyses are conducted based on c. 580,000 Smart Order Router market data observations from May 2019 that register best limits across different venues existing at a given point in time.
{"title":"Lead-Lag and Evasiveness of Price Limits Across Venues Based on Synchronised Orderbook Observations","authors":"Paul Besson, Stephanie Sureau, Hoang-Nam Nguyen","doi":"10.2139/ssrn.3529307","DOIUrl":"https://doi.org/10.2139/ssrn.3529307","url":null,"abstract":"In this paper, we show that synchronised market data across different venues can be of great help to better understand orderbook dynamics. We introduce a new measure for main European trading destinations: the “limit evasiveness”. It characterises the propensity of a limit to be cancelled without being emptied to prevent participants from consuming the liquidity displayed on the first limit. We show that Primary limits are less evasive than Cboe-ChiX.<br><br>Lastly, we highlight the “leading venues”, by observing which the most frequent venues are when a trade is done at a better price compared to all the previous orderbooks’ best limits observed before this new trade. We show that Cboe-ChiX is overrepresented in leading instances, thus providing better effective prices to participants.<br><br>It thus seems that MTFs are faster to cancel as well as to create new limits than primary markets.<br><br>All these analyses are conducted based on c. 580,000 Smart Order Router market data observations from May 2019 that register best limits across different venues existing at a given point in time.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77817882","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-12-28DOI: 10.16980/jitc.15.6.201912.121
Yang-Seung Lee
Purpose – The purpose of this paper is to develop a tractable general-equilibrium model, where the market is mixed of large firms (oligopoly) and small firms (monopolistic competition). We will provide new implication of trade gain.
Design/Methodology/Approach – Our discussion relies on theoretic analysis for the interaction between large firms and small firms. Large firms compete in quantity-setting (Cournot-competition) so that strategically behave. Large firms are a first-mover while small firms are a second-mover.
Findings – When the economy is open, the market-expansion effect induces large firms to reschedule to produce more, and to demand more high-quality workers. The expansion of output-schedules crowds out the production of small firms. The demand of high-quality workers widens wage inequality within country. Small firms lose from trade. However, the more productive workers of small firms gain because large firms offers them jobs. Not all large firms gain. Firms of low-quality workers would lose from trade.
Research Implications or Originality – Overall, the effect of trade liberalization on welfare is ambiguous. It depends on distribution of labor qualities and number of large firms. When a country is abundant (scarce) of high-quality laborers, welfare improves (declines). When both countries have the same distribution of labor qualities, welfare improves in the country with a greater number of large firms. This paper can contribute to the literature of granular firms, labor market imperfection, and trade.
{"title":"General Oligopolistic Equilibrium (GOLE) in Trade","authors":"Yang-Seung Lee","doi":"10.16980/jitc.15.6.201912.121","DOIUrl":"https://doi.org/10.16980/jitc.15.6.201912.121","url":null,"abstract":"Purpose – The purpose of this paper is to develop a tractable general-equilibrium model, where the market is mixed of large firms (oligopoly) and small firms (monopolistic competition). We will provide new implication of trade gain.<br><br>Design/Methodology/Approach – Our discussion relies on theoretic analysis for the interaction between large firms and small firms. Large firms compete in quantity-setting (Cournot-competition) so that strategically behave. Large firms are a first-mover while small firms are a second-mover.<br><br>Findings – When the economy is open, the market-expansion effect induces large firms to reschedule to produce more, and to demand more high-quality workers. The expansion of output-schedules crowds out the production of small firms. The demand of high-quality workers widens wage inequality within country. Small firms lose from trade. However, the more productive workers of small firms gain because large firms offers them jobs. Not all large firms gain. Firms of low-quality workers would lose from trade.<br><br>Research Implications or Originality – Overall, the effect of trade liberalization on welfare is ambiguous. It depends on distribution of labor qualities and number of large firms. When a country is abundant (scarce) of high-quality laborers, welfare improves (declines). When both countries have the same distribution of labor qualities, welfare improves in the country with a greater number of large firms. This paper can contribute to the literature of granular firms, labor market imperfection, and trade.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-12-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89148939","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents novel evidence that individual stocks are subject to mispricing amid shocks that permanently shift the long-run relationship between the price and the fundamentals (e.g., book value). When the long-run level of the price-to-fundamentals ratio increases/decreases, the price is expected to rise/drop during the mean shift. Based on higher/lower expected returns, uninformed investors, however, incorrectly infer that the stock is currently undervalued/overvalued and increase the purchases/sales, which causes mispricing. Trading strategies that exploit subsequent reversals of the returns yield significant positive returns. Buying/shortselling closed-end mutual funds with lowest/highest mean shifts of the price-to-NAV ratio produces risk-adjusted returns of 3% to 8% per year. Overreaction to news might not explain these results.
{"title":"Trading on Overshooting","authors":"Min S. Kim","doi":"10.2139/ssrn.3505076","DOIUrl":"https://doi.org/10.2139/ssrn.3505076","url":null,"abstract":"This paper presents novel evidence that individual stocks are subject to mispricing amid shocks that permanently shift the long-run relationship between the price and the fundamentals (e.g., book value). When the long-run level of the price-to-fundamentals ratio increases/decreases, the price is expected to rise/drop during the mean shift. Based on higher/lower expected returns, uninformed investors, however, incorrectly infer that the stock is currently undervalued/overvalued and increase the purchases/sales, which causes mispricing. Trading strategies that exploit subsequent reversals of the returns yield significant positive returns. Buying/shortselling closed-end mutual funds with lowest/highest mean shifts of the price-to-NAV ratio produces risk-adjusted returns of 3% to 8% per year. Overreaction to news might not explain these results.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73916219","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the economic impact of the emergence of FinTech platforms on financial intermediation. In China, platform distributions of mutual funds emerged in 2012 and grew quickly into a formidable presence. Utilizing the staggered fund entrance onto platforms, we find markedly increased flow sensitivities to performance. Akin to the winner-take-all phenomenon in the platform economy, net flow captured by top 10% performing funds more than triples its pre-platform level. This pattern of platform-induced performance chasing is further confirmed using private data from Howbuy, a top platform in China. Consistent with this added incentive of becoming top performers in the era of large-scale platforms, fund managers increase risk taking to enhance the probability of becoming top performers. Meanwhile, organizational cohesiveness of fund families weakens as platforms level the playing field for all funds.
{"title":"FinTech Platforms and Mutual Fund Distribution","authors":"C. Hong, Xiaomeng Lu, Jun Pan","doi":"10.2139/ssrn.3474792","DOIUrl":"https://doi.org/10.2139/ssrn.3474792","url":null,"abstract":"This paper studies the economic impact of the emergence of FinTech platforms on financial intermediation. In China, platform distributions of mutual funds emerged in 2012 and grew quickly into a formidable presence. Utilizing the staggered fund entrance onto platforms, we find markedly increased flow sensitivities to performance. Akin to the winner-take-all phenomenon in the platform economy, net flow captured by top 10% performing funds more than triples its pre-platform level. This pattern of platform-induced performance chasing is further confirmed using private data from Howbuy, a top platform in China. Consistent with this added incentive of becoming top performers in the era of large-scale platforms, fund managers increase risk taking to enhance the probability of becoming top performers. Meanwhile, organizational cohesiveness of fund families weakens as platforms level the playing field for all funds.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81379885","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract I provide a sufficient condition for the uniqueness of equilibrium payoffs in a model of stochastic bargaining with unanimity rule and risk-averse players. My Condition (S) implies Condition (C) of Merlo and Wilson (1995) and is easy to verify in applications.
{"title":"Uniqueness of Equilibrium Payoffs in the Stochastic Model of Bargaining","authors":"Kirill S. Evdokimov","doi":"10.2139/ssrn.3491443","DOIUrl":"https://doi.org/10.2139/ssrn.3491443","url":null,"abstract":"Abstract I provide a sufficient condition for the uniqueness of equilibrium payoffs in a model of stochastic bargaining with unanimity rule and risk-averse players. My Condition (S) implies Condition (C) of Merlo and Wilson (1995) and is easy to verify in applications.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"88756813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-11-01DOI: 10.21428/58320208.C9738E64
Guillermo Angeris, Hsien-Tang Kao, Rei Chiang, C. Noyes, Tarun Chitra
Uniswap — and other constant product markets — appear to work well in practice despite their simplicity. In this paper, we give a simple formal analysis of constant product markets and their generalizations, showing that, under some common conditions, these markets must closely track the reference market price. We also show that Uniswap satisfies many other desirable properties and numerically demonstrate, via a large-scale agent-based simulation, that Uniswap is stable under a wide range of market conditions.
{"title":"An Analysis of Uniswap Markets","authors":"Guillermo Angeris, Hsien-Tang Kao, Rei Chiang, C. Noyes, Tarun Chitra","doi":"10.21428/58320208.C9738E64","DOIUrl":"https://doi.org/10.21428/58320208.C9738E64","url":null,"abstract":"Uniswap — and other constant product markets — appear to work well in practice despite their simplicity. In this paper, we give a simple formal analysis of constant product markets and their generalizations, showing that, under some common conditions, these markets must closely track the reference market price. We also show that Uniswap satisfies many other desirable properties and numerically demonstrate, via a large-scale agent-based simulation, that Uniswap is stable under a wide range of market conditions.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74625449","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We estimate historical stock returns for Swedish listed companies in a newly constructed data set of daily stock prices. Stock returns exhibit all familiar characteristics. There is little trading in the past, and we examine the effects on return measurement from missing data. Stock selection and the replacement of missing transaction prices through search back procedures or limit orders make little difference to a value-weighted stock price index, while ignoring the price effects of capital operations makes a big difference. We also study stock market development. The growth of the public sector depresses the stock market, and the process of globalization revitalizes it. Banks play an important role in the early development of the stock market. The evolution of stock ownership implies that stock ownership is a normal good.
{"title":"Performance and Development of a Thin Stock Market","authors":"Kristian Rydqvist","doi":"10.2139/ssrn.3477972","DOIUrl":"https://doi.org/10.2139/ssrn.3477972","url":null,"abstract":"We estimate historical stock returns for Swedish listed companies in a newly constructed data set of daily stock prices. Stock returns exhibit all familiar characteristics. There is little trading in the past, and we examine the effects on return measurement from missing data. Stock selection and the replacement of missing transaction prices through search back procedures or limit orders make little difference to a value-weighted stock price index, while ignoring the price effects of capital operations makes a big difference. We also study stock market development. The growth of the public sector depresses the stock market, and the process of globalization revitalizes it. Banks play an important role in the early development of the stock market. The evolution of stock ownership implies that stock ownership is a normal good.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-10-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82479942","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Implications of partial information for applied macroeconomic modelling along four dimensions are shown, and analysis provided on how they can be addressed. First, when permanent shocks are present a Vector Error-Correction Model including latent, as well as observed, variables is required to capture macroeconomic dynamics. Second, the assumption in Dynamic Stochastic General Equilibrium models that shocks are autocorrelated provides identifying information usable in Structural Vector AutoRe-gressions. Third, estimating models with more shocks than observed variables must yield correlated estimated structural shocks. Fourth, including measurement error, as commonly specified, implies a lack of co-integration between variables, even when actually present
{"title":"Implications of Partial Information for Applied Macroeconomic Modelling","authors":"A. Pagan, Tim Robinson","doi":"10.2139/ssrn.3472752","DOIUrl":"https://doi.org/10.2139/ssrn.3472752","url":null,"abstract":"Implications of partial information for applied macroeconomic modelling along four dimensions are shown, and analysis provided on how they can be addressed. First, when permanent shocks are present a Vector Error-Correction Model including latent, as well as observed, variables is required to capture macroeconomic dynamics. Second, the assumption in Dynamic Stochastic General Equilibrium models that shocks are autocorrelated provides identifying information usable in Structural Vector AutoRe-gressions. Third, estimating models with more shocks than observed variables must yield correlated estimated structural shocks. Fourth, including measurement error, as commonly specified, implies a lack of co-integration between variables, even when actually present","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77140368","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
D. Cvijanović, Stanimira Milcheva, Alex M. van de Minne
Employing an efficient Bayesian estimation procedure, Integrated Nested Laplace Approximation (INLA), we find evidence of Investor Size Premium. Controlling for investor skill, financing constraints, and prior market knowledge, as well as property and time-varying location specific factors and property random effects, we find that larger buyers tend to pay a significant price premium relative to smaller buyers, for the otherwise identical property. Debt plays a role for the length of the holding period. These results point to a significant role of intrinsic valuations and the role of bargaining intensity and can explain why real estate markets are highly segmented.
{"title":"Does Investor Size Matter? Evidence from Commercial Real Estate Transactions","authors":"D. Cvijanović, Stanimira Milcheva, Alex M. van de Minne","doi":"10.2139/ssrn.3470384","DOIUrl":"https://doi.org/10.2139/ssrn.3470384","url":null,"abstract":"Employing an efficient Bayesian estimation procedure, Integrated Nested Laplace Approximation (INLA), we find evidence of Investor Size Premium. Controlling for investor skill, financing constraints, and prior market knowledge, as well as property and time-varying location specific factors and property random effects, we find that larger buyers tend to pay a significant price<br>premium relative to smaller buyers, for the otherwise identical property. Debt plays a role for the length of the holding period. These results point to a significant role of intrinsic valuations and the role of bargaining intensity and can explain why real estate markets are highly segmented.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73475616","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
京公网安备 11010802042870号
京ICP备2023020795号-1
扫码关注我们
求助内容：
应助结果提醒方式：