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Abstract:
We find that turnover rises on n-day highs and lows and is an increasing function of n. We offer several explanations from the technical and behavioral finance literature for why traders might use these signals. Turnover is persistent following these events, and new lows provide abnormal returns for up to 6 trading days.

behavioral finance, technical analysis, turnover, n-day high/low, abnormal returns

Abstract:
This article discusses the microstructure of the U.S. Treasury securities market. Treasury securities are nominally riskless debt instruments issued by the U.S. government. Microstructural analysis is a field of economics/finance that examines the roles played by heterogenous agents, institutional detail, and asymmetric information in the trading process. The article describes types of Treasury issues; stages of the Treasury market; the major players, including the role of the Federal Reserve Bank of New York and the interdealer brokers; the structure of both the spot and futures markets; the findings of the seasonality/announcement and order book literature; and research on price discovery. We conclude by discussing possible future avenues of research.

Treasury, microstructure, spreads, order book, announcement

Abstract:
The Nasdaq stock market provides information about buying and selling interest in what is called the Level II display. Using a bivariate VAR model of trades and quotes, I assess the effect of Level II prices and depths on short-run quote dynamics. I also determine the influence of individual market makers and electronic networks and find evidence of strategic behavior. Finally, I produce a set of dynamic market price responses to buy and sell orders, and I find that these estimates vary with standard measures of liquidity.

Nasdaq, Level II, microstructure, tick

Abstract:
We analyze the trading activity in an Internet chat room over a four-year period. The data set contains nearly 9,000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they have statistically significant alphas of 0.17% per day after controlling for the Fama-French factors and momentum. Traders hold their winners 25% longer than their losers. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short. The estimates show a strong influence from other traders, with a buy (sell) order 40.7% more likely to be of the same sign if there has been a recent post. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade.

behavioral finance, day trading, familiarity bias, disposition effect, experts

Abstract:
I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42 market makers studied engage in significant pre-recommendation activity. I estimate cumulative abnormal returns of more than 75% and profits of almost $600 million in a sample of 47 large capitalization stocks.

Analyst, Nasdaq, market maker

Abstract:
I analyze the jump risk in the ABX index of subprime home equity credit default swaps and CME housing futures. Using estimators of the jump and cojump components of security prices, I document: (1) significant jumps in the ABX as early as September 2006, well before any problems in the mortgage market were discussed in the press or policy circles; (2) news explains up to 56% of the jump risk; (3) the return variation due to jumps in the housing futures is above 40%, almost two times larger than the ABX; (4) 27 significant cojump episodes between the ABX and housing futures; (5) a predictive model that explains up to 85% of the jump risk; (6) a 20 point slope in the housing futures curve leads to an expected jump of -1.4% in the BBB- ABX; (7) jumps explain up to 50% of the value-at-risk exceedences which occur at almost three times the expected rate.

asset backed securities, credit default swaps, housing futures, subprime, jump risk, cojumps, Value-at-Risk

Abstract:
This paper assesses the contribution of monetary policy to the dynamics of bond real returns. We assume that the monetary authority controls the short-term nominal interest rate. We then model exogenously the joint dynamics of the aggregate endowment and the monetary policy variable, and determine bond real returns endogenously. Market segmentation is introduced by permanently excluding a fraction of households from financial markets. When markets are segmented, monetary policy has a direct liquidity effect on the participants' consumption and marginal utility, on the stochastic discount factor, and on real returns. With full participation, however, real returns are determined by the aggregate endowment only, so monetary policy can affect them only indirectly. Data on bond returns strongly favor the segmented markets model over the full participation model. For maturities up to 2 years, the segmented markets model is able to replicate the sign and the size of the impulse response of bond returns to monetary policy shocks, it correctly predicts the sign of their autocorrelation, and it closely matches their volatility as a function of maturity.

Bond returns volatility, limited participation, segmented markets, monetary policy shocks

Abstract:
This paper documents the significant role of ECNs in forming the inside market in NASDAQ securities. We argue that the ECNs need to be exposed to market orders through the SOES system.

ECN, Microstructure, NASDAQ, SOES

Abstract:
This paper is the first to characterize the tatonnement of high-frequency returns from U.S. Treasury spot and futures markets. In particular, we highlight the previously neglected role of the futures markets in price discovery. The lower-bound estimate of bivariate information shares for 30-year Treasury futures typically exceeds 50% from 1998 on. Standard liquidity measures, including the proportion of trades and relative bid-ask spreads, explain daily information shares. These conclusions still hold when one controls for days of macroeconomic announcements. Finally, a 5-dimensional cointegrated system explains a high percentage of Treasury returns. In that system, the 30-year futures contract and the 5-year spot market dominate price discovery.

price discovery, Treasury market, microstructure, GovPX, futures, information shares

Abstract:
This paper examines a variety of methods for extracting implied probability distributions from option prices and the underlying. The paper first explores non-parametric procedures for reconstructing densities directly from options market data. I then consider local volatility functions, both through implied volatility trees and volatility interpolation. I then turn to alternative specifications of the stochastic process for the underlying. I estimate a mixture of log normals model, apply it to exchange rate data, and illustrate how to conduct forecast comparisons. I finally turn to the estimation of jump risk by extracting bipower variation.

options, implied probability densities, volatility smile, jump risk, bipower variation

Abstract:
This paper characterizes the tatonnement of high-frequency returns from U.S. Treasury spot and futures markets. In particular, we highlight the previously neglected role of the futures markets in price discovery. The highest futures market shares are in the longest maturities. The estimates of 5-year and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5- and 10-year maturities but also decline after 1998. Standard liquidity measures, including the relative bid-ask spreads, number of trades, and realized volatility are statistically significant and explain up to 21% of daily information shares. The futures market gains information share in about 1/4 of the events where public information is released, but days of macroeconomic announcements rarely explain information shares independently of their effects on liquidity.

information shares, Treasury market, microstructure, GovPX, futures, price discovery

Abstract:
The paper analyzes the intensity of choice in an agent based financial optimization problem. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. We specify a model for the allocation of new funds, switching between funds, and withdrawals and obtain statistically significant estimates of the intensity of choice parameter. This estimate is also given economic interpretation through the underperformance of funds that use an active style. We find that agents with relative risk aversion of 2 will move 1% of their funds from
active to passive for an extra 34 basis points of return.

heterogenous agents, intensity of choice, mutual funds

Abstract:
Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulated moments estimator for option volatilities described in Mizrach (2002); the second is a new approach developed by Haas, Mittnik and Paolella (2004a) for fat-tailed conditionally heteroskedastic time series. In an application to the 1992-93 European Exchange Rate Mechanism crises, that both the options and the underlying exchange rates provide useful information for policy makers.

Options, Implied Probability Densities, GARCH, Fat-Tails, Exchange Rate Mechanism

Abstract:
In a Markov switching framework, we show that the duration of recessions is significantly shorter than the duration of expansions in 11 manufacturing sectors, and aggregate durables and manufacturing output. We find two leading indicators, consumer expectations and the term spread, act as important demand driven forces behind asymmetry.

asymmetry, industry, Markov switching, leading indicators

Abstract:
This paper assesses the microstructure of the U.S. Treasury securities market using tick data from the BrokerTec electronic trading platform. We examine trading activity, bid-ask spreads, and depth for the on-the-run 2-, 3-, 5-, 10- and 30-year securities and find that liquidity is markedly greater than that reported by earlier studies using data from GovPX. We analyze the price impact of trades and find that the effects are overstated if order book changes are ignored, and that order book changes affect prices by themselves. We also explore a novel feature of this platform, the ability to enter 'iceberg' orders, and find that such orders are more common when price volatility is higher, as'predicted by theory.

Abstract:
This paper assesses the microstructure of the U.S. Treasury securities market, using newly available tick data from the BrokerTec electronic trading platform. Examining trading activity, bid-ask spreads, and depth for on-the-run two-, three-, five-, ten-, and thirty-year Treasury securities, we find that market liquidity is greater than that found in earlier studies that use data only from voice-assisted brokers. We find that the price effect of trades on BrokerTec is quite small and is even smaller once order-book information is considered. Moreover, order-book information itself is shown to affect prices. We also explore a novel feature of BrokerTec -- the ability to enter hidden ('iceberg') orders -- and find that, as predicted by theory, such orders are more common when price volatility is higher.

microstructure, treasury market, bid-ask spread, price impact, hidden orders

Abstract:
This paper considers the meaning of domestic and international systemic risk. It examines scenarios that have been adduced as creating systemic risk both within countries and among them. It distinguishes between the concepts of real and pseudo-systemic risk. We examine the history of episodes commonly viewed either as financial crises or as evidencing systemic risk to glean lessons for today. We also present some statistical evidence on possible recent systemic risk linkages between the stock markets of emerging countries. The paper concludes with a discussion of the lessons yielded by the record.

Abstract:
Emissions markets have emerged in Europe, North America, and around the globe. This paper analyzes the market architecture and common factors of emission reduction instruments. Within the EU ETS, I find that the major spot and futures exchanges in Europe are cointegrated. The spot and futures prices for both Phase I and Phase II EUA are also cointegrated, but the futures curve beyond the calendar year evolves independently. While registry linkage has narrowed spreads, EUA and CER spot and futures instruments are not cointegrated. Futures prices efficiently predict auction outcomes in both the U.S. Acid Rain SO2 program and carbon prices in the RGGI. RGGI allowances share a common trend with EUA, and the European markets adjust to prices from the U.S. The introduction of ACES has broken a cointegrating relationship in voluntary prices. Voluntary instruments that are convertible into mandatory allowance claims imply a 46% probability of price convergence between the U.S. and Europe by 2013.

carbon, greenhouse gases, emission allowances, market architecture, cointegration

Abstract:
This paper compares foreign exchange market intervention in case there is no uncertainty about the extent of an imperfectly sustainable target zone and where there is uncertainty. A well-known example of the first case was the European Monetary System between 1979 and 1992. An example of the latter is the dirty floating of the dollar against the Dmark and yen after the so-called Louvre Accord in 1987. The analysis shows that the instantaneous effectiveness of intervention tends to be larger the more implicit the band policy is. our empirical results which use Belgian and US intervention data support this claim.

official intervention, target zones

Abstract:
This paper compares foreign exchange market intervention in case there is no uncertainty about the extent of an imperfectly sustainable target zone and where there is uncertainty. A well-known example of the first case was the European Monetary System between 1979 and 1992. An example of the latter is the dirty floating of the dollar against the Dmark and yen after the so-called Louvre Accord in 1987. The analysis shows that the instanta- neous effectiveness of intervention tends to be larger the more implicit the band policy is. Our empirical results which use Belgian and US intervention data support this claim.