Comparing Time-Varying Price Impact and Information Impounding Time Across Asian Stock Exchanges: An Adaptive Lasso Approach

34 Pages Posted: 29 Oct 2012

See all articles by Wang Chun Wei

Wang Chun Wei

University of Queensland - Faculty of Business, Economics and Law; University of Queensland - Finance

Quan Gan

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Date Written: October 29, 2012

Abstract

In this paper we construct a parsimonious vector autoregression model with durations, trades and quote revisions to compare price impact and information impounding time in four Asian stock exchanges. We conduct simultaneous model selection and estimation using the adaptive lasso approach. We measure the price impact and the information impounding time via examining the impulse response of a new trade. Weekly estimation from January 2007 to August 2012 allows us to compare the time-varying price impacts. We find that the price impact and the information impounding time vary considerably across time. Traders in Korean and Japanese markets pay more attention to high price impact trades while traders in Hong Kong and Chinese markets pay less attention. Larger mean price impact has larger impact uncertainty measured by the price impact’s standard deviation. Longer mean information impounding time has higher convergence uncertainty measured by the information impounding time’s standard deviation. For many stocks, price impacts have spikes during the 2008 financial crisis. The price impact is negatively related to liquidity and positively related to systematic risk. The average correlation among price impacts of different stocks also varies across time. In Korean and Chinese markets, when systematic risk is high, the average correlation among price impacts is also high.

Keywords: adaptive lasso, attention, price impact, market microstructure

JEL Classification: G01, G15, C52

Suggested Citation

Wei, Wang Chun and Gan, Quan, Comparing Time-Varying Price Impact and Information Impounding Time Across Asian Stock Exchanges: An Adaptive Lasso Approach (October 29, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2168033 or http://dx.doi.org/10.2139/ssrn.2168033

Wang Chun Wei

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

University of Queensland - Finance ( email )

Australia

Quan Gan (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Discipline of Finance
University of Sydney
Sydney, NSW 2006
Australia

HOME PAGE: http://sydney.edu.au/business/staff/quang

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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