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Market Microstructure: Confronting Many Viewpoints

Book Description

The latest cutting-edge research on market microstructure

Based on the December 2010 conference on market microstructure, organized with the help of the Institut Louis Bachelier, this guide brings together the leading thinkers to discuss this important field of modern finance. It provides readers with vital insight on the origin of the well-known anomalous "stylized facts" in financial prices series, namely heavy tails, volatility, and clustering, and illustrates their impact on the organization of markets, execution costs, price impact, organization liquidity in electronic markets, and other issues raised by high-frequency trading. World-class contributors cover topics including analysis of high-frequency data, statistics of high-frequency data, market impact, and optimal trading. This is a must-have guide for practitioners and academics in quantitative finance.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright
  5. Introduction
  6. About the Editors
  7. Part I: Economic Microstructure Theory
    1. 1: Algorithmic Trading: Issues and Preliminary Evidence
      1. 1.1 INTRODUCTION
      2. 1.2 WHAT IS ALGORITHMIC TRADING?
      3. 1.3 MARKET STRUCTURE AND ALGORITHMIC TRADING
      4. 1.4 COSTS AND BENEFITS OF ALGORITHMIC TRADING
      5. 1.5 EMPIRICAL EVIDENCE
      6. 1.6 CONCLUSIONS
      7. 1.7 APPENDIX
      8. ACKNOWLEDGMENT
    2. 2: Order Choice and Information in Limit Order Markets
      1. 2.1 INTRODUCTION
      2. 2.2 ORDER CHOICE WITH SYMMETRIC INFORMATION
      3. 2.3 ORDER CHOICE WITH ASYMMETRIC INFORMATION
      4. 2.4 THE INFORMATION CONTENT OF ORDERS
      5. 2.5 QUESTIONS FOR FUTURE RESEARCH
  8. Part II: High Frequency Data Modeling
    1. 3: Some Recent Results on High Frequency Correlation
      1. 3.1 INTRODUCTION
      2. 3.2 DATA DESCRIPTION
      3. 3.3 MULTIVARIATE EVENT TIME
      4. 3.4 HIGH FREQUENCY LEAD/LAG
      5. 3.5 INTRADAY SEASONALITY OF CORRELATION
      6. 3.6 CONCLUSION
      7. ACKNOWLEDGMENT
    2. 4: Statistical Inference for Volatility and Related Limit Theorems
      1. 4.1 INTRODUCTION
      2. 4.2 QLA FOR AN ERGODIC DIFFUSION PROCESS
      3. 4.3 QLA FOR VOLATILITY IN THE FINITE TIME-HORIZON
      4. 4.4 NONSYNCHRONOUS COVARIANCE ESTIMATION
      5. 4.5 YUIMA II FOR STATISTICAL ANALYSIS AND SIMULATION FOR STOCHASTIC DIFFERENTIAL EQUATIONS
      6. 4.6 HIGHER ORDER ASYMPTOTICS AND FINANCE
      7. ACKNOWLEDGMENTS
  9. Part III: Market Impact
    1. 5: Models for the Impact of All Order Book Events
      1. 5.1 INTRODUCTION
      2. 5.2 A SHORT SUMMARY OF MARKET ORDER IMPACT MODELS
      3. 5.3 MANY-EVENT IMPACT MODELS
      4. 5.4 MODEL CALIBRATION AND EMPIRICAL TESTS
      5. 5.5 CONCLUSION
      6. APPENDIX
      7. ACKNOWLEDGMENTS
    2. 6: Limit Order Flow, Market Impact, and Optimal Order Sizes: Evidence from NASDAQ TotalView-ITCH Data
      1. 6.1 INTRODUCTION
      2. 6.2 MARKET ENVIRONMENT AND DATA
      3. 6.3 MAJOR ORDER FLOW AND ORDER BOOK CHARACTERISTICS
      4. 6.4 AN ECONOMETRIC MODEL FOR THE MARKET IMPACT OF LIMIT ORDERS
      5. 6.5 MARKET IMPACT AT NASDAQ
      6. 6.6 OPTIMAL ORDER SIZE
      7. 6.7 CONCLUSIONS
      8. ACKNOWLEDGMENT
  10. Part IV: Optimal Trading
    1. Introduction: Trading and Market Micro-structure
      1. An on-going increase of computer-driven trading
      2. Early academic answers and old practices
      3. New practical needs and academic recent advances
    2. 7: Collective Portfolio Optimization in Brokerage Data: The Role of Transaction Cost Structure
      1. 7.1 INTRODUCTION
      2. 7.2 DESCRIPTION OF THE DATA
      3. 7.3 RESULTS
      4. 7.4 THE INFLUENCE OF TRANSACTION COSTS ON TRADING BEHAVIOR FROM OPTIMAL MEAN-VARIANCE PORTFOLIOS
      5. 7.5 DISCUSSION AND OUTLOOK
      6. ACKNOWLEDGMENTS
    3. 8: Optimal Execution of Portfolio Transactions with Short-Term Alpha
      1. 8.1 INTRODUCTION
      2. 8.2 SHORT-TERM ALPHA DECAY AND HIDDEN ORDER ARBITRAGE THEORY
      3. 8.3 TOTAL COST DEFINITION AND CONSTRAINTS
      4. 8.4 TOTAL COST OPTIMIZATION
      5. 8.5 CONCLUSIONS
      6. PROVISO
  11. Combined References
  12. Index