Lit and Dark Liquidity with Lost Time Data: Interlinked Trading Venues around the Global Financial Crisis

90 Pages·2014·7.584 MB·English

by  Tommi A. Vuorenmaa (auth.)

LitandDarkLiquiditywithLostTimeData
DOI:10.1057/9781137396853.0001
OtherPalgravePivottitles
IanI.Mitroff,CanM.AlpaslanandEllenS.O’Connor:Everybody’sBusiness:ReclaimingTrue
ManagementSkillsinBusinessHigherEducation
HelenJeffersonLenskyj:SexualDiversityandtheSochi2014Olympics:NoMoreRainbows
LaurencePope:TheDemilitarizationofAmericanDiplomacy:TwoCheersforStripedPants
P.CarlMullan:TheDigitalCurrencyChallenge:ShapingOnlinePaymentSystemsthrough
U.S.FinancialRegulations
AnaMar´ıaRelan˜oPastor:ShameandPrideinNarrative:MexicanWomen’sLanguage
ExperiencesattheU.S.–MexicoBorder
ManoharPawar:WaterandSocialPolicy
JenniferYamin-Ali:Data-DrivenDecision-MakinginSchools:LessonsfromTrinidad
LionelGossman:Andre´Maurois(1885–1967):FortunesandMisfortunesofaModerate
MatthewWatson:UneconomicEconomicsandtheCrisisoftheModelWorld
MichaelGray:ContemporaryDebatesinHolocaustEducation
TeresaA.Fisher:Post-ShowDiscussionsinNewPlayDevelopment
JudithBaxter:Double-VoicingatWork:Power,GenderandLinguisticExpertise
MajidYar:Crime,DevianceandDoping:FallenSportsStars,Autobiographyandthe
ManagementofStigma
GraceJi-SunKimandJennyDaggers:ReimaginingwithChristianDoctrines:Respondingto
GlobalGenderInjustices
L.H.Whelchel,Jr.:Sherman’sMarchandtheEmergenceoftheIndependentBlackChurch
Movement:FromAtlantatotheSeatoEmancipation
G.DouglasAtkins:Swift,Joyce,andtheFlightfromHome:QuestsofTranscendenceandthe
SinofSeparation
DavidBeer:PunkSociology
OwenAnderson:ReasonandFaithintheTheologyofCharlesHodge:AmericanCommon
SenseRealism
JennyRuthRitchieandMereSkerrett:EarlyChildhoodEducationinAotearoaNewZealand:
History,Pedagogy,andLiberation
PasqualeFerrara:GlobalReligionsandInternationalRelations:ADiplomaticPerspective
DOI:10.1057/9781137396853.0001
Lit and Dark Liquidity
with Lost Time Data:
Interlinked Trading
Venues around the
Global Financial Crisis
Tommi A. Vuorenmaa
HeadofResearch,VALOResearchandTrading,Finland
DOI:10.1057/9781137396853.0001
litanddarkliquiditywithlosttimedata
Copyright©TommiA.Vuorenmaa,2014.
Softcover reprint of the hardcover 1st edition 2014 978-1-137-43260-5
Allrightsreserved.
Firstpublished2014by
PALGRAVEMACMILLAN®
intheUnitedStates—adivisionofSt.Martin’sPressLLC,
175FifthAvenue,NewYork,NY10010.
WherethisbookisdistributedintheUK,Europeandtherestoftheworld,
thisisbyPalgraveMacmillan,adivisionofMacmillanPublishersLimited,
registeredinEngland,companynumber785998,ofHoundmills,
Basingstoke,HampshireRG216XS.
PalgraveMacmillanistheglobalacademicimprintoftheabovecompanies
andhascompaniesandrepresentativesthroughouttheworld.
Palgrave®andMacmillan®areregisteredtrademarksintheUnitedStates,
theUnitedKingdom,Europeandothercountries.
ISBN:978–1–137–39685–3 PDF
ISBN:978–1–349-49247-3
LibraryofCongressCataloging-in-PublicationDataisavailablefrom
theLibraryofCongress.
AcataloguerecordofthebookisavailablefromtheBritishLibrary.
Firstedition:2014
www.palgrave.com/pivot
DOI:10.1057/9781137396853
Tomyfather,OsmoVuorenmaa
DOI:10.1057/9781137396853.0001
Contents
ListofIllustrations vii
Acknowledgments ix
Introduction x
1 InstitutionalandRegulatoryDevelopments 1
2 PreliminaryAnalysis 6
2.1 Data 7
2.2 Samplinganddatamerging 8
2.3 Autocorrelations 11
2.4 Tradingvolumedistributions 18
3 LiquidityEstimation 23
4 EmpiricalAnalysis 28
4.1 Liquidity 29
4.2 Noisevariance 42
4.3 Jumpactivityindex 44
4.4 Dependence 47
5 Conclusions 51
Appendix 54
Appendix–Figures 56
References 68
Index 73
vi DOI:10.1057/9781137396853.0001
List of Illustrations
Figures
2.1 Totalnumberoftradesandpercentageof
mergedtradesinPeriodIforeachstock 10
2.2 Totalnumberoftradesandpercentageof
mergedtradesinPeriodIIforeachstock 11
2.3 Totalnumberoftradesandpercentageof
mergedtradesinPeriodIIIforeachstock 12
2.4 Sampleautocorrelationfunctionatthefirst
fivelags 13
4.1 Model1gammaestimatesinticktime 30
4.2 Model1gammaestimatesinlosttime 31
4.3 Model2gammaestimatesinticktime 32
4.4 Model2gammaestimatesinlosttime 33
4.5 Model3gammaestimatesinticktime 34
4.6 Model3gammaestimatesinlosttime 35
4.7 Model4gammaestimatesinticktime 36
4.8 Model4gammaestimatesinlosttime 37
Tables
2.1 Listofstocksbytheirtickersymbols 8
2.2 Averagenumberofticktimeobservations 9
2.3 Averagenumberofmergedobservations 10
2.4 Autocorrelationsatthefirstfivelagsintickand
losttime 14
DOI:10.1057/9781137396853.0002 vii
viii ListofIllustrations
2.5 Autocorrelationsatthefirstfivelagsintradetime 16
2.6 Ljung-Boxteststatisticsfor15lags 17
2.7 Power-lawOLSandMLestimates 19
2.8 Numberoftradingvolumeslargerthan20,000 21
4.1 FullandpartialadjustedR-squaredforModel1withthe
variabledeltalog(v) 38
4.2 FullandpartialadjustedR-squaredforModel2withthe
variablelog(vp) 39
4.3 FullandpartialadjustedR-squaredforModel3withthe
variablelog(vp) 40
4.4 FullandpartialadjustedR-squaredforModel4withthe
variable1/vp 41
4.5 Numberofdayswithpositivefirst-lagreturnautocovariance 43
4.6 Numberofreturnslargerthanplus/minus1percent 45
A.1 FINRAtradereportingrulesfortheADFandNASDTRF 55
DOI:10.1057/9781137396853.0002
Acknowledgments
Previously entitled “Liquidity, Activity, and Dependence on
Interlinked Trading Venues,” this study was initiated just
beforethe stock marketcrashed inautumn2008around the
Lehman Brothers bankruptcy. The empirical results of this
study were first presented at the EC2 Conference at Aarhus
University,Denmark,inDecember2009.
Much of the work was conducted at Stanford University,
USA,in2008/09during apost-doctoral visit, and later elab-
orated on at the University of Helsinki. The research report
was revised at Reaktor Ltd in 2011 and finalized at VALO
ResearchandTradingLtdin2013.Theauthoristhankfulfor
thehospitalitytheseinstitutionsandcompaniesprovided.
The author would specifically like to thank Peter Hansen
and Stanford ultra high frequency (UHF) seminar partici-
pants for their early comments, the anonymous referees for
valuable insight, and Palgrave Macmillan for publishing this
work.Theusualdisclaimerapplies.
Last, but not least, financial support from the Research
Group in Financial and Macroeconometrics, OP-ryhma¨n
Tutkimusa¨a¨tio¨, Yrjo¨ Jahnsson Foundation, and Suomen
Arvopaperimarkkinoiden Edista¨missa¨a¨tio¨ is gratefully
acknowledged.
DOI:10.1057/9781137396853.0003 ix