Market Microstructure in Emerging and Developed Markets.
Title:
Market Microstructure in Emerging and Developed Markets.
Author:
Baker, H. Kent.
ISBN:
9781118419656
Personal Author:
Edition:
1st ed.
Physical Description:
1 online resource (546 pages)
Series:
Robert W. Kolb Series ; v.620
Robert W. Kolb Series
Contents:
MARKET MICROSTRUCTURE IN EMERGING AND DEVELOPED MARKETS -- Contents -- Acknowledgments -- PART I Introduction to Market Microstructure -- CHAPTER 1 Market Microstructure: An Overview -- INTRODUCTION -- Purpose of the Book -- Distinguishing Features of the Book -- Intended Audience -- ORGANIZATION OF THE BOOK -- Part I: Introduction to Market Microstructure -- Part II: Market Architecture and Design -- Part III: Price Formation and Price Discovery -- Part IV: Transaction Costs, Timing Costs, and Information Disclosure -- Part V: Microstructure Issues in Emerging Markets -- SUMMARY AND CONCLUSIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 2 Microstructure of Equity Markets -- INTRODUCTION -- A LOOK AT THE FRICTIONLESS MARKETPLACE -- Liquidity -- Random Walk -- EQUITY MARKET MICROSTRUCTURE: ANALYSIS OF A NONFRICTIONLESS WORLD -- A WHIRLWIND TOUR OF THE MICROSTRUCTURE LITERATURE -- INTRADAY PRICE VOLATILITY: A MEASURE OF MARKET QUALITY -- Volatility Accentuation and Its U-Shaped Intraday Pattern -- Opening Volatility for the NYSE, NASDAQ, and ISE -- RAISING CAPITAL THROUGH MARKETS -- Advantages of Going Public -- The ISE Focus on and Experience with Capital Raising -- The ISE IPO Initiative and Focus on Education -- Problems Getting Private Companies to Go Public -- Positive Outcome of ISE's IPO Initiative -- Investor Preferences -- A Last Word -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 3 Microstructure of the Euro-Area Government Bond Market -- INTRODUCTION -- THE MTS MARKET -- BOND MARKET LIQUIDITY -- Measuring Bond Liquidity -- DETERMINANTS OF LIQUIDITY -- PRECRISIS AND CRISIS PERIODS -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 4 Microstructure Developments in Derivative Markets -- INTRODUCTION -- ROOTS OF MICROSTRUCTURE THEORY.
Microstructure Theory -- EVIDENCE FROM A TÂTONNEMENT AUCTION MARKET -- LIQUIDITY PROVISION IN DOUBLE-AUCTION MARKET SETTINGS -- Open-Outcry Venues -- Electronic Trading Venues -- INFORMATION FLOWS BETWEEN OPEN-OUTCRY AND ELECTRONIC MARKETS -- OTHER MICROSTRUCTURAL ISSUES -- FUTURE MICROSTRUCTURE RESEARCH -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 5 The Microstructure of Currency Markets -- INTRODUCTION -- CHARACTERISTICS OF THE CURRENCY MARKET -- Currencies and Instruments -- A Two-Tier Market -- Liquidity Providers -- Liquidity Demanders -- ORDER FLOW AND EXCHANGE RATES -- Inventory Effects -- Information Effects -- Liquidity Effects -- BID-ASK SPREADS -- Interdealer Bid-Ask Spreads -- Customer Bid-Ask Spreads -- Custody Spreads -- PRICE DISCOVERY -- VOLATILITY -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 6 The Architecture of Securities Market Supervision before and after the Crisis -- INTRODUCTION -- THE SUPERVISORY ARCHITECTURE BEFORE THE CRISIS -- THE INTEGRATION OF SECURITIES SUPERVISION -- IS THE INTEGRATION PROCESS STILL VALID? -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 7 Financial Market Contagion -- INTRODUCTION -- WHAT CAUSES CONTAGION? -- Fundamental Linkages -- Irrational Behavior -- Market Microstructure and Contagion -- EMPIRICAL MODELS FOR TESTING CONTAGION -- Variance Ratio Model -- Dynamic Conditional Correlation Model -- Cointegration Model -- HISTORY OF EMERGING MARKET CONTAGIONS -- Tequila Crisis of 1994-1995 -- Asian Crisis of 1997-1998 -- Russian Crisis of 1998 -- HISTORY OF DEVELOPED MARKET CONTAGIONS -- October 1987 Crash -- Subprime Crisis of 2008-2009 -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR.
PART II Market Architecture and Design -- CHAPTER 8 Market Architecture: A Conceptual Framework and Real-World Systems -- INTRODUCTION -- TYPE OF MARKET STRUCTURES -- LIQUIDITY SEARCH AND BLOCK TRADES -- ANONYMITY AND MARKET TRANSPARENCY -- CENTRALIZATION VERSUS FRAGMENTATION -- DARK POOLS AND ALTERNATIVE TRADING SYSTEMS -- INVENTORY MODELS -- HIGH-FREQUENCY TRADING -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 9 Designing a Trading Market -- INTRODUCTION -- MARKET PARTICIPANTS -- THE TRADE PROCESS -- Agency Trading -- Principal Trading -- Institutional Trading -- Program Trading -- TRADING MECHANISM -- DESIGNING THE TRADING PROCESS -- Price Discovery -- Clearing and Settlement -- HIGH-FREQUENCY TRADING -- TRADING ALGORITHMS -- Time-Weighted Average Price -- Volume-Weighted Average Price -- Percent of Volume -- Minimal Impact Algorithm -- Liquidity-Driven Algorithms -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 10 Current Issues in Market Design -- INTRODUCTION -- COMPETITION AND FRAGMENTATION -- Market Share -- Success Factors for New Entrants -- HIGH-FREQUENCY TRADING -- What Is High-Frequency Trading? -- High-Frequency Trading Strategies -- High-Frequency Trading Profitability -- Factors Contributing to High-Frequency Trading Growth -- Risks Associated with HFT -- Regulatory Response to Growth in High-Frequency Trading -- DARK POOLS -- What Is a Dark Pool? -- Dark Orders on Displayed Venues -- Impact of Dark Trading on Market Quality -- Regulatory Response to Growth in Dark Liquidity -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- ACKNOWLEDGMENTS -- CHAPTER 11 Decimalization and Discreteness -- INTRODUCTION -- THEORY BEHIND MINIMUM PRICE INCREMENTS.
EMPIRICAL EVIDENCE: MINIMUM PRICE CHANGE FROM ONE-EIGHTH TO ONE-SIXTEENTH -- EMPIRICAL EVIDENCE: MINIMUM PRICE CHANGE FROM ONE-SIXTEENTH TO DECIMALS -- DISCRETE PRICING IN NON-U.S. MARKETS -- TICK SIZE CHANGES IN NONEQUITY MARKETS -- CLUSTERING -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 12 Dark Trading -- INTRODUCTION -- WHAT ARE DARK POOLS? -- Defining Dark Pools -- Brief History of Dark Pools -- THEORETICAL AND EMPIRICAL LITERATURE ON DARK POOLS -- Theory on Dark Pools -- Empirical Findings on Dark Pools -- REGULATORY CONCERNS -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- ACKNOWLEDGMENTS -- PART III Price Formation and Price Discovery -- CHAPTER 13 Determinants of Trading Costs -- INTRODUCTION -- TRADING COSTS COMPONENTS -- Explicit Costs -- Implicit Costs -- Missed Trade Opportunity Costs -- TRADING COST MEASUREMENT -- Explicit Costs Measurement -- Implicit Costs Measurement -- Opportunity Costs Measurement -- MAGNITUDE OF TRADING COSTS: LITERATURE REVIEW -- THE DETERMINANTS OF TRADING COSTS -- Trading Activity -- Trade Difficulty -- Volatility -- Information Variables -- Trading Strategy, Traders' Ability, and Reputation -- Market Trading System -- The Timing of Trades -- Trading Venue -- Legal System and Investor Protection -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 14 Market Makers and Liquidity -- INTRODUCTION -- CONSIDERATIONS FACING MARKET MAKERS -- Adverse Selection -- Inventory Risk -- Order-Processing Costs -- FORMS OF MARKET MAKERS THROUGH HISTORY -- Responsibilities of the Specialist -- Academic Research on Fragmentation -- How Technology Changed Trading -- Designated Market Makers and Other Arrangements -- FIXED INCOME -- Responsibilities of Primary Dealers.
High-Frequency Trading and Pricing Liquidity -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 15 Liquidity beyond the Inside Spread: The Price Impact of Trading -- INTRODUCTION -- THE INSTITUTIONAL TRADING PARADIGM -- TRADING PROCESS -- Institutional Order Process and Problems -- MEASUREMENT OF PRICE IMPACT -- Static Analysis of Price Impact -- Front-Running -- PRICE IMPACT IN EMERGING MARKETS -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHOR -- CHAPTER 16 Price Discovery in International and Emerging Asset Markets -- INTRODUCTION -- MEASURING PRICE DISCOVERY -- Variance Ratios -- Granger-Causality or Lead-Lag Methods -- Common-Factor Decomposition Methods -- MARKET STRUCTURE AND PRICE DISCOVERY -- Trading, Fragmentation, Transactions Costs, and Liquidity -- Satellite Markets, Crossing Networks, and Satellite Assets -- Trading Platforms -- PRICE DISCOVERY IN SPECIFIC ASSET MARKETS -- Multiexchange-Listed Assets -- Price Discovery in Spot, Futures, and Options Markets -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- CHAPTER 17 Holding Back Volatility: Circuit Breakers, Price Limits, and Trading Halts -- INTRODUCTION -- BASIC TERMINOLOGY -- PROS AND CONS OF CIRCUIT BREAKERS -- THEORETICAL BACKGROUND -- EMPIRICAL EVIDENCE -- Do Circuit Breakers Reduce Volatility? -- Do Circuit Breakers Enhance Price Discovery? -- Do Circuit Breakers Interfere with the Trading Process? -- Do Circuit Breakers Prompt a Magnet Effect? -- Summary and Drawbacks -- WHAT IS IN THE FUTURE AGENDA? -- SUMMARY AND CONCLUSIONS -- DISCUSSION QUESTIONS -- REFERENCES -- ABOUT THE AUTHORS -- PART IV Transaction Costs, Timing Costs, and Information Disclosure -- CHAPTER 18 Bid-Ask Spreads, Commissions, and Other Costs -- INTRODUCTION.
WHY DOES THE BID-ASK SPREAD EXIST?.
Abstract:
Although the basic function of a market-bringing buyers and sellers together-has changed very little over time, how trading occurs within markets has undergone remarkable transformations over the past few decades. This is where market microstructure, which is concerned with how exchange occurs in markets, comes into play. As one of the most dynamic areas of financial economics, market microstructure continues to evolve at a rapid pace. It requires a level of depth and breadth that cannot be found in many of today's best financial resources. That is why H. Kent Baker and Halil Kiymaz have created Market Microstructure in Emerging and Developed Markets. Part of the Robert W. Kolb Series in Finance, this practical guide provides a synthesis of the diverse strands of theoretical, empirical, and experimental literature on the market microstructure of financial markets in both emerging and developed markets. It skillfully blends the contributions of both scholars and practitioners into a single review of some of the most important topics in this area. Each self-contained chapter reinforces the concepts addressed with conclusion summaries and discussion questions of key lessons. Divided into five comprehensive parts, this book not only covers the core issues of market microstructure, but also examines the latest trends and cutting-edge developments in this field. You will become familiar with everything from the market microstructure of various financial markets-equity, bond, futures, and currency-to experimental research on transparency and disclosure, and the impact of information on market participant behavior. Along the way, you will also gain valuable insights into the importance of market design and trading protocols, the dynamic process for determining the price of an asset, and how transaction and timing costs can affect investment
returns and execution methods. Stock market efficiency in emerging markets and microstructure related issues regarding new EU emerging markets in Central and Eastern Europe are examined in detail. Market Microstructure in Emerging and Developed Markets offers a fresh look at an intriguing, but complex subject. It is essential reading for anyone who needs a better understanding of how markets work, from seasoned professionals to those aspiring to enter the demanding world of finance.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
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