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Lessons from Asian High Frequency Financial Market Analysis

Paper Session

Saturday, Jan. 6, 2018 2:30 PM - 4:30 PM

Loews Philadelphia, Parlor 2
Hosted By: American Committee on Asian Economic Studies & American Economic Association
  • Chair: Calla Wiemer, University of the Philippines

Quantile Relationships Between Standard, Diffusion and Jump Betas Across Japanese Banks

Biplob Chowdhury
,
University of Tasmania
Nagaratnam Jeyasreedharan
,
University of Tasmania
Mardi Dungey
,
University of Tasmania

Abstract


How the banking sector absorbs news is critical to disbursing information to financial markets and the real economy. Using high frequency financial data and quantile regression techniques we characterise some stylised facts about standard betas, diffusion betas, jump betas and the relationships between them for Japanese banking stocks and bank portfolios. Jump betas, which relate to the arrival of unexpected news, are on average, higher and more dispersed than the diffusion betas across the banking sector. While on average, the standard beta is a weighted average of the diffusion and jump betas, the magnitudes of the weights differ significantly across the quantiles, indicating non-linearity in how jump information is incorporated. On average, small bank portfolios have smaller diffusion betas and smaller jump betas than large bank portfolio. While there are no significant differences between the jump-diffusion beta ratios when conditioned by market capitalisation, during times of financial crisis, small bank portfolios have significantly higher jump beta-diffusion beta ratios than large bank portfolios; indicating that during time of financial crisis, small Japanese banks face much higher relative jump risks than larger Japanese banks.

Key words: Beta; Jumps; High-frequency data; Quantile regression; Japanese Banks.
JEL Classification: G12, G21, C58

Auction Frequency, Trading Frequency, and Market Quality: Evidence From the Taiwan Stock Exchange

Mia Twu
,
National Chengchi University
Jianxin Wang
,
University of Technology Sydney

Abstract

Periodic call auction is the main trading mechanism on the Taiwan Stock Exchange. From 2010 to 2014, the TWSE reduced its call auction interval four times, from 25 to 5 seconds. Using multiple measures for market efficiency, liquidity, and stability, we provide a comprehensive examination on the impact of these reductions on market quality. While different quality attributes have their highest values at different auction intervals, the current 5-second interval is the best for any combination of the three market attributes. We present new empirical evidence on the assumptions and predictions of several theoretical studies. Based on recent theoretical models, we estimate the optimal auction interval to be around 2 seconds for the TWSE.

Commonality in Liquidity -- New Evidence From National Stock Exchange, India

Gaurav Kumar
,
Indian Institute of Technology
Arun Misra
,
Indian Institute of Technology

Abstract

This article investigates hypotheses related to commonality in liquidity on the National Stock Exchange (NSE), India using high frequency limit order book data. The empirical analysis shows that individual stock liquidity based on various spread and depth measures co-moves with market liquidity and industry liquidity. Market-wide commonality is found to be stronger than Industry-wide commonality in the majority of the liquidity measures. The study captures the asymmetric behaviour of commonality in up and down markets. Among four key sectors of the economy viz. Consumer Goods, Financial Services, Manufacturing, and Infrastructure –the strength of commonality is higher in the Manufacturing sector. The study develops long run systematic liquidity measures to investigate commonality sources in long run and compares it with the short run. The results of this study can be used by traders in devising strategies, exchanges in designing trading platforms, and fund managers in engineering financial instruments.

Identifying the Transmission of Shocks in East Asian Equity Markets Using Realized Volatility

Chrismin Tang
,
University of Melbourne
Vance Martin
,
University of Melbourne

Abstract

Realised Volatility applied to the mean impact curve (MIC) modelling framework of Martin,
Sarkar and Kanto (2014) is used to identify the impact of shocks on expected returns in East
Asian equity markets. The MIC provides a nonlinear representation between expected returns
and past shocks, which is the conditional mean analogue of the Engle and Ng (1993) news impactcurve. Preliminary results for the Shanghai Stock Exchange Composite index shows that the sign of the MIC changes from being positive for relatively small shocks to negative for relatively larger shocks, consistent with equity markets displaying mean aversion over short horizons and mean reversion over long horizons. To map the transmission of shocks between expected returns and volatility, the realised GARCH model of Hansen, Huang and Shek (2012) is also adopted.
Discussant(s)
Jerome Lahaye
,
Fordham University
Reid Click
,
George Washington University
Michael Plummer
,
Johns Hopkins SAIS Europe
Matteo Luciani
,
Federal Reserve Board
JEL Classifications
  • G1 - General Financial Markets
  • O5 - Economywide Country Studies