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Liquidity in the Futures Pits: Inferring Market Dynamics from Incomplete Data

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Author Info
Joel Hasbrouck
Abstract

Motivated by economic models of sequential trade, empirical analyses of market dynamics in the U.S. equities market frequently estimate liquidity from regressions of price changes on transaction volumes, where the latter are signed (positive for buyer-initiated trades; negative for seller-initiated trades). This paper estimates these specification for transaction data from pit trading at the Chicago Mercantile Exchange. To deal with the absence of timely bid and ask quotes (generally used to sign trades in the equity market studies); this paper proposes new techniques based on Markov chain Monte Carlo estimation.

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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-076.

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Date of creation: 14 Aug 1998
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Handle: RePEc:fth:nystfi:98-076

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Web page: http://w4.stern.nyu.edu/finance/
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  3. Hasbrouck, Joel, 1996. "Order characteristics and stock price evolution An application to program trading," Journal of Financial Economics, Elsevier, vol. 41(1), pages 129-149, May. [Downloadable!] (restricted)
  4. Michael K Pitt & Neil Shephard, . "Filtering via simulation: auxiliary particle filters," Economics Papers 1997-W13, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  7. Aurora Manrique & Neil Shephard, 1998. "Simulation-based likelihood inference for limited dependent processes," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages C174-C202.
  8. Roll, Richard, 1984. " A Simple Implicit Measure of the Effective Bid-Ask Spread in an Efficient Market," Journal of Finance, American Finance Association, vol. 39(4), pages 1127-39, September. [Downloadable!] (restricted)
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  10. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(03), pages 409-431, August. [Downloadable!]
  11. Shephard, Neil, 1993. "Fitting Nonlinear Time-Series Models with Applications to Stochastic Variance Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S135-52, Suppl. De. [Downloadable!] (restricted)
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  14. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
  15. Manaster, Steven & Mann, Steven C, 1996. "Life in the Pits: Competitive Market Making and Inventory Control," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(3), pages 953-75. [Downloadable!] (restricted)
  16. Kim, Sangjoon & Shephard, Neil & Chib, Siddhartha, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 361-93, July. [Downloadable!] (restricted)
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  17. Schwert, G. William, 1997. "Symposium on market microstructure: Focus on Nasdaq," Journal of Financial Economics, Elsevier, vol. 45(1), pages 3-8, July. [Downloadable!] (restricted)
  18. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 371-89, October.
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