Abstract not found

Financial press reports claim that internet stock message boards can move markets. We study the effect of more than 1.5 million messages posted on Yahoo! Finance and Raging Bull about the 45 companies in the Dow Jones Industrial Average, and the Dow Jones Internet Index. The bullishness of the messages is measured using computational linguistics methods. News stories reported in the Wall Street Journal are used as controls. We find significant evidence that the stock messages help predict market volatility, but not stock returns. Consistent with Harris and Raviv (1993), agreement among the posted messages is associated with decreased trading volume. (JEL: G12, G14)

There are two variance components embedded in the returns constructed using high frequency asset prices: the time-varying variance of the unobservable efficient returns that would prevail in a frictionless economy and the variance of the equally unobservable microstructure noise. Using sample moments of high frequency return data recorded at different frequencies, we provide a simple and robust technique to identify both variance components. In the context of a volatility-timing trading strategy, we show that careful (optimal) separation of the two volatility components of the observed stock returns yields substantial utility gains.

Using a complete record of U.S. OTC secondary trades in corporate bonds, we estimate average transaction costs as a function of trade size for each bond that traded more than nine times between January 2003 and January 2005. We find that transaction costs decrease significantly with trade size. Highly rated bonds, recently issued bonds, and bonds close to maturity have lower transaction costs than do other bonds. Costs are lower for bonds with transparent trade prices, and they drop when the TRACE system starts to publicly disseminate their prices. The results suggest that public traders benefit significantly from price transparency.

In this article we revisit the classic problem of tatonnement in price formation from a microstructure point of view, reviewing a recent body of theoretical and empirical work explaining how fluctuations in supply and demand are slowly incorporated into prices. Because revealed market liquidity is extremely low, large orders to buy or sell can only be traded incrementally, over periods of time as long as months. As a result order flow is a highly persistent long-memory process. Maintaining compatibility with market efficiency has profound consequences on price formation, on the dynamics of liquidity, and on the nature of impact. We review a body of theory that makes detailed quantitative predictions about the volume and time dependence of market impact, the bid-ask spread, order book dynamics, and volatility. Comparisons to data yield some encouraging successes. This framework suggests a novel interpretation of financial information, in which agents are at best only weakly informed and all have a similar and extremely noisy impact on prices. Most of the processed information appears to come from supply and demand itself, rather than from

michel.callon @ ensmp.fr fabian.muniesa @ ensmp.fr Please do not quote without the permission of the authors Please refer to the published version of this paper: Callon, M. and Muniesa, F. (2003), “Les marchés économiques comme dispositifs collectifs de calcul”, Réseaux 21(122), pp. 189-233. How to address empirically the calculative character of markets without dissolving it? In our paper, we propose a theoretical framework that helps to deal with markets without debunking their calculative properties. In a first section, we construct a broad definition of calculation, grounded on the field of STS (science and technology studies). In the next sections, we confront this definition to three constitutive elements of markets: economic goods, economic agents and economic exchanges. First we examine the question of the calculability of goods: in order to be calculated, goods must be calculable. In the following section we introduce the notion of

This paper tests whether macroeconomic news is transmitted to exchange rates via the transactions process and if so, what share occurs via transactions versus the traditional direct channel. We identify the link between order flow and macro news using a heteroskedasticity-based approach, a la Rigobon and Sack (2002). In both daily and intra-daily data, order flow varies considerably with macro news flow. At least half of the effect of macro news on exchange rates is transmitted via order flow.

The Flash Crash, a brief period of extreme market volatility on May 6, 2010, raised questions about the current structure of the U.S. financial markets. We use audit-trail data to describe the structure of the E-mini S&P 500 stock index futures market on May 6. We ask three questions. How did High Frequency Traders (HFTs) trade on May 6? What may have triggered the Flash Crash? What role did HFTs play in the Flash Crash? We conclude that HFTs did not trigger the Flash Crash, but their responses to the unusually large selling pressure on that day exacerbated market volatility.

We analyze the last major imposition of mandatory disclosure in US equity markets. The 1964 Securities Act Amendments required a group of firms traded over the counter (OTC) to periodically provide audited financial information, proxy information prior to shareholder meetings, and details on insider holdings and trades to their shareholders for the first time. This legislation left unchanged the disclosure requirements of all NYSE, all AMEX, and some OTC firms. When we use these unaffected groups as a counterfactual for the affected firms, we find that those firms that were newly required to make all types of disclosures required by the 1964 Act had a cumulative abnormal excess return of approximately 20 % in the approximately year and a half between the initial calls for legislative action and the law’s passage. In that same time period, firms for which proxy and insider information were the only new mandated forms of disclosure had a (marginally statistically significant) cumulative abnormal excess return of about 10%. In contrast, there is little evidence of a difference between the adjusted returns of affected and unaffected groups in a period when there is no new information about the law or which firms will comply with its requirements. Finally, event study analyses indicate that firms

This paper is a short review on the application of continuous-time random walks to Econophysics in the last five years.