Infrequent Rebalancing, Return Autocorrelation, and Seasonality

Bogousslavsky, Vincent

doi:10.1111/jofi.12436

Cited by 120 publications

(65 citation statements)

References 70 publications

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“…That is, the first half-hour return positively predicts the last halfhour return within the same trading day. 3 They argue that the intraday momentum is consistent with both the (Bogousslavsky 2016) model of infrequent portfolio rebalancing and the model of late-informed trading near the market close.…”

Section: Introductionmentioning

confidence: 79%

Overnight momentum, informational shocks, and late informed trading in China

Gao

Han

et al. 2019

International Review of Financial Analysis

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Based on high-frequency firm-level data, this paper uncovers new empirical patterns on intraday momentum in China. First, there exists a strong intraday momentum effect at the firm level. Second, the intraday predictability stems mainly from the overnight component rather than the opening half-hour component, which is consistent with the microstructure features of the Chinese market. Third, the intraday predictability attenuates (strengthens) following large positive (negative) informational shocks, implying a striking asymmetric reaction by market participants. Finally, we document that late-informed traders are relatively less experienced or skilful. Overall, the empirical results lend support to the model of late-informed trading.

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Section: Introductionmentioning

confidence: 79%

Overnight momentum, informational shocks, and late informed trading in China

Gao

Han

et al. 2019

International Review of Financial Analysis

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“…See, among others, Bacchetta and van Wincoop (), Chien, Cole, and Lustig (), Hendershott et al. (), and Bogousslavsky ().…”

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confidence: 99%

The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees

Buss¹,

Dumas

2019

The Journal of Finance

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We incorporate trading fees into a dynamic, multiagent general-equilibrium model in which traders optimally decide when to trade. For that purpose, we propose an innovative algorithm that synchronizes the traders. Securities prices are not so much affected by the payment of the fees itself, but rather by the trade-off that the traders face between smoothing consumption and smoothing holdings. In calibrated examples, the interest rate and welfare decline with trading fees, while risk premia and volatilities increase. Liquidity risk and expected liquidity are priced, leading to deviations from the consumption-CAPM. With trading fees, capital is slow-moving, generating slow price reversal.

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“…There is a large literature seeking to characterize the economic mechanisms that govern the dynamic properties of microstructure noise, for example, the continuation of order flows modeled by , , reversal order flows due to market maker's risk aversion by Grossman and Miller (1988) and Campbell et al (1993) or inventory controls by , , and the presence of inattentive (or infrequent) traders by Bogousslavsky (2016) and Hendershott et al (2018). Econometric models of microstructure noise focus usually on the i.i.d.…”

Section: Microstructure Noisementioning

confidence: 99%

A ReMeDI for Microstructure Noise

Li,

Linton

2019

SSRN Journal

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We introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary finite moments of a microstructure noise process, which could be serially dependent and nonstationary, based on high-frequency data. We characterize the limit distributions of the proposed estimators and construct robust confidence intervals under infill asymptotics. We further demonstrate that the ReMeDI approach also works on lowfrequency, non-infill data. It thus can be applied to many asset pricing and macroeconomic models, in which the time series have a permanent and a transitory component. We propose two liquidity measures that gauge the instantaneous and average bid-ask spread with potentially autocorrelated order flows. They can be consistently estimated within our framework. We provide an economic model to justify such measures as an intermediary's inventory risk measure when meeting serially dependent liquidity demand. Empirically we find our new liquidity measures are very effective to identify liquidity drains during the Flash Crash, when the market experienced extreme selling pressures. AbstractWe introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary finite moments of a microstructure noise process, which could be serially dependent and nonstationary, based on high-frequency data. We characterize the limit distributions of the proposed estimators and construct robust confidence intervals under infill asymptotics. We further demonstrate that the ReMeDI approach also works on low-frequency, non-infill data. It thus can be applied to many asset pricing and macroeconomic models, in which the time series have a permanent and a transitory component.We propose two liquidity measures that gauge the instantaneous and average bid-ask spread with potentially autocorrelated order flows. They can be consistently estimated within our framework. We provide an economic model to justify such measures as an intermediary's inventory risk measure when meeting serially dependent liquidity demand. Empirically we find our new liquidity measures are very effective to identify liquidity drains during the Flash Crash, when the market experienced extreme selling pressures.

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Infrequent Rebalancing, Return Autocorrelation, and Seasonality

Cited by 120 publications

References 70 publications

Overnight momentum, informational shocks, and late informed trading in China

Overnight momentum, informational shocks, and late informed trading in China

The Dynamic Properties of Financial‐Market Equilibrium with Trading Fees

A ReMeDI for Microstructure Noise

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