This paper presents a Heterogeneous Agent Model of a financial market with chartist and fundamentalist traders that exhibit bounded rationality and short-term thinking to explain the effect of under and overreaction to news. The existence of the Market Maker’s finite price adjustment speed and the presence of risk aversion lead to the fact that prices do not adjust instantaneously to new inform...

This paper investigates trading volume before scheduled and unscheduled corporate announcements to explore how traders respond to private information. I show that cumulative trading volume decreases by more than 15% prior to scheduled announcements. The decline in trading volume is largest when information asymmetry is high, while the opposite relation holds for volume after the announcement. I...

This study provides an intraday analysis of Exchange Traded Fund markets. We investigate trading implications surrounding the open and close, and compare price discovery and liquidity in a multi-market trading framework. In addition, we test whether the difference of ETFs with regard to market maker inventory management causes intraday spread patterns to differ from those of the underlying secu...

Using a large and representative dataset of commodity trading advisors (CTAs), we provide compelling evidence that CTAs generate significant net excess returns of at least 4.1% annually; that approximately 64% of the funds have positively skewed returns; and that there is considerable heterogeneity among CTAs, with systematic trend followers doing significantly better than other subcategories. ...

Asymmetric information models are tested using options implied volatility and volume of trade in eight international markets. We explore the relations between the trading break time duration, the quality of public information, the discretion of options liquidity traders to postpone their trades, and the interday and intraday implied volatility and volume of trade in options. Although asymmetric...

Article history: Received 2 March 2015 Received in revised form 19 May 2015 Accepted 26 May 2015 Available online 9 June 2015 Wecombine two concepts of informed trading – contrarian trades and stealth trading – to develop proxies for the probability of informed trading. These proxies are used to test the link between informed trading and adverse selection asmeasuredbybid–ask spreads and stock i...

This paper examines the relationship between realized daily skewness and future stock returns and investigates the impact of information releases on that relationship. We find that there exists a negative relationship between realized daily skewness and subsequent stock returns when there is no high-impact information release, but that the relationship becomes positive if the realized skewness ...

In this paper we analyse the effect of news relating to the expected path of monetary policy on interest rate futures. Central banks’ transparency is in most respects much greater than it was a decade ago, and so central bank communication needs to be included as a potential source of news. We therefore consider four types of news: macroeconomic news, overseas news, monetary policy surprises an...

This paper investigates jumps and cojumps in European financial markets employing more than six years of tick by tick data on stock indices, currency and interest rate futures. Using a jump detection measure proposed by Lee and Mykland (2008), we find that while the U.S macroeconomic announcements cause significant jumps on all asset classes, European equity markets are found to be the more sen...

Credit default swaps (CDS) are similar to out-of-the-money put options in that both offer a low cost and effective protection against downside risk. This study investigates whether put optionimplied volatility is an important determinant of CDS spreads. Using a large sample of firms with both CDS and options data, we find that individual firms’ put option-implied volatility dominates historical...