How to Match Trades and Quotes for Nyse Stocks?

This paper proposes a new procedure to determine the time of the prevailing quote relative to the time of the trade for NYSE stock data obtained from the TAQ database. The procedure tests whether the quote revision frequency around a trade is contaminated by quote revisions triggered by a trade, and then determines the smallest timing adjustment needed to eliminate this contamination. An application to various stocks and sample periods shows that the time difference between trade and quote reporting lags varies across stocks and time. The procedure takes this variation into account and hence offers a stock- and time-specific update to the Lee and Ready (1991) 5-second rule.

Collusion in repeated auctions: a simple dynamic mechanism

We analyze collusion in an infinitely repeated version of a standard auction with a continuum of types. Because of the lack of efficiency results in this setting the literature has focused on determining and comparing benchmarks on how well bidders can collude. Aoyagi (2003) has shown that the bidders can improve upon static bid rotation, making use of a dynamic bid rotation scheme, but this scheme does not allow to determine how much bidders can improve upon bid rotation. In this paper we design a very simple dynamic mechanism that improves upon static bid rotation and in the limit recovers one third of the gap between static bid rotation and efficiency, independently of the underlying distribution of values.Auctions, Collusion, Repeated Games, Private Information

Asymptotic properties of GMM estimators of stochastic volatility.

Estimator; Stochastic volatility; Volatility;

Endogenous network formation in patent contests and its role as a barrier to entry

In a setting of R&D co-opetition we study, by using an all-pay auction approach, how collaboration affects strategic decisions during a patent contest, and how the latter influences the possible collaboration network structures the firms can hope to form. The all pay auction approach allows us to 1) endogenize both network formation and R&D intensities and 2) take heterogeneous and private valuations for patents into account. We find that, different from previous literature, the complete network is not always the only pairwise stable network, even and especially if the benefits from cooperating are important. Interestingly, the other possible stable networks all have the realistic property that some firms decide not to participate in the contest. Thus, weak cooperation through network formation can serve as a barrier to entry on the market for innovation. We further show that there need not be any network that survives a well known refinement of pairwise stability, strong stability, which imposes networks to be immune to coalitional deviations.patent game, networks, R&D cooperation, all-pay auction

Asymptotic Results for GMM Estimators of Stochastic Volatility Models

We derive closed-form expressions for the optimal weighting matrix for GMM estimation of the stochastic volatility model with AR(1) log-volatility, and for the asymptotic covariance matrix of the resulting estimator. The moment conditions considered are generated by the absolute observations (which is the standard approach in this literature) or by the log-squared observations. We use the expressions to compare the performances of GMM and other estimators that have been proposed, and to optimally select small sets of moment conditions from very large sets.Stochastic volatility, GMM

Antidumping: Welfare Enhancing Retaliation?

Over the last two decades, the use of antidumping (AD) measures has been characterized by two main features. First and foremost, it has increased dramatically. Additionally, it has not - to a large extent - been used to counteract the existence of dumping, but rather in a strategic or retaliatory fashion. These empirical findings have led many to propose the elimination of this instrument altogether, on the basis that its current use is arbitrary and, consequently, welfare reducing. We argue that these concerns may be unfounded since, in a world of restricted trade policy instruments, a retaliatory use of AD might be welfar enhancing. By modeling the trade relationship between countries as a repeated game of hidden information, we show that retaliation can be welfare increasing with respect to a rigid rule on the use of AD. We stress the fact that, underlying this result, is the unavailability of transfers or export subsidies in the current world trading system.

Competitive Imperfect Price Discrimination and Market Power

Two duopolists compete on price in the market for a homogeneous product. They can “profile” consumers, that is, identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers or that only one firm profiles consumers as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus

Interest rate expectations and uncertainty during ECB governing council days: evidence from intraday implied densities of 3-month Euribor

This paper analyses changes in short-term interest rate expectations and uncertainty during ECB Governing Council days. For this purpose, it first extends the estimation of risk-neutral probability density functions up to tick frequency. In particular, the non-parametric estimator of these densities, which is based on fitting implied volatility curves, is applied to estimate intraday expectations of threemonth EURIBOR three months ahead. The estimator proves to be robust to market microstructure noise and able to capture meaningful changes in expectations. Estimates of the noise impact on the statistical moments of the densities further enhance the interpretation. In addition, the paper assesses the impact of the ECB communication during Governing Council days. The results show that the whole density may react to the communication and that such repositioning of market participants’ expectations will contain information beyond that of changes in the consensus view already observed in forward rates. The results also point out the relevance of the press conference in providing extra information and triggering an adjustment process for interest rate expectations. JEL Classification: C14, E43, E52, E58, E61announcement effects, central bank communication, interest rate expectations, intraday analysis, option-implied densities, risk-neutral probability density functions, tick data

The liquidity management of the Eurosystem during the period of financial turmoil

In the past few months, euro area money markets have been exposed to intense tensions. On 8 August, overnight interest rates rose to very high levels which required interventions of the Eurosystem in order to stabilise short-term money market interest rates around the target level, i.e. the minimum bid rate on the main refinancing operations. The article explains how the Eurosystem steers very short-term money market interest rates by adjusting its supply of liquidity on the money market. It is shown how the Eurosystem’s liquidity management stabilised short-term money market interest rates around the minimum bid rate on the main refinancing operations in the first half of 2007. Although short-term money market interest rates were more volatile during the period of financial turmoil, the Eurosystem nevertheless managed to safeguard the signalling function of the short-term money market interest rates by applying its operational framework in a flexible way. More specifically, the Eurosystem decided to allot more liquidity than the benchmark amount in the main refinancing operations early within the maintenance period. It was also decided to conduct fine-tuning operations on a more frequent basis in order to stabilise short-term rates. Finally, the Eurosystem also decided to increase the share of longer-term refinancing operations in the total amount of outstanding open market operations. Despite the relative success in stabilising very short-term money market interest rates, longer maturity unsecured interest rates – for instance the 3-month Euribor – increased significantly during the period of financial turmoil. These movements cannot be controlled directly by central banks as they are determined predominantly by private sector behaviour. However, when assessing the appropriate monetary policy stance, the Governing Council of the ECB takes these possibly changing financing conditions into account.monetary policy implementation, Eurosystem, open market operations

Interest rate policy or monetary base policy : implications for a central bank’s balance sheet

The article discusses the relationship between the central bank balance sheet, the monetary base, monetary aggregates and credit in the euro area. In particular, it looks at the choice of the operational procedures available to the central bank, and for this purpose it compares the current interest rate policy to a hypothetical monetary base policy. In the latter case, monetary policy would be transmitted primarily via the monetary aggregates which are already monitored by the ECB as part of its monetary analysis. The analysis points out, however, that the euro area conditions favour an interest rate policy rather than a monetary base policy. The reason is that the uncertainty created in the very short run by money demand shocks and unstable money multipliers exceeds that created by global demand shocks. This explains why central banks of countries with developed financial markets follow an interest rate policy. Such a choice is not at odds with the fact that money plays a fundamental role in the monetary policy strategy of the Eurosystem, as the comparative advantage of the monetary analysis pertains to the medium to long term. Finally, the authors point out that an interest rate policy implies an endogenous central bank balance sheet, where changes in base money demand are passed on to the balance sheet. Therefore, extra interventions, as for example those during the summer of 2007, by a central bank aiming to stabilise the official rate do not signal a change in monetary policy stance.central bank balance sheet, interest rate policy, monetary base policy