2002 Fiscal Year Final Research Report Summary
Estimation of liquidity-providing costs with tick-by-tick transaction data
| Project/Area Number |
13630107
|
|---|
| Research Category |
Grant-in-Aid for Scientific Research (C)
|
| Allocation Type | Single-year Grants |
|---|
| Section | 一般 |
|---|
| Research Field |
Public finance/Monetary economics
|
|---|
| Research Institution | Osaka University |
|---|
Principal Investigator |
TANIGAWA Yasuhiko Osaka University, Graduate School of Economics, Associate Professor, 大学院・経済学研究科, 助教授 (60163622)
|
|---|
| Project Period (FY) |
2001 – 2002
|
| Keywords | Tick Data / Market Liquidity / Limit Order / Market Order / Execution Probability |
|---|
| Research Abstract |
We study the roles of securities houses in the Tokyo Stock Exchange (TSE) as a market maker who provides liquidity to the market. Although there is no designated market maker in the TSE, securities houses interfere with transactions through buying and selling on their own account in order to earn profit. With tick-by-tick data that record all transactions and the changes in the limit order book, we capture the cost of such profit-oriented, liquidity providing activities.
The TSE is a pure order-driven market. Executions are carried out by matching limit orders with incoming market orders. The former type of orders is ones that have been placed on the book with a designated limit price, but they have any guarantee for execution. The latter type has no specified execution price, but will be executed immediately if there are limit orders waiting. When investors choose a type of an order, they weigh the price gain versus the possible loss of trading opportunity. We estimate execution probabilities of limit orders to find evidences that traders well understand the implications of the factors of limit orders that affect the priorities for their execution. We present the results at an international conference (Omura, Tanigawa, and Uno [2001]), and published as a chapter in a book (Uno et al.[2002]). The relationships between market liquidity and characteristics of market microstructure are surveyed in Tanigawa [2002].
Lunchtime basket trades deserve special investigation, for securities houses always interfere to provide market liquidity. We examined the competition in the lunchtime auction and the following transactions for the stocks traded at the auction, to find liquidities on the TSE floor are the most important factor for aggressiveness of the securities houses. After presenting this result at an academic conference, we are now in the process of preparation for submission with revised results.
|
Research Products
(6 results)
