Published Research

Investigating Intertrade Durations using Copulas: An Experiment with NASDAQ Data

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Abstract

The pattern of dependence between liquidity, durations (orders and trades) and bid-ask spreads in a limit order market are examined in high resolution invoking copulas and graph theory. Using intraday data from a sample of NASDAQ 100 stocks and an experimental design, we study the information pathways in markets in the presence of algorithmic traders. Our results confirm that multivariate analysis is more appropriate to investigate these information pathways. We observe that the strength and nature of the dependence between variables vary through the trading day. We confirm the existence of stylised aspects of algorithmic trading, such as tail dependence in trade durations, a balance between buy and sell side in order durations, liquidity and bid-ask spreads, and the bid-ask spread and liquidity trade-off in the dependence structure.

Keywords

High resolution, Limit order markets, Durations, Liquidity, Bid-Ask Spread, Algorithmic trading, Pair copula construction

Article

Chakravarty, Ranjan R. and Pani, Sudhanshu. ‘Investigating Intertrade Durations Using Copulas: An Experiment with NASDAQ Data’. 1 Jan. 2022 : 81 – 102., DOI: 10.3233/AF-200362


A Data Paradigm to Operationalise Expanded Filtration: Realized Volatilities and Kernels from Non‑Synchronous NASDAQ Quotes and Trades

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Abstract

Ultra High Frequency (UHF) quotes and trades are examined in high resolution and data patterns that do not correspond to plausible market activity as in Brownlees and Gallo (2006) are identified. Noise patterns other than microstructure noise are isolated and diagnostic methods are evaluated accordingly. A flexible paradigm of data handling that synthesizes statistical technique and limit order book modelling is presented, extending Barndorff-Nielsen et. al. (2009), which operationalises the use of expanded filtration in empirical microstructure research. Empirical evidence from the NAS-DAQ 100 is presented, comprehensively demonstrating that removal of non-micro-structure noise from the limit order book adds significant robustness to estimation across techniques and levels of market depth.

Keywords

Robustification; Data handling; Limit order book; Model fit; Estimation; Filtration expansion; Ultra High Frequency

Article

Chakravarty, R.R., Pani, S. A Data Paradigm to Operationalise Expanded Filtration: Realized Volatilities and Kernels from Non-Synchronous NASDAQ Quotes and Trades. J. Quant. Econ. (2021). https://doi.org/10.1007/s40953-021-00252-0

Article Online View on ShareIT

Preprint


Liquidity in high resolution in limit order markets

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Abstract

This paper investigates, in high resolution, the role of liquidity in a limit order market. Liquidity in these markets has two parts - a liquidity store and liquidity flow (time dimension). We model the liquidity residing in a limit order book and the liquidity flow from the latent order book, using a fully probabilistic model. Using a sample of stocks from NASDAQ 100 we find that liquidity residing in the order book, within five levels each on either side of the transaction price and the flow to this liquidity pool from the latent order book can explain the wealth traded through the trading system, when observed in business time. The explanatory power is satisfactory in high resolution and short periods of business time but weaker in aggregated longer time periods. We observe that the liquidity pool for large part of the trading day goes into a steady state equilibrium.

Keywords

High resolution, Liquidity, Vine copula regression, Bayesian hierarchial models, Limit order markets, Market Microstructure

Article

Pani, S., 2021. Liquidity in high resolution in limit order markets. International Journal of Financial Markets and Derivatives8(1), pp.23-49, Doi: 10.1504/IJFMD.2021.113844

Preprint


A Theory of 'Auction as a Search' in Speculative Markets

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Abstract

'Auction as a Search' is an alternative tatonnement mechanism proposed for limit order markets. In high frequency order-driven markets, we model the tatonnement process as a search by buyers for sellers and vice-versa. We propose a total order book model, comprising limit orders and latent orders, in the absence of a market maker. A zero intelligence approach of agents is employed using a diffusion-drift-reaction model to explain the trading through continuous auctions (price and volume). The search (levy or Brownian) for transaction price is the primary diffusion mechanism with other behavioural dynamics in the model inspired by foraging, chemotaxis and robotic search. Analytic and asymptotic analysis is provided for several scenarios and examples. Numerical simulation of the model extends our understanding of the relative performance between brownian, superdiffusive and ballistic search in the model.

Keywords

Market Microstructure; Search; Limit Order Markets; Continuous Auctions; High Resolution; Zero Intelligence

Article

Pani, S., 2020. A theory of 'auction as a search' in speculative markets. International Journal of Financial Markets and Derivatives7(4), pp.337-374, doi: 10.1504/IJFMD.2020.111887

Preprint


Are Asian exchanges outliers? A market quality criterion

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Abstract

This paper provides a practical, empirical and theoretical framework that allows investment managers to evaluate stock exchanges’ market quality when choosing among different plausible international trading venues. To compare trading exchanges, it extends the hypothesis of market microstructure invariance to trading across exchanges. A measure ω, the ratio of the market-wide volatility to microstructure invariance, is introduced. The paper computes ω for the exchanges around the world. Its value for the NSE (India) is 24.5%, the Korea Exchange (Korea) is 7.9%, the Shanghai Exchange (China) is 3.5%, and the Shenzhen Exchange (China) is 4.4%, which is significantly different from that of major exchanges in the USA (NYSE – 0.8%, NASDAQ – 1.3%) and Europe (LSE (UK) – 0.4). This country risk dimension clearly identifies which equity exchanges cannot hold their own direct correlational hedges and therefore mandatorily require derivative positions, and has significant implications for the decision making of global long-short equity asset allocators in the Asian listed equity markets.

Keywords

country risk, global asset allocation, international diversification, market microstructure, market quality of stock exchanges, trading venues

Article

Ranjan R. Chakravarty and Sudhanshu Pani (2021). Are Asian exchanges outliers? A market quality criterion. Investment Management and Financial Innovations, 18(2), 64-78. doi:10.21511/imfi.18(2).2021.06 (open access)


The Right Cocktail: Asset Allocation and Wealth Management in India

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The Right Cocktail introduces a new framework for Asset Allocation in India. In a quest to answer and solve the challenges in managing wealth in India, the author challenges established approaches borrowed from the West and Indian practices. He comes up with robust albeit simple and practical solutions.

This book is your guide and life companion to managing your wealth in India.  It would help individuals who manage their own wealth and financial advisors who would immensely benefit from a conceptual framework on wealth management customised to Indian conditions.

The goal of the framework is to help you take informed decisions. The author has given his strategies for Asset Allocation. In addition, there is enough material information in this work to help you set other objectives.

In a series of essays (other than the asset allocation framework), the author challenges long held practices and beliefs and recommends alternative approaches. Investors would also benefit from the insights of the author on Indian economy, assets and wealth management derived from his experience and expertise.