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Market microstructure theory

2019-11-20 来源: 51Due教员组 类别: Paper范文

下面为大家整理一篇优秀的paper代写范文- Market microstructure theory,供大家参考学习,这篇论文讨论了市场微观结构理论。市场微观结构理论起源于20世纪60年代后期。自1987年全球股市动荡以来,市场微观结构理论发展迅速,逐渐成为金融经济学领域的重要分支。由于传统宏观模型难以解释和预测中短期汇率以及设计出合理的市场交易机制,学者们逐渐青睐研究汇率决定的微观结构方法。该方法认为,外汇市场主体的预期纷繁复杂,因此,研究采用的大多是预期的直接测度,其数据来源于金融服务公司所提供的有关市场参与者的调查结果,并引入两个重要的变量,即订单流和价差。

The current popular traditional financial theory looks at the determinants of financial product prices from a macro perspective. Emerging in recent years, the market microstructure theory, as one scholar says, "a relatively long period of time, in an economic fundamentals are changing economy, macroeconomic fundamentals, such as relative money supply or relative money velocity macroeconomic variables such as low frequency seems to be the most important determinant of exchange rate movement. And there are a lot of persistent exchange rate movements that are largely unexplained by macroeconomic variables."

As one of the classical exchange rate theories, PPP theory includes absolute purchasing power and relative purchasing power parity. Absolute purchasing power parity means that the equilibrium exchange rate between local and foreign currencies should be equal to the ratio of the purchasing power of local and foreign currencies. According to this theory, the value of a country's currency and people's demand for it are determined by the quantity of goods or services that a unit of currency can buy at home, that is, by its purchasing power. Therefore, the exchange rate of two countries' currencies is equivalent to the ratio of the purchasing power of two countries' currencies. The purchasing power is reflected by the price level.

Relative purchasing power parity is a development of absolute purchasing power parity. The main idea is that the two countries will adjust the exchange rates of their currencies according to the differences in their respective inflation rates. In other words, relative inflation between the two countries determines the equilibrium exchange rate of their currencies.

On the whole, the theory of purchasing power parity provides a reasonable explanation and logical basis for the formation mechanism of exchange rate, but it ignores other factors such as international capital flow, transportation cost and trade barriers, which are quite different from the situation in the real world. Therefore, it is difficult to correctly predict the change of exchange rate. Zhang xiaopu's empirical research shows that the theory of purchasing power parity is not applicable to RMB. He attributed the reasons to the defects of the RMB exchange rate system, the different levels of economic development and consumption structure between China and the United States and other factors.

This theory, put forward by Keynes and other famous scholars, believes that equilibrium exchange rate is formed through foreign exchange transactions caused by international selling arbitrage. If interest rates are different, there is an incentive to pull money out of countries with low rates and put it in countries with high rates to get higher rates. Arbitrageurs often combine swaps to hedge currency risk when they take advantage of different interest rates in the two countries. A large number of swap foreign exchange transactions bring down the spot exchange rate of currencies with low interest rates, while the forward exchange rate rises. The spot rate of currencies with high interest rates rose and the forward rate fell. Forward spread the difference between the foreign exchange rate and the spot exchange rate, so that the currencies of countries with low interest rates will have a forward premium and those with high interest rates will have a forward discount. With the continuous spread arbitrage, the forward spread will continue to increase until the forward spread is exactly equal to the gap between the two countries, that is, the interest rate parity is established.

This theory has some flaws. First, the parity statement does not take into account transaction costs. However, transaction costs are an important factor. If various trades are too high, arbitrage returns will be affected, thus affecting the relationship between exchange rate and interest rate. If transaction costs are taken into account, international carry arbitrage stops before interest rate parity is reached. Second, the parity theory assumes that there are no barriers to capital flows, that capital flows smoothly and unrestricted internationally. In practice, however, the international flow of funds is hindered by foreign exchange controls and underdeveloped foreign exchange markets. At present, only a few international financial centers have perfect futures markets and limited capital flows. Third, the interest rate parity theory also assumes that the size of arbitrage funds is infinite, so arbitrageurs can continue to carry out the arbitrage until the interest rate parity is established.

Other traditional theories of exchange rate determination, such as the theory of balance of payments and the theory of asset market, look at the changes of exchange rate from a macro perspective and are too theoretical because the models are based on a large number of assumptions. These theoretical models can only judge the long-term changes of the exchange rate, but cannot explain the short-term changes.

Market microstructure theory originated in the late 1960s. Since the global stock market turbulence in 1987, market microstructure theory has developed rapidly and gradually become an important branch of financial economics. In 1991, Adamati attributed the asymmetric information asset market and its trading mechanism to the microdomain research objects. In 1995, o 'hara's "market microstructure theory" defined market microstructure as asset transactions, processes and results under established rules, and systematically discussed the micro field of finance. A few years later, with the continuous development of the theory, Madhavan introduced information asymmetry model to analyze the inventory model and conducted empirical research, which brought a new method for the academic circle to analyze the market microstructure.

Because traditional macro models are difficult to explain and predict short and medium term exchange rates and to design reasonable market trading mechanism, scholars gradually favor the micro structure method of studying exchange rate determination. According to this method, the expectations of foreign exchange market subjects are complicated, so most of the research adopts direct measures of expectations, whose data are derived from the survey results of market participants provided by financial services companies, and two important variables, namely order flow and price difference, are introduced.

Spot foreign exchange market is the largest financial market in the world, and electronic has become an important feature. Every time a trader enters the trading platform online to place an order, the order will be completed electronically. The spot foreign exchange market is trading at an estimated $5 trillion a day, according to a public report by the bank for international settlements. For large transaction orders, the two parties are usually negotiated, and the buyers and sellers are usually Banks and other large financial institutions.

At present, in the foreign exchange market, most large companies submit orders as a way to participate in the market, so the order flow becomes the microscope of the foreign exchange market, directly reflecting the supply and demand relationship and resource allocation process of different currencies. In recent years, with the increasing application of high-frequency data and the deepening of the research on the flow of limited price orders, scholars' understanding of price discovery has begun to show new changes. It is a hot spot and innovation in price discovery to study the effect of information on price change from the perspective of high frequency microscopic order flow.

Many scholars are committed to building models and looking for rules to predict the trend of exchange rate based on the data of order flow and spread. Among them, the famous portfolio drift model proposed by Lyons has strong representativeness. The author studies the dollar market and analyzes the information set of the market through the portfolio drift model. This model has achieved remarkable success, and the explanation level of the daily exchange rate fluctuation is up to 60% in the dollar/mark market and over 40% in the yen/dollar market, which is far higher than the explanation strength of the traditional model. The theory was further developed with the efforts of Evans and Lyons. Based on the empirical study of nine major currencies, they proposed a multi-currency portfolio drift model based on the integration of information, and concluded that -- under the information dispersion structure, the individual change of order flow in the foreign exchange market showed a strong positive correlation with the currency prices in other markets.

For another important factor -- price difference, scholars also pay attention to it through a lot of studies on the microstructure of foreign exchange market. In 1996, Jorion studied the relationship between price spread and trading volume and volatility, and found that risk was positively correlated with price spread and negatively correlated with expected trading volume. This suggests that spreads reflect people's cost of holding positions, which are caused by price uncertainty and trading activity; In the same year, Goodhart, Ito and Payne selected bank trading data to analyze the relationship between exchange rate fluctuations and price differentials. They introduced models with a lag of one period and showed that when new or uncertain information was known to market participants, traders would widen spreads to reduce the risk of possible extreme prices in the future. Therefore, the price difference and quoted compensation fluctuation have a certain relationship.

These theoretical models of market microstructure are diverse and well developed. They can explain the laws of short-term exchange rate changes, breaking through the limitations of traditional theories. However, their rationality has not been unanimously recognized by the academic community and is still controversial.

Different scholars have different views on whether order flow can predict future exchange rate and whether traders can use the predictive power of order flow to obtain excess profits.

Evans&Lyons studied the order data of citibank's internal terminal customers in usd/euro and found that the order flow could predict the future spot exchange rate, and the prediction ability of the order flow model in 1-20 days exceeded the random walk model, but this result was only limited to the in-sample data test. Using Reuters d2000-2 data on customer order flows and traders' best quotes from February 2004 to February 2005, Rime et al. Found that the predictive power of order flows passed the test on the exchange rates of euros, pounds, yen and dollars, both in and out of sample.

Although Rime et al. Proved the predictive power of exchange rate of order flow, there are also many research results in the academic field with opposite views. Considering the information into the exchange rate and order flow information transmission lag, Sager&Taylor and Cerrato Sarantis&Saunders using distributed lag model, and adopt jpmorgan and royal bank of Scotland on January 1, 1999-2003, June 9 JCP orders for 1151 trading days flow data, inspection order flow forecast for the next phase of the spot rate, but, according to the results of hysteresis model to the dollar, the euro, the pound and the yen and Swiss franc exchange rate forecasting ability is not significant, but not in the accuracy of the statistical sense. In addition, Cerrato and Sarantis&Saunders conducted regression by referring to the Evans&Lyons mixed model of spread and order flow and selecting the weekly order flow data of ubs. The sample includes eight major international currencies from February 11, 2001 to November 23, 2007. Their conclusion is similar to Sager&Taylor's that the order-flow model does not have an exchange rate forecast.

Therefore, the microstructure model and the mixed model failed to reach a consensus on whether the order flow has the ability to predict the exchange rate, and the research in this aspect needs to be developed both theoretically and empirically.

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