Slopes, Spreads, and Depth: Monetary Policy Announcements and Liquidity Provision in the Energy Futures Market

Slopes, spreads, and depth: Monetary policy announcements and liquidity provision in the energy futures market

The aim of this study is to investigate market depth as a stock market liquidity dimension. A new methodology for market depth measurement exactly based on Shannon information entropy for high-frequency data is introduced and utilized. The proposed entropy-based market depth indicator is supported by an algorithm inferring the initiator of a trade. This new indicator seems to be a promising liquidity measure. Both market entropy and market liquidity can be directly measured by the new indicator. The findings of empirical experiments for real-data with a time stamp rounded to the nearest second from the Warsaw Stock Exchange (WSE) confirm that the new proxy enables us to effectively compare market depth and liquidity for different equities. Robustness tests and statistical analyses are conducted. Furthermore, an intra-day seasonality assessment is provided. Results indicate that the entropy-based approach can be considered as an auspicious market depth and liquidity proxy with an intuitive base for both theoretical and empirical analyses in financial markets.

Using a multi-dimensional model of corporate transparency developed by DeBoskey and Gillett (2011) based on disclosure information, intermediary information, earnings quality information, and insider information, this study extends their findings to examine whether corporate transparency has significant power to explain cross-sectional variation in market liquidity (measured by bid-ask spreads and market depth) and analyst forecast properties (measured by analyst forecast accuracy and analyst forecast dispersion). We find that: (i) market depth and analyst forecast dispersion are significantly associated with public disclosure information transparency; (ii) market depth, forecast dispersion and forecast error are significantly associated with intermediary information transparency; and (iii) relative bid-ask spreads is signficantly associated with earnings quality information. Our findings offer an extended view of the impact of corporate transparency on a set of criterion variables expanded beyond firm-level ones to include market participants such as dealers/specialists who rely to some extent on company-provided information.

Exploring the relationship between Chinese crude oil futures market efficiency and market micro characteristics

How Does Investor Sentiment Shape the Liquidity Response to Monetary Policy Announcements in Precious Metal Markets?

The influence of investor sentiment on the monetary policy announcement liquidity response in precious metal markets

The purpose of this study is to detect the existence of a bubble stock and analyze the impact of monetary policy, market sentiment and liquidity on the property stock index in the Indonesian capital market. The data used in this study is secondary data originating from various sources for the period 2016 – 2020 using multiple linear regressions. The bubble stock detection is done by using the ratio between the property stock price index and the consumer nutrient index.
 The results showed that there was an indication of a moderate bubble stock in the property stock index during the research period 2016 – 2020. The factors that impacted the property stock price index were interest rates, the rupiah exchange rate against the US dollar, market sentiment and market liquidity. The increase in interest rates, the rupiah exchange rate, and market sentiment and liquidity has an impact on the increase in the property stock price index on the Indonesian stock exchange for the 2016 – 2020 periods.
 Keywords: Bubble Stock, Exchange Rate, Interest Rate, Inflation, Market Sentiment, Market Liquidity

One of the many consequences of financialization in the past decades has been the significant appreciation of the importance of financial markets' liquidity. In order to maintain financial stability, one must have a clear understanding of the sources of market liquidity (ML). A finer comprehension of liquidity and its direction would help policy makers in fine-tuning the current regulations while also identifying each of the elements that compose it. In this paper, a recursive vector autoregressive model is utilized to empirically analyze how to detect the causality relations between funding and ML in four post-communist countries (Czech Republic, Hungary, Slovakia and Poland). For the analyses freely accessible data on the balance sheets of aggregated banking sectors was utilized with the overall aim of finding a proxy for funding liquidity (FL) in every examined country. As a proxy for ML, government bonds' bid-ask spreads were utilized in the model. The paper provides an empirical evidence that FL drives ML in each economy. The results are clear, statistically significant and robust. They can be understood as evidence for the importance of the role of the trader's FL for the liquidity of financial assets' markets. The results of the paper have important implications for monetary policy, as well as micro- and macro-prudential regulation.

Purpose - The purpose of this paper is to quantify the changes in the liquidity premium for the real estate equities markets of the United States, Europe and Asia during the period of 2002 – 2012. The liquidity crisis of 2007-8 had a dramatic impact on returns, valuations and capital raising abilities of the listed real estate sector globally, and the paper focuses on understanding and explaining relative liquidity premiums under dynamic market conditions.Design/methodology/approach - Market liquidity is measured in each market, U.S, Europe and Asia by analysing liquidity in three different dimensions of tightness, depth and resilience. We calculate percentage bid-ask spread as a measure of market tightness, market depth is given by the Hui-Heubel (HH) liquidity ratio (Hui and Heubel, 1984), while resilience refers to the speed at which the price fluctuations resulting from trades are dissipated using a Market-efficient coefficient (MEC) (Hasbrouck and Schwartz, 1988). The company data sample groups securities into large, medium and small market capitalisations across each of the three regions.Finally the dependency of real estate firm liquidity with other securities market indicators is measured in each market, U.S, Europe, Asia by constructing the Hui-Heubel liquidity ratio on a selection of key companies and correlating this with the VIX index. A higher HH ratio indicates higher price to volume sensitivity. Findings - In all three markets bid-ask spreads reduced significantly, and market liquidity and efficiency increased during the period of 2002 – 2007. Since that date the results have a more regional bias, and we examine the reasons behind this. The MEC confirms that European companies exhibit lower levels of liquidity than their US counterparts, and this a contributing factor behind periods of relative underperformance. We discovered a high correlation between market correlation and the VIX Index.Originality/value - The results provide important clues for investors and real estate companies in pricing liquidity throughout the cycle and illustrates the regional differences over the period. This has important implications for investors regarding the pricing of risk, and absolute and relative returns, and for companies, in terms of capital raising ability. In addition the finding of the close relationship between RE stocks liquidity and the VIX index confirms the importance of equity market influences on public real estate valuations.

This study investigates the price impact of large trades in the Nigerian financial market, focusing on the roles of trade size, market liquidity, and firm size. The research is motivated by the increasing volume of institutional and block trades in emerging markets, which often exert significant influence on stock prices due to shallow liquidity and limited market depth. Using panel data from 20 actively traded equities listed on the Nigerian Exchange Group (NGX) over the period 2015 to 2023, the study adopts an ex-post facto design and employs Random Effects regression analysis, guided by the Hausman specification test. Descriptive statistics and correlation analysis revealed notable variations in price impact across stocks, with trade size showing a strong positive correlation, while market liquidity and firm size displayed negative associations. Empirical results indicate that trade size has a positive and statistically significant effect on price impact, while both market liquidity (measured by bid-ask spread) and firm size (proxied by the logarithm of market capitalization) have significant negative effects. These findings align with market microstructure theory and are consistent with previous empirical studies. The study concludes that the Nigerian equity market is sensitive to large trades, especially in illiquid and smaller firms. It recommends improved execution strategies for institutional investors, stronger market-making mechanisms, enhanced transparency by regulators, and policy support for increased market depth. The study contributes to the limited literature on trading dynamics in emerging African markets and offers practical insights for market participants and policymakers.

The effect of algorithmic trading on market liquidity: Evidence around earnings announcements on Borsa Italiana

The dissertation explores the dynamics of market liquidity, acknowledging its importance in modern finance. Market liquidity operates across various scales, with its significance spanning from the micro to the macro level. At the micro level, market liquidity embodies the (measurable) price of immediacy, influencing the ease with which assets can be converted into cash and vice versa. Conversely, on a macro scale, it presents itself as an abstract impediment, hindering the attainment of efficient market equilibria. Positioned between these two extremes lies the domain of asset pricing, where market liquidity manifests itself as a liquidity premium— a distinct asset specific property. Recognizing the facilitating role of market liquidity in enhancing economic prosperity and welfare, the dissertation undertakes an investigation into its underlying mechanisms. While dealer inventory constraints and the presence of (asymmetric) information are believed to be the primary structural drivers of market liquidity, this research explores three of ancillary mechanisms that play a role in the formation of market liquidity: market making incentives, the presence of dynamic hedgers, and order monitoring costs The core of this dissertation comprises three principal chapters. Firstly, it examines the interaction between primary and secondary markets for Euro area government bonds, demonstrating a significant relationship between expected primary issuance fees and market liquidity. The formation of market liquidity is shown to be affected by the institutional setting. Secondly, this thesis explores the impact of the gamma positioning of dynamic hedgers on market quality, revealing the effects of gamma positioning on liquidity, price discovery, volatility and stability. In the final principal chapter, the effect of order monitoring costs as a fundamental driver of liquidity is investigated, highlighting the asymmetric effects of order monitoring costs and its implications on overall market quality. In conclusion, through empirical investigations and agent-based modelling, a new set of drivers that shape market liquidity is scrutinized, offering new perspectives on the dynamics of market liquidity. These insights provide a basis for further research and yield potential policy instruments that could be harnessed to enhance market liquidity.

Understanding the impact of monetary policy announcements: The importance of language and surprises

Determinants of Liquidity in Open Electronic Limit Order Book Market

Time-Varying Arrival Rates of Informed and Uninformed Trades