Market Microstructure and Information Transmission

Flashcards on Market Microstructure and Information Transmission

According to O'Hara (2015), what is a key change in market microstructure due to high-frequency trading?

A dramatic increase in trading speed and complexity.

According to Comerton-Forde and Zhong (2019), what is an "inverted fee structure?"

One where exchanges pay rebates to liquidity consumers (takers).

According to Gregoire and Martineau (2022), in the illiquid after-hours market, prices reflect earnings surprises primarily through changes in what?

Limit order quotes.

According to Chordia and Miao (2020), increased low latency trading activity around earnings announcements is associated with what?

Faster incorporation of earnings surprises into prices and reduced PEAD.

According to Lang, Lins, and Maffett (2012), how is firm-level transparency measured?

Using proxies such as less evidence of earnings management and more analyst following.

Why do Easley, de Pardo, and O'Hara (2021) propose using machine learning to study market microstructure in the machine age?

Because ML can handle large volumes of data and complex, nonlinear relationships.

According to Comerton-Forde and Zhong (2019), what do traders use inverted venues in the presence of suboptimal tick sizes to achieve?

Sub-tick price improvement and faster order execution as takers.

According to O'Hara (2015), what is one challenge for microstructure research in the high-frequency world?

The need to develop new theoretical models that capture high-frequency dynamics.

According to Gregoire and Martineau (2022), in the after-hours market, following positive earnings surprises, which prices adjust quickly, and which are slower to adjust?

Ask prices adjust quickly while bid prices are slower to adjust.

According to Chordia and Miao (2020), how do low latency traders contribute to market efficiency around earnings announcements?

By accelerating the price discovery process.

According to Lang, Lins, and Maffett (2012), when is the relationship between firm-level transparency and stock market liquidity more pronounced?

When investor protection and disclosure requirements are poor.

According to Easley, de Pardo, and O'Hara (2021), some microstructure measures with high explanatory power exhibit what?

Low predictive power.

According to Comerton-Forde and Zhong (2019), what can increased activity on inverted venues lead to?

Improved pricing efficiency and facilitation of sub-tick price discovery.

According to Gregoire and Martineau (2022), what is a key characteristic of the after-hours market?

Very low liquidity.

According to Chordia and Miao (2020), what does low latency trading around earnings announcements imply?

That information is incorporated into prices at extremely high speeds.

According to Lang, Lins, and Maffett (2012), when does firm-level transparency matter more for stock market liquidity?

When market volatility is high and ownership is more concentrated.

According to Easley, de Pardo, and O'Hara (2021), what challenges does the "machine age" in microstructure present?

Data volume and complexity.

According to Comerton-Forde and Zhong (2019), what can a suboptimal tick size lead to?

A binding bid-ask spread equal to the tick size.

According to Gregoire and Martineau (2022), following negative earnings surprises in the after-hours market, which prices adjust faster than the others?

Bid prices adjust faster than ask prices.

According to Chordia and Miao (2020), why might the impact of low latency trading on market efficiency around earnings announcements not be uniformly beneficial for all market participants?

Because the speed advantage accrues disproportionately to LLT traders.

According to Lang, Lins, and Maffett (2012), what is "less evidence of earnings management" used as a measure of?

Firm-level transparency.

How does Machine learning offer opportunities to address challenges in studying market microstructure in the machine age?

By modeling complex, nonlinear relationships and performing feature selection from a large number of variables.

What is the primary difference between a traditional fee structure and an inverted fee structure on stock exchanges?

Who receives the rebate.

According to Gregoire and Martineau (2022), what do their findings on price discovery in the after-hours market highlight the importance of?

The limit order book.

According to Chordia and Miao (2020), what is the phenomenon where stock prices continue to drift in the direction of an earnings surprise for a period after the announcement, which is reduced by LLT, known as?

Post-earnings announcement drift (PEAD).