Browsing by Subject "Market microstructure"
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Item Open Access Commonality in ask-side vs. bid-side liquidity(Elsevier, 2018) Şensoy, AhmetWe decompose the cost of trading into buy-side and sell-side using the limit order book. By using various position sizes to trade, we look for commonality in liquidity on different sides and also at the different levels of the order book. We find that bid-side liquidity has a higher commonality than ask-side liquidity for small position sizes to trade. On the other hand, ask-side commonality becomes stronger once position size exceeds a certain level. Empirical evidence suggests that this switching pattern may be due to the investors’ over-reaction to a positive and under-reaction to a negative market trend.Item Open Access Implied volatility indices: a review and extension in the Turkish case(Elsevier, 2018-08-13) Şensoy, Ahmet; Omole, J.We re-visit the model-free methodology of the new VIX, and review how its counterparts are estimated empirically across the world. Then, we modify its parameter selection procedure for it to be compatible with the microstructure characteristics of emerging derivatives markets. Applying this approach on Turkish market data, we introduce VBI; the implied volatility index of Borsa Istanbul. Accordingly, (i) VBI is a strong predictor of the future realized volatility, (ii) it is significantly correlated with Turkey's own financial indicators, but not with many global financial indicators, (iii) there is an implied volatility spillover from US equity market to Borsa Istanbul, but not the other way around.Item Open Access Informed trading in borsa İstanbul(Bilkent University, 2019-05) Tiniç, MuratThis thesis investigates how information asymmetry affects asset prices in Borsa İstanbul. In the first chapter, we introduce the R package InfoTrad that estimates the probability of informed trading. Next, we examine the relationship between information asymmetry and stock returns in Borsa İstanbul. Firm-level cross-sectional regressions indicate an economically insignificant relationship between PIN and future returns. Moreover, univariate and multivariate portfolio analyses show that portfolios of stocks with high levels of informed trading do not realize significant return premiums. Consequently, our results, suggest that information asymmetry is a firm-specific risk and it can be eliminated with portfolio diversification. Finally, we compare the informational (dis)advantage of foreign investors trading in Borsa İstanbul. We first show that an average foreign trade creates buy pressure whereas an average local trade generates a sell pressure. The permanent impact of foreign investors over and above local investors is significant only for 24 stocks which correspond to 7% of our sample. Importantly, we show that the foreign price impact occurs primarily in a period of political instability which started with the Gezi Park protests in June 2013. In a panel setting, we also show that adverse selection cost due to foreign trading significantly increases even when we control for firm-specific factors along with global and local macroeconomic conditions. Domestic investors with undiversified portfolios may be more risk-averse during periods of increased turmoil. This may enable foreign investors to have a better position to take advantage of potential price misalignments, especially for stocks of commercial banks.Item Open Access Informed trading, order flow shocks and the cross section of expected returns in Borsa Istanbul(Routledge, 2020-01) Tiniç, Murat; Salih, A.This paper examines the relationship between information asymmetry and stock returns in Borsa Istanbul. For all stocks that are traded in Borsa Istanbul between March 2005 and April 2017, we estimate the probability of informed trading (PIN) to proxy for information asymmetry. Firm-level cross-sectional regressions indicate a statistically insignificant relationship between PIN estimates and future returns. Moreover, univariate and multivariate portfolio analyses assert that investors that hold stocks that have high information asymmetry do not obtain significant future returns. Consequently, our results suggest that information asymmetry proxied by PIN is a firm-specific risk and can be eliminated with portfolio diversification. Findings are robust to different factorizations in estimating PIN and free of any bias due to trade classification algorithms, boundary solutions, floating-point exceptions and symmetric order flow shocks.Item Open Access Three essays on derivatives markets(Bilkent University, 2022-01) Omole, Oluwakayode JohnThis thesis comprises of three essays on derivatives markets. The first essay revisits the model-free methodology of the implied volatility index (VIX) and its global counterparts as empirically estimated. Then, we modify the model parameter selection procedure to be compatible with the microstructure characteristics of emerging derivative markets. Applying this approach on Turkish market data, we introduce the implied volatility index of Borsa Istanbul (VBI). We find that VBI is a significant predictor of the future realized volatility, is significantly correlated with Turkey’s own financial indicators, but not with many global financial indicators. Additionally, we find that the presence of implied volatility spillover from US equity market to Borsa Istanbul, but not the other way around. The second essay uses proprietary transaction level data of Borsa Istanbul to compute the order imbalance of index options to investigate the linkages between option trades and spot index returns. Our findings show that weeks with higher call (put) order imbalance are associated with higher (lower) contemporaneous spot index returns. In addition, higher call order imbalance significantly predicts negative next-week index returns. The result of the chapter is consistent with the view that the hedging demand of counterparties in the option market that leads to the transfer of order imbalance from option market to stock market drives the predictability of index call options. In the third essay, we investigate the existence of common effects in order imbalance in the Borsa Istanbul’s option market. Accordingly, we find the presence of commonality in order imbalance for call options and an even more dominant presence in put options. The results suggest that, from the order imbalance perspective, equity order imbalance contributes more than options to explaining stock return variations.