Paolo Mazza

Implicit transaction cost management using intraday price dynamics

ABSTRACT Using the Exchange Liquidity Measure, we show that implicit transaction costs exhibit intraday regularities around specific price change signals for a sample of European blue chips publicly quoted on Euronext. Not only transaction costs follow a reverse J-shape throughout the day but they also decrease significantly around specific patterns of price dynamics. By focusing on these signals during the trading day, liquidity traders may detect intraday windows of opportunities during which implicit transaction costs are lower.

Rethinking Zero Returns in the Liquidity Puzzle of a Limit Order Market

The frequency of zero returns has often been used as a proxy for illiquidity in the literature. Based on Euronext intraday data, we show that zero returns are significantly related to liquidity instead. We conduct an event study and run conditional logit regressions using spread, depth, dispersion and slope measures as liquidity variables. Although we find that zero returns are associated with less informed trading as previously outlined in the literature, this does not necessarily lead to higher illiquidity.

Testing the effect of technical analysis on market quality and order book dynamics

ABSTRACT We find empirical support for the theoretical finding in agent-based models of limit order book markets that the effect of technical trading on market quality is not positive. When signals occur, technical traders lower liquidity as proxied by the relative spread, the effective spread, the realized spread, the dispersion and the slope in the order book. Technical trading is also found to be accompanied by rising volatility. There is overall strong empirical support against the hypothesis that technical trading has no effect on order book dynamics.