International Trade and sovereign yield risks (with Caihong Xu & Xiaoxia Ye) 

Abstract

 

This project proposes new approaches to thoroughly investigate the impact of the international trade on international sovereign yield. In particular, we study how trade linkages could provide a channel through which sovereign yield risks spread between the importing and exporting countries. We establish trade networks based on the total trade and the composition of international trade: commodity goods v.s. high technology goods, then use it to investigate how interest rate risk embodied in the sovereign yield curves can be transmitted among exporting and importing countries.

The futures market microstructure invariance (With Lars Norden & Caihong Xu) 

Abstract

 

How can we reconcile the activities of the different types of futures traders into one theoretical framework? Kyle and Obizhaeva (2016) propose that the market microstructure invariance (MMI) theory does the job. It stipulates that the distributions of risk transfers and transaction costs are constant over trading time. Andersen, Bondarenko, Kyle & Obizhaeva (2018) translate the MMI into an intraday trading invariance (ITI) theory, in which they assume that the volatility per trade is proportional to expected trade size. The intuition is that traders trade more often, and in smaller lots, when the volatility is high. We analyze how well these theories stand up in a futures hedging demand-supply framework, with, on the one hand, long-term investors with hedging needs, and, on the other hand, HFTs and other liquidity suppliers with intraday trading horizons. In particular, we study the relationship between volatility and trade size at times when futures hedging pressure is large. We expect that an increased hedging pressure will create higher transaction costs than predicted by the MMI and the ITI.

Long- and Short-Run Volatility Spillover in European Stock Markets (with Hossein Asgharian & charlotte Christiansen)


Abstract

In this project, we plan to investigate the volatility spillover from the global stock market (US) to local European stock markets, namely France, Germany, Italy, Netherlands, Spain, Sweden, and the UK. We will propose a new framework where we combine the mixed data sampling (MIDAS) volatility approach of Engle, Ghysels & Sohn (2013) with the volatility spillover model of Bekaert & Harvey (1997). This will enable us to examine both short-run and long-run volatility spillover. To our knowledge, we will be the first to investigate the short-run and long-run volatility spillover. We will divide the unexpected return to the local country into long-run and short-run global and local effects. From this, we will measure the local country’s variance ratio related the long-run and short-run global and local effects. We will examine the potential effects from the recent financial crisis and the European sovereign debt crisis and we will study whether volatility spillover is asymmetric between positive and negative shocks.