Research
Research Interests, Publications, and Working Papers
Financial Econometrics, with a focus on Commodity Markets.
NCN funded Project on Global Commodity Price Transmission.
Nonlinear Volatility in Commodity Prices
Market Microstructure of Commodity Markets.
New Open to Old Close: Signs and Spreads in Daily Prices.
Abstract: I present simple dynamic linear models with switching to estimate transaction costs in financial markets. The models treat underlying price processes and bid-ask spreads as unobserved components in state-space systems with trade direction indicators of buyer or seller initiated transactions being the outcome of a hidden Markov process. In simulation studies, I show that the model provides accurate spread estimates and beats the tick-rule method of signing trades using prices: 82% versus 66% labeling accuracy of transactions from small samples. The model easily transitions to a low-frequency data implementation without loss of precision in parameter estimates. In empirical applications using daily commodity futures prices, I show that the model can deliver reliable inference on transaction costs and the order flow process over the trading day even in the absence of high--frequency intraday data.
Price Impact as Reaction to Order Flow Imbalance.
Abstract: We postulate a theory of transaction history-dependent price formation in a limit order book market for commodity futures. We hypothesize that trading agents post mid-price updates equal to half the bid-ask spread in response to the observed sequence of buy and sell orders. The theory leads to falsifiable empirical predictions of the relationship between the price impact of a trade, the effective spread, and volatility. In empirical tests using tick data from the Tokyo Commodities Exchange, we find that a large fraction of price volatility can be explained by the correlation of order signs through a given trading session and conclude that high-frequency price dynamics are driven by reactions to the order flow imbalance.
Macroeconomic Theory.
Striking a balance: optimal tax policy with labor market duality (with J. Tyrowicz & R. Kokoszczynski), Journal of Macroeconomics 66 (2020), 103245. [DOI, PDF]
Risk Sharing with gradual financial integration: The Visegrád countries and the euro area, Bank and Credit 49 (1), 2018, 17–44. [PDF]
Corporate Governance, Taxation, and Business Cycles (with Ryszard Kokoszczynski). Revise and Resubmit, European Journal of Finance. [PDF]