Essays on volatility and liquidity in financial markets

The price formation of financial assets is a complex process. It extends beyond the standard economic paradigm of supply and demand to the understanding of the dynamic behavior of price variability, the price impact of information, and the implications of trading behavior of market participants on prices. In this thesis, I study aggregate market and individual assets volatility, liquidity dimensions, and causes of mispricing for US equities over a recent sample period. How volatility forecasts are modeled, what determines intradaily jumps and causes changes in intradaily volatility and what drives the premium of traded equity indexes? Are they induced, for example, by the information content of lagged volatility and return parameters or by macroeconomic news, changes in liquidity and volatility? Besides satisfying our intellectual curiosity, answers to these questions are of direct importance to investors developing trading strategies, policy makers evaluating macroeconomic policies and to arbitrageurs exploiting mispricing in exchange-traded funds. Results show that the leverage effect and lagged absolute returns improve forecasts of continuous components of daily realized volatility as well as jumps. Implied volatility does not subsume the information content of lagged returns in forecasting realized volatility and its components. The reported results are linked to the heterogeneous market hypothesis and demonstrate the validity of extending the hypothesis to returns. Depth shocks, signed order flow, the number of trades, and resiliency are the most important determinants of intradaily volatility. In contrast, spread shock and resiliency are predictive of signed intradaily jumps. There are fewer macroeconomic news announcement surprises that cause extreme price movements or jumps than those that elevate intradaily volatility. Finally, the premium of exchange-traded funds is significantly associated with momentum in net asset value and a number of liquidity parameters including the spread, traded volume, and illiquidity. The mispricing of industry exchange traded funds suggest that limits to arbitrage are driven by potential illiquidity.

Exploring dependencies of 5.9 GHz DSRC throughput and reliability on safety applications

Dedicated Short Range Communication (DSRC) is the emerging key technology supporting cooperative road safety systems within Intelligent Transportation Systems (ITS). The DSRC protocol stack includes a variety of standards such as IEEE 802.11p and SAE J2735. The effectiveness of the DSRC technology depends on not only the interoperable cooperation of these standards, but also on the interoperability of DSRC devices manufactured by various manufacturers. To address the second constraint, the SAE defines a message set dictionary under the J2735 standard for construction of device independent messages. This paper focuses on the deficiencies of the SAE J2735 standard being developed for deployment in Vehicular Ad-hoc Networks (VANET). In this regard, the paper discusses the way how a Basic Safety Message (BSM) as the fundamental message type defined in SAE J2735 is constructed, sent and received by safety communication platforms to provide a comprehensive device independent solution for Cooperative ITS (C-ITS). This provides some insight into the technical knowledge behind the construction and exchange of BSMs within VANET. A series of real-world DSRC data collection experiments was conducted. The results demonstrate that the reliability and throughput of DSRC highly depend on the applications utilizing the medium. Therefore, an active application-dependent medium control measure, using a novel message-dissemination frequency controller, is introduced. This application level message handler improves the reliability of both BSM transmissions/receptions and the Application layer error handling which is extremely vital to decentralized congestion control (DCC) mechanisms.