Three essays on liquidity risk

Preface In this thesis we study several questions related to transaction data measured at an individual level. The questions are addressed in three essays that will constitute this thesis. In the first essay we use tick-by-tick data to estimate non-parametrically the jump process of 37 big stocks traded on the Paris Stock Exchange, and of the CAC 40 index. We separate the total daily returns in three components (trading continuous, trading jump, and overnight), and we characterize each one of them. We estimate at the individual and index levels the contribution of each return component to the total daily variability. For the index, the contribution of jumps is smaller and it is compensated by the larger contribution of overnight returns. We test formally that individual stocks jump more frequently than the index, and that they do not respond independently to the arrive of news. Finally, we find that daily jumps are larger when their arrival rates are larger. At the contemporaneous level there is a strong negative correlation between the jump frequency and the trading activity measures. The second essay study the general properties of the trade- and volume-duration processes for two stocks traded on the Paris Stock Exchange. These two stocks correspond to a very illiquid stock and to a relatively liquid stock. We estimate a class of autoregressive gamma process with conditional distribution from the family of non-central gamma (up to a scale factor). This process was introduced by Gouriéroux and Jasiak and it is known as Autoregressive gamma process. We also evaluate the ability of the process to fit the data. For this purpose we use the Diebold, Gunther and Tay (1998) test; and the capacity of the model to reproduce the moments of the observed data, and the empirical serial correlation and the partial serial correlation functions. We establish that the model describes correctly the trade duration process of illiquid stocks, but have problems to adjust correctly the trade duration process of liquid stocks which present long-memory characteristics. When the model is adjusted to volume duration, it successfully fit the data. In the third essay we study the economic relevance of optimal liquidation strategies by calibrating a recent and realistic microstructure model with data from the Paris Stock Exchange. We distinguish the case of parameters which are constant through the day from time-varying ones. An optimization problem incorporating this realistic microstructure model is presented and solved. Our model endogenizes the number of trades required before the position is liquidated. A comparative static exercise demonstrates the realism of our model. We find that a sell decision taken in the morning will be liquidated by the early afternoon. If price impacts increase over the day, the liquidation will take place more rapidly.

Inference for nonparametric high-frequency estimators with an application to time variation in betas

We consider the problem of conducting inference on nonparametric high-frequency estimators without knowing their asymptotic variances. We prove that a multivariate subsampling method achieves this goal under general conditions that were not previously available in the literature. We suggest a procedure for a data-driven choice of the bandwidth parameters. Our simulation study indicates that the subsampling method is much more robust than the plug-in method based on the asymptotic expression for the variance. Importantly, the subsampling method reliably estimates the variability of the Two Scale estimator even when its parameters are chosen to minimize the finite sample Mean Squared Error; in contrast, the plugin estimator substantially underestimates the sampling uncertainty. By construction, the subsampling method delivers estimates of the variance-covariance matrices that are always positive semi-definite. We use the subsampling method to study the dynamics of financial betas of six stocks on the NYSE. We document significant variation in betas within year 2006, and find that tick data captures more variation in betas than the data sampled at moderate frequencies such as every five or twenty minutes. To capture this variation we estimate a simple dynamic model for betas. The variance estimation is also important for the correction of the errors-in-variables bias in such models. We find that the bias corrections are substantial, and that betas are more persistent than the naive estimators would lead one to believe.

Are price limits on futures markets that cool? evidence from the brazilian merchantile & futures exchange

This paper investigates the impact of price limits on the Brazil- ian future markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the São Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. Our main finding is that price limits drive back prices as they approach the lower limit. There is a strong cool-off effect of the lower limit on the conditional mean, whereas the upper limit seems to entail a weak magnet effect on the conditional variance. We then build a trading strategy that accounts for the cool-off effect so as to demonstrate that the latter has not only statistical, but also economic signifi- cance. The resulting Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider.

Volatility modelling in the forex market: an empirical evaluation

We compare three frequently used volatility modelling techniques: GARCH, Markovian switching and cumulative daily volatility models. Our primary goal is to highlight a practical and systematic way to measure the relative effectiveness of these techniques. Evaluation comprises the analysis of the validity of the statistical requirements of the various models and their performance in simple options hedging strategies. The latter puts them to test in a "real life" application. Though there was not much difference between the three techniques, a tendency in favour of the cumulative daily volatility estimates, based on tick data, seems dear. As the improvement is not very big, the message for the practitioner - out of the restricted evidence of our experiment - is that he will probably not be losing much if working with the Markovian switching method. This highlights that, in terms of volatility estimation, no clear winner exists among the more sophisticated techniques.

Are price limits on futures markets that cool?: evidence from the Brazilian Mercantile and Futures Exchange

This paper investigates the impact of price limits on the Brazilian futures markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the S˜ao Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. The results indicate that the conditional mean features a floor cool-off effect, whereas the conditional variance significantly increases as the price approaches the upper limit. We then build a trading strategy that accounts for the cool-off effect in the conditional mean so as to demonstrate that the latter has not only statistical, but also economic significance. The in-sample Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider, whereas out-of-sample results evince similar performances.

Análise do desempenho de regras da análise técnica aplicada ao mercado intradiário do contrato futuro do índice Ibovespa

Este artigo tem como objetivo verificar a robustez do contéudo preditivo de regras da análise técnica, usando informações intradiárias do mercado futuro do índice de ações da Bolsa de Valores de São Paulo (Ibovespa Futuro). A metodologia sugerida foi a avaliacão em grupos, conforme os resultados de Baptista (2002), tal que as regras são obtidas conforme os resultados em alguns dos subperíodos estudados, sendo testadas em períodos subsequentes. Como resultado, obteve-se robustez ao longo do tempo e à taxa de amostragem dos dados no desempenho das regras acima do benchmark (buy-and-hold), porém considerações realistas acerca do momento de compra, assim como da corretagem (exceto grande investidor), podem reduzir substancialmente os ganhos

New Epidemiological Data on Brazilian Spotted Fever in an Endemic Area of the State of Sao Paulo, Brazil

The present work evaluated rickettsial infection in dogs and their ticks in an area endemic for Brazilian spotted fever (BSF) in the metropolitan area of Sao Paulo, Brazil, where the tick Amblyomma aureolatum was presumed to be the vector of the disease. Ticks were collected on dogs from 185 houses, encompassing single infestations by Rhipicephalus sanguineus, Amblyomma aureolatum, Amblyomma longirostre, or Amblyomma sp. in dogs from 60 (32.4%), 77 (41.6%), 2 (1.1%), and 25 (13.5%) houses, respectively; 19 (10.3%) houses had dogs with mixed infestations by R. sanguineus and A. aureolatum; 1 (0.5%) house had dogs with infestations by A. aureolatum and A. longirostre; and 1 (0.5%) house had dogs with infestations by R. sanguineus and Amblyomma sp. Overall, A. aureolatum was present in dogs from 97 (52.4%) houses, and R. sanguineus in dogs from 80 (43.2%) houses. A total of 287 ticks (130 A. aureolatum and 157 R. sanguineus) infesting dogs from 98 houses were selected for testing by polymerase chain reaction (PCR) targeting rickettsial genes. Overall, 3.1% of the A. aureolatum ticks were infected by Rickettsia bellii, and 1.3% of the R. sanguineus were infected by Ricketttsii rickettsii. For serology, we selected 23 dogs living in and in the vicinity of the house where the R. rickettsii-infected ticks were collected. The indirect fluorescent antibody (IFA) test detected antibodies reactive with R. rickettsii in sera from 16 (69.6%) dogs, with titers ranging from 256 to 32,768. It is established that Amblyomma aureolatum is a vector of R. rickettsii in the Sao Paulo metropolitan area, but our results highlight for the first time in Brazil, a possible role of R. sanguineus in the epidemiology of R. rickettsii, corroborating previous findings in Mexico and the United States, where R. sanguineus has been implicated in the transmission of R. rickettsii to humans.

DESCRIPTION OF ADULTS AND NYMPH, AND REDESCRIPTION OF THE LARVA, OF ORNITHODOROS MARINKELLEI (ACARI: ARGASIDAE), WITH DATA ON ITS PHYLOGENETIC POSITION

The argasid tick Ornithodoros marinkellei Kohls, Clifford, and Jones, 1969 was described 4 decades ago based on larval specimens collected from bats (Pteronotus spp.) in Colombia and Panama. Thereafter, larval O. marinkellei parasitizing bats were reported from Venezuela, Guyana, and Brazil. Herein, we describe the adults and nymph, and redescribe the larva of O. marinkellei based on specimens recently collected in the western Brazilian Amazon region. In contrast to all other known adult argasids, the idiosoma of both males and females of O. marinkellei is covered with sclerotized plaques. The idiosoma of the nymph of O. marinkellei is entirely micromamillated, and differs from the adults by the absence of plaques. The larva of O. marinkellei is morphologically similar to the larvae of the 2 other species belonging to the subgenus Subparmatus, i.e., Ornithodoros viguerasi Cooley and Kohls, 1941 and Ornithodoros mormoops Kohls, Clifford, and Jones, 1969. Because of the long and narrow dorsal plate, the larva of O. marinkellei is readily distinguished from O. viguerasi and O. mormoops. Comparison of our larvae from Brazil with O. marinkellei paratype specimens from Colombia confirmed their taxonomic identification. However, a few morphological differences, particularly in the size of the gnathosoma, were observed. Further studies are necessary to clarify whether O. marinkellei is a complex of different species, or a single species represented by morphologically polymorphic, and geographically distinct populations. Partial mitochondrial 16S rDNA gene sequences were generated for O. marinkellei specimens from Brazil, and compared with available homologous sequences in GenBank. Phylogenetic analyses revealed O. marinkellei to be distinct from the remaining argasid species available in GenBank, including other bat-associated tick species that are found in sympatry with O. marinkellei in the Neotropical region.

Tick saliva inhibits the chemotactic function of MIP-1 alpha and selectively impairs chemotaxis of immature dendritic cells by down-regulating cell-surface CCR5

Ticks are blood-feeding arthropods that secrete immunomodulatory molecules through their saliva to antagonize host inflammatory and immune responses. As dendritic cells (DCs) play a major role in host immune responses, we studied the effects of Rhipicephalus sanguineus tick saliva on DC migration and function. Bone marrow-derived immature DCs pre-exposed to tick saliva showed reduced migration towards macrophage inflammatory protein (MIP)-1 alpha, MIP-1 beta and regulated upon activation, normal T cell expressed and secreted (RANTES) chemokines in a Boyden microchamber assay. This inhibition was mediated by saliva which significantly reduced the percentage and the average cell-surface expression of CC chemokine receptor CCR5. In contrast, saliva did not alter migration of DCs towards MIP-3 beta, not even if the cells were induced for maturation. Next, we evaluated the effect of tick saliva on the activity of chemokines related to DC migration and showed that tick saliva per se inhibits the chemotactic function of MIP-1 alpha, while it did not affect RANTES, MIP-1 beta and MIP-3 beta. These data suggest that saliva possibly reduces immature DC migration, while mature DC chemotaxis remains unaffected. In support of this, we have analyzed the percentage of DCs on mice 48 h after intradermal inoculation with saliva and found that the DC turnover in the skin was reduced compared with controls. Finally, to test the biological activity of the saliva-exposed DCs, we transferred DCs pre-cultured with saliva and loaded with the keyhole limpet haemocyanin (KLH) antigen to mice and measured their capacity to induce specific T cell cytokines. Data showed that saliva reduced the synthesis of both T helper (Th)1 and Th2 cytokines, suggesting the induction of a non-polarised T cell response. These findings propose that the inhibition of DCs migratory ability and function may be a relevant mechanism used by ticks to subvert the immune response of the host. (c) 2007 Australian Society for Parasitology Inc. Published by Elsevier Ltd. All rights reserved.

Tick saliva induces regulatory dendritic cells: MAP-kinases and Toll-like receptor-2 expression as potential targets

Ticks (Acari: Ixodidae) are bloodsucking ectoparasitic arthropods of human and veterinary medical importance. Tick saliva has been shown to contain a wide range of bioactive molecules with vasodilatory, antihemostatic, and immunomodulatory activities. We have previously demonstrated that saliva from Rhipicephalus sanguineus ticks inhibits the maturation of dendritic cells (DCs) stimulated with LPS. Here we examined the mechanism of this immune subversion, evaluating the effect of tick saliva on Toll-like receptor (TLR)-4 signalling pathway in bone marrow-derived DCs. We demonstrated that R. sanguineus tick saliva impairs maturation of DCs stimulated with LIPS, a TLR-4 ligand, leading to increased production of interleukin (IL)-10 and reduced synthesis of IL-12p70 and TNF-alpha. The immunomodulatory effect of the tick saliva on the production of pro-inflammatory cytokines by DCs stimulated with LPS was associated with the observation that tick saliva inhibits the activation of the ERK 1/2 and p38 MAP kinases. These effects were independent of the expression of TLR-4 on the surface of DCs. Additionally, saliva-treated DCs also presented a similar pattern of cytokine modulation in response to other TLR ligands. Since the recent literature reports that several parasites evade immune responses through TLR-2-mediated production of IL-10, we evaluated the effect of tick saliva on the percentage of TLR-2(+) DCs stimulated with the TLR-2 ligand lipoteicoic acid (LTA). The data showed that the population of DCs expressing TLR-2 was significantly increased in DCs treated with LTA plus saliva. In addition, tick saliva alone increased the expression of TLR-2 in a dose- and time-dependent manner. Our data suggest that tick saliva induces regulatory DCs, which secrete IL-10 and low levels of IL-12 and TNF-alpha when stimulated by TLR ligands. Such regulatory DCs are associated with expression of TLR-2 and inhibition of ERK and p38, which promotes the production of IL-10 and thus down-modulates the host`s immune response, possibly favouring susceptibility to tick infestations. (C) 2009 Elsevier B.V. All rights reserved.

Rhipicephalus (Boophilus) microplus: Clotting time in tick-infested skin varies according to local inflammation and gene expression patterns in tick salivary glands

Ticks deposit saliva at the site of their attachment to a host in order to inhibit haemostasis, inflammation and innate and adaptive immune responses. The anti-haemostatic properties of tick saliva have been described by many studies, but few show that tick infestations or its anti-haemostatic components exert systemic effects in vivo. In the present study, we extended these observations and show that, compared with normal skin, bovine hosts that are genetically susceptible to tick infestations present an increase in the clotting time of blood collected from the immediate vicinity of haemorrhagic feeding pools in skin infested with different developmental stages of Rhipicepahlus microplus; conversely, we determined that clotting time of tick-infested skin from genetically resistant bovines was shorter than that of normal skin. Coagulation and inflammation have many components in common and we determined that in resistant bovines, eosinophils and basophils, which are known to contain tissue factor, are recruited in greater numbers to the inflammatory site of tick bites than in susceptible hosts. Finally, we correlated the observed differences in clotting times with the expression profiles of transcripts for putative anti-haemostatic proteins in different developmental stages of R. microplus fed on genetically susceptible and resistant hosts: we determined that transcripts coding for proteins similar to these molecules are overrepresented in salivary glands from nymphs and males fed on susceptible bovines. Our data indicate that ticks are able to modulate their host`s local haemostatic reactions. In the resistant phenotype, larger amounts of inflammatory cells are recruited and expression of anti-coagulant molecules is decreased tick salivary glands, features that can hamper the tick`s blood meal. (C) 2010 Elsevier Inc. All rights reserved.

An integrated database on ticks and tick-borne zoonoses in the tropics and subtropics with special reference to developing and emerging countries

Tick-borne zoonoses (TBZ) are emerging diseases worldwide. A large amount of information (e.g. case reports, results of epidemiological surveillance, etc.) is dispersed through various reference sources (ISI and non-ISI journals, conference proceedings, technical reports, etc.). An integrated database-derived from the ICTTD-3 project (http://www.icttd.nl)-was developed in order to gather TBZ records in the (sub-)tropics, collected both by the authors and collaborators worldwide. A dedicated website (http://www.tickbornezoonoses.org) was created to promote collaboration and circulate information. Data collected are made freely available to researchers for analysis by spatial methods, integrating mapped ecological factors for predicting TBZ risk. The authors present the assembly process of the TBZ database: the compilation of an updated list of TBZ relevant for (sub-)tropics, the database design and its structure, the method of bibliographic search, the assessment of spatial precision of geo-referenced records. At the time of writing, 725 records extracted from 337 publications related to 59 countries in the (sub-)tropics, have been entered in the database. TBZ distribution maps were also produced. Imported cases have been also accounted for. The most important datasets with geo-referenced records were those on Spotted Fever Group rickettsiosis in Latin-America and Crimean-Congo Haemorrhagic Fever in Africa. The authors stress the need for international collaboration in data collection to update and improve the database. Supervision of data entered remains always necessary. Means to foster collaboration are discussed. The paper is also intended to describe the challenges encountered to assemble spatial data from various sources and to help develop similar data collections.

Reactions to tick antitoxin serum and the role of atropine in treatment of dogs and cats with tick paralysis caused by Ixodes holocyclus: a pilot survey

Objective To determine the incidence and nature of adverse reactions of dogs and cats to tick antitoxin serum and to re-evaluate the role of atropine in the treatment of tick paralysis. Design A retrospective questionnaire of veterinarians. Procedure Questionnaires were posted to 320 veterinarians in tick-endemic regions of Australia. Questions referred to dogs and cats treated for tick paralysis over a period of three years: the number treated, treatment protocols and adverse systemic reactions to tick antitoxin serum. Ninety completed questionnaires were returned and responses analysed. Results Veterinarians reported that approximately 3% of dogs exhibited adverse reactions immediately following treatment with tick antitoxin serum, Eighteen percent of these reactions were described as anaphylaxis, with the remaining 82% attributed to the Bezold-Jarisch reflex. Six percent of cats treated with tick antitoxin serum reacted adversely and the majority of reactions (63%) were ascribed to the Bezold-Jarisch reflex. Atropine was used routinely by 10% of responding veterinarians in the treatment of dogs and cats with tick paralysis. A similar number of veterinarians used atropine only in selected cases. Most veterinarians (76%) reported that they never used atropine in the treatment of tick paralysis in either dogs or cats. Within the survey population, premedication with atropine reduced the number of Bezold-Jarisch reactions following tick antitoxin administration approximately five-fold in dogs and four-fold in cats. Conclusions Data from this pilot survey indicate that more cats than dogs have adverse systemic reactions to tick antitoxin serum and that the majority of these reactions in both dogs and cats could be related to the Bezold-Jarisch reflex. The number of reactions to tick antitoxin serum in dogs and cats could be significantly reduced by the routine use of atropine prior to administration of tick antitoxin serum.

Low intraspecific variation in the rRNA internal transcribed spacer 2 (ITS2) of the Australian paralysis tick, Ixodes holocyclus

Ixodes holocyclus has a narrow, discontinuous distribution along the east coast of Australia. We studied ticks from 17 localities throughout the geographic range of this tick. The ITS2 of I. holocyclus is 793 bp long. We found nucleotide variation at eight of the 588 nucleotide positions (1.4%) that were compared for all ticks. There were eight different nucleotide sequences. Most sequences were not restricted to a particular geographic region. However, sequences F, G and H, which had an adenine at position 197, were found only in the far north of Queensland - all other ticks had a guanine at this position. The low level of intraspecific variation in this tick (0.7%) contrasts with the sequence divergence between L holocyclus and its close relative, I. cornuatus (13.1 %). These data indicate that L holocyclus does not contain cryptic species despite possible geographic isolation of some populations. We conclude that variation in the ITS2 is likely to be informative about the phylogeny of the group.

On the performance of the tick test

In financial research, the sign of a trade (or identity of trade aggressor) is not always available in the transaction dataset and it can be estimated using a simple set of rules called the tick test. In this paper we investigate the accuracy of the tick test from an analytical perspective by providing a closed formula for the performance of the prediction algorithm. By analyzing the derived equation, we provide formal arguments for the use of the tick test by proving that it is bounded to perform better than chance (50/50) and that the set of rules from the tick test provides an unbiased estimator of the trade signs. On the empirical side of the research, we compare the values from the analytical formula against the empirical performance of the tick test for fifteen heavily traded stocks in the Brazilian equity market. The results show that the formula is quite realistic in assessing the accuracy of the prediction algorithm in a real data situation.