Albert J. Menkveld

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Does Algorithmic Trading Improve Liquidity? Algorithmic trading has sharply increased over the past decade. Equity market liquidity has improved as well. Are the two trends related? For a recent five-year panel of New York Stock Exchange (NYSE) stocks, we use a normalized measure of electronic message traffic as a proxy for algorithmic liquidity supply and(More)
Middlemen in Limit-Order Markets A limit-order market enables an early seller to trade with a late buyer by leaving a price quote. But, public news in the interarrival period creates adverse selection for the seller and therefore hampers trade. High-frequency traders/machines (HFT) might restore trade by bringing the capacity to quickly update quotes on(More)
This paper studies the joint distribution of tick by tick returns and durations between trades. We build an econometric model for estimating and forecasting the volatility of stock returns using high-frequency data, correcting for the bias incurred by microstructure noise. Three features of the model are worth mentioning: first the conditional volatility(More)
U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. market and, potentially, in both markets simultaneously. We develop a general methodology based on a state space model to study 24-hour price discovery in a multiple markets setting. As opposed to the standard variance ratio approach,(More)
This paper studies the ability of non-informational order imbalances (buy minus sell volume) to predict daily stock returns at the market level. Using a model with three types of participants (an informed trader, liquidity traders, and a finite number of arbitrageurs), we derive predictions relating returns to lagged returns and lagged order imbalances.(More)
Shades of Darkness: A Pecking Order of Trading Venues Investors trade in various types of venues. When demanding immediacy, they trade off price impact and execution uncertainty. The “pecking order” hypothesis (POH) states that investors rank venues accordingly, with low-cost-low-immediacy venues on top and high-cost-high-immediacy venues at the bottom.(More)
This paper sheds light on a puzzling pattern in foreign exchange markets: Domestic currencies appreciate (depreciate) systematically during foreign (domestic) working hours. These time-of-day patterns are statistically and economically highly significant. They pervasively persist across many years, even after accounting for calendar effects. This phenomenon(More)
An ongoing debate in finance centers on the impact of derivatives on the efficiency of prices of the underlying securities. The paper contributes to this literature by studying whether exchange traded funds (ETFs)—an asset of increasing importance—affect the non-fundamental volatility of the stocks in their baskets. Using identification strategies based on(More)
The Joint Dynamics of Liquidity, Returns, and Volatility Across Small and Large Firms This paper explores liquidity spillovers in market-capitalization based portfolios of NYSE stocks. Return, volatility, and liquidity dynamics across the small and large cap sector are modeled by way of a vector autoregression model, using data that spans more than 3000(More)