Abstract
The speaker introduces a novel economic indicator, named excess idle time (EXIT), measuring the extent of sluggishness in financial prices. Under a null and an alternative hypothesis grounded in liquidity and asymmetric information theories of price determination, the speaker and his research group derive a complete limit theory for EXIT leading to formal tests for staleness in the price adjustments. In agreement with changing levels of liquidity, empirical implementation of the theory shows that financial prices are often more sluggish than implied by the (ubiquitous, in continuous-time finance) semimartingale assumption. EXIT provides, for each trading day, an effective proxy for the extent of illiquidity which is easily implementable using transaction prices only. Using EXIT, a sizeable compensation for long-run illiquidity risk in market returns is uncovered.
About the speaker
Prof Federico M. Bandi received his PhD in Economics from Yale University in 1999. He was faculty member at the Booth School of Business of the University of Chicago from 1999 to 2009. He joined Carey Business School of Johns Hopkins University after that, and is currently Professor of Economics and Finance.
Prof Bandi’s research interests include financial econometrics, time series econometrics, continuous-time asset pricing, empirical asset pricing and empirical market microstructure. He serves as a Co-Editor of the Journal of Financial Econometrics and as an Associate Editor of Econometric Theory, the Journal of Business and Economic Statistics, and the Econometrics Journal.
Prof Bandi is a Member of the American Finance Association, the Econometric Society, and the European Finance Association and a Fellow of the Society of Financial Econometrics.
|
