The research project HiDEA (Advanced Econometric methods for High-frequency Data) aims at developing new theoretical ideas in the econometrics of high-frequency data, and to apply them to solve open economic and financial problems. In particular, the main theoretical advancements of the project will be: developing the econometrics of stale prices, the econometrics of flash crashes, the econometrics of large cross-sections. The main applications will be: measuring market liquidity from transaction prices, study policy implications for the prevention of mini flash crashes unrelated to market fundamentals, exploiting the informational content in the cross sections of high-frequency data for analyzing market behavior and for systemic risk monitoring, and understanding the behavior and role played by high-frequency traders in the price formation process.
After flourishing in the last 20 years, the econometrics of high frequency data is now at a turning point.
How can the techniques developed to study time series with distance between observations shrinking to zero be enhanced to extract relevant economic information from high frequency data? Can this information be useful for economic theory?
Can the information extracted with newly devised econometric tools
help policy makers, regulators and social planners?
The main aim of the HiDEA project is to develop pioneering econometric methods for high frequency data focused on new research questions which are now arising in economics and finance, and to apply these methods to the solution of existing empirical problems.
The main topics of the project, organized in four work packages, are: the study of illiquidity frictions in market prices, market microstructure theory and the role of high-frequency traders, systemic risk, and large cross-sectional data sets analysis.
WORK PACKAGE N.1
Staleness, deals with the presence of zero returns in high frequency data and its economic implications for market liquidity.
WORK PACKAGE N.2
Flash crashes, deals with the econometric properties of local trends, and their use in revealing the presence of flash crashes in financial markets, in order to study the causes for their (unwanted) presence and possible remedies.
WORK PACKAGE N.3
Large cross-sections, deals with the
Exploration of high-frequency econometrics
in the cross section, and the implications for
market monitoring and systemic risk.
WORK PACKAGE N.4
High-frequency traders, deals with the Behavior of these relatively new kind of non-human traders which currently operate the majority of the transactions, and the benefits and dangers implied by their presence.