The Pitfalls of Central Clearing in the Presence of Systematic Risk
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Date
2018-11-08
Author
Kubitza, Christian
Pelizzon, Loriana
Getmansky Sherman, Mila
SAFE No.
235
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Abstract
Asset transaction prices sampled at high frequency are much staler than one might expect in the sense that they frequently lack new updates showing zero returns. In this paper, we propose a theoretical framework for formalizing this phenomenon. It hinges on the existence of a latent continuous-time stochastic process pt valued in the open interval (0; 1), which represents at any point in time the probability of the occurrence of a zero return. Using a standard infill asymptotic design, we develop an inferential theory for nonparametrically testing, the null hypothesis that pt is constant over one day. Under the alternative, which encompasses a semimartingale model for pt, we develop non-parametric inferential theory for the probability of staleness that includes the estimation of various integrated functionals of pt and its quadratic variation. Using a large dataset of stocks, we provide empirical evidence that the null of the constant probability of staleness is fairly rejected. We then show that the variability of pt is mainly driven by transaction volume and is almost unaffected by bid-ask spread and realized volatility.
Research Area
Systemic Risk Lab
Keywords
central clearing, counterparty risk, systematic risk, otc markets, derivatives, margin
JEL Classification
G01, G14, G18, G28
Research Data
Topic
Systematic Risk
Corporate Governance
Financial Markets
Corporate Governance
Financial Markets
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1
Publication Type
Working Paper
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- LIF-SAFE Working Papers [334]