Essays on high frequency market microstructure

Abstract

This dissertation consists of three essays on high frequency market microstructure. The first study investigates high frequency traders’ trading activity at a short interval of time during stressful states and normal states in the KOSPI 200 futures market, and finds that they take market liquidity in both states. The second study examines the relation between high frequency trading, order flow toxicity, and short-term volatility during both normal and stressful periods. The last study tests whether the comprehensive set of microstructure variables can improve volatility forecasts at intraday level in-sample and out-of-sample, and shows that several microstructure variables not only Granger cause volatility but improve out-of-sample forecast performances relative to the benchmark. Tha last study explores whether returns on carbon futures traded on the European Union Emissions Trading Scheme can be linked to risk factors from stock markets.