Essays on market microstructure and financial econometrics

Orientador(a): Márcio Garcia

Co-orientador(a): Marcelo Medeiros

The thesis comprises three articles related to market microstructure and financial econometrics. In the first article, the relationship between macroeconomic fundamentals and asset prices is explored by estimating the impact of macroeconomic announcements in the Brazilian futures market. In order to achieve this objective, the event study literature combined with the availability of intraday data offers a suitable approach. Using data from October 2008 to January 2011, we find that external macroeconomic announcements dominate price changes in the Foreign Exchange and Ibovespa futures markets, while the impact of the domestic ones is mainly restricted to Interest Rate futures contracts. We also provide evidence that price reactions are conditional on the state of the economy and document the impact on volume and bid-ask spreads. In the second article, we study price discovery in the Foreign Exchange market in Brazil and indicate which market (spot or futures) adjusts more quickly to the arrival of new information. We find that futures market dominates price discovery since it responds for 66.2% of the variation in the fundamental price shock and for 97.4% of the fundamental price composition. In a dynamic perspective, futures market is also more efficient since, when markets are subjected to a shock in the fundamental price, it is faster to recover to equilibrium. In the third article, a model of realized variance-covariance is proposed using a portfolio with the most liquid stock assets of Ibovespa. The purpose is to evaluate the economic gains associated with following a volatility timing strategy based on the model’s conditional forecasts. Comparing with traditional volatility methods, we find that economic gains associated with realized measures perform well when estimation risk is controlled and increase proportionally to the target return.