Bruce Mizrach

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• PhD
• Professor (Full) at Rutgers, The State University of New Jersey

On 15 September 2022, the Ethereum network adopted a proof-of-stake (PoS) consensus mechanism. We study the impact on the network and competing platforms in a two month event window around the Beacon chain merge. We find that the transition to PoS has reduced energy consumption by 99.98%. Miners have not transformed into validators, and total block...

On September 15, 2022, the Ethereum network adopted a proof-of-stake (PoS) consensus mechanism. We study the impact on the network and competing platforms in a short event window around the Beacon chain merge. We find that the transition to PoS has reduced energy consumption by 99.98%. Miners have not transformed into validators, and total block re...

Seven of the ten largest stablecoins are backed by fiat assets. The 2016 and 2017 vintages of stablecoins have failure rates of 100% and 50% respectively. More than one-third of stablecoins have failed. Tether has a 39% share of 1.77 trillion USD in 2021Q2 transactions, and USD Coin 28%. The top three stablecoins have an average velocity of 28.3. T...

On June 29, 2020, indoor malls in New Jersey re-opened, and foot traffic increased by 19.2% compared to the previous week. Large malls like Bridgewater Commons, the Garden State Plaza, and Menlo Park all rose by more than 100%. We contrast this successful re-opening in New Jersey with the re-opening malls in Texas on May 1st. COVID-19 cases in Texa...

We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent) and Cushing (WTI) delivery points. The Brent-WTI location basis differential is stable until December 2009, but it widens to record levels in the next two years. We report on recent changes in the crude oil market that causes the prices to move apart. Brent...

We analyze high frequency trading (HFT) activity in equities during US Treasury permanent open market (POMO) purchases by the Federal Reserve. We construct a model to study HFT quote and trade behavior when private information is released and confirm it empirically. We estimate that HFT firms reduce their inside quote participation by up to 8% duri...

We assess the microstructure of the U.S. Treasury securities market following its migration to electronic trading. We model price discovery using a vector autoregression model of price and order flow. We show that both trades and limit orders affect price dynamics, suggesting that traders also choose limit orders to exploit their information. Moreo...

The carry trade is a popular strategy in the currency markets whereby investors fund positions in high interest rate currencies by selling low interest rate currencies to earn the interest rate differential. In this article, we first provide an overview of the risk and return profile of currency carry trade; second, we introduce two popular models,...

This manuscript lists questions from a video interview with Jim Stock at the Norges Bank on 15 March 2015. The interview covers topics ranging from time series analysis and weak instruments to climate policy.

This article is the first to rigorously test how skyscraper height and output co-move. Because builders can use their buildings for nonrational or nonpecuniary gains, it is widely believed that height competition occurs near the business cycle peaks. This would suggest that extreme building height is a leading indicator of GDP, since the tallest bu...

We examine the long-run pricing relationship among crude oil prices at the North Sea (Brent), Cushing (WTI) and Louisiana Gulf (LLS) delivery points. The Brent-WTI location basis differential is stable until January 2010, but it widens to record levels in the next two years. Brent and WTI prices are cointegrated prior to this structural break, but...

A breakdown in market quality occurs when an order book thins to the point where extreme price movements are observed. These are frequently reversed as the market learns that nothing fundamental has occurred. The daily average breakdown frequency from 1993-2011 is 0.64%, with averages in 2010-11 below this amount. Controlling for microstructure eff...

Mizrach analyzes the jump frequency in the Market ABX.HE Index of subprime home equity credit default swaps and CME housing futures. Jumps began to appear prior to 2007. The jumps are more pronounced in housing futures than in the ABX index. He explains nearly 85% of the jumps from news and housing futures. A 20-point slope in the housing futures c...

This paper investigates the market microstructure of the Shanghai and Shenzhen Stock Exchanges. The two major Chinese stock markets are pure order-driven trading mechanisms without market makers, and we analyze empirically both limit order books. We begin our empirical modeling using the vector autoregressive model of Hasbrouck and extend the model...

This paper is the first to rigorously test how height and output co-move. Because builders can use their buildings for non-rational or non-pecuniary gains, it is widely believed that (a) the most severe forms of height competition occur near the business cycle peaks and (b) that extreme height are examples of developers “gone wild.” We find virtual...

I discuss the asset pricing and policy implications of Danielsson, Shin and Zigrand, "Endogenous and Systemic Risk." I show that leverage as conventionally measured was not a reliable indicator of systemic stress and that a more detailed examination of bank balance sheets and asset holdings is required..

Time series evidence on leverage suggests that simple financial ratios may not explain the disparate performance of U.S. banking institutions during the financial crisis. I discuss the cross-section determinants of U.S. commercial bank returns, and find that Tier 1 capital ratios explain nearly 40% of bank returns between 2007 and 2009. Among the l...

I analyze the risk in the ABX index of asset backed, subprime, home equity credit default swaps and CME housing futures. Using estimators of the jump and cojump components of security prices, I determine that: (1) jump risk was rising throughout 2006, well before any problems in the mortgage market were discussed in the press or policy circles; (2)...

This paper analyzes the market architecture and common factors of emission reduction instruments in Europe and North America. Spot and futures prices across exchanges in Europe are cointegrated, but the futures curve beyond the calendar year evolves independently. Despite narrower spreads, political uncertainties about the Clean Development Mechani...

We compare several models for Bear Stearns' credit default swap spreads estimated via a Markov chain Monte Carlo algorithm. The Bayes Factor selects a CKLS model with GARCH-EPD errors as the best model. This model captures the volatility clustering and extreme tail returns of the swaps during the crisis. Prior to November 2007, only four months ahe...

This paper examines a variety of methods for extracting implied probability distributions from option prices and the underlying. The paper first explores nonparametric procedures for reconstructing densities directly from options market data. I then consider local volatility functions, both through implied volatility trees and volatility interpolat...

Since the early 1980s, there has been a growing interest in stochastic nonlinear dynamical systems of the form, where is a zero mean, covariance stationary process, is the conditional volatility, and is an independent and identically distributed noise process. The major recent developments in nonlinear time series are described here using this cano...

This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Trading volumes are active, with EUA volume doubling in 2009. Spreads range from €0.02 to €0.06 for EUA futures and from €0.07 to €0.18 for CER. Market im...

This is the first paper in the literature to match key business cycle moments and long-run equity returns in a small open economy with production. These results are achieved by introducing three modifications to a standard real business cycle model: (1) borrowing and lending costs are imposed to increase the volatility of the intertemporal marginal...

We find that turnover rises on n-day highs and lows and is an increasing function of n. We offer several explanations from the technical and behavioural finance literature for why traders might use these signals. Turnover is persistent following these events, and new lows provide abnormal returns for up to 6 trading days.

In a Markov switching framework, we show that the duration of recessions is significantly shorter than the duration of expansions in 11 manufacturing sectors, and in aggregate durables and manufacturing output. We find two leading indicators, consumer expectations and the term spread, act as important demand-driven forces behind asymmetry.

This paper comments on the multivariate GARCH modeling of federal funds and the 3-month Treasury bill rate by Kyrtsou and Vorlow.

We analyze the trading activity in an Internet chat room over a 4-year period. The data set contains nearly 9000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55 percent make profits after transaction costs, and they have statistically significant α s of 0.17 percent per day after c...

Introduction Econometrics Agent Based Modeling Finance Market Microstructure Conclusion Acknowledgments Bibliography

Glossary Definition of the Subject Introduction Types of Treasury Issues Treasury Market Participants Stages of the Treasury Bond Market The Treasury Futures Market Seasonality and Announcement Effects Discontinuities in the US Treasury Market Order Flow in the US Treasury Market Modeling the Limit Order Book Price Discovery Future Directions Bibli...

We analyze the trading activity in an Internet chat room over a 4-year period. The data set contains nearly 9000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55 percent make profits after transaction costs, and they have statistically significant [alpha] s of 0.17 percent per day a...

Economic theories of managing renewable resources, such as fisheries and forestry, traditionally assume that individual harvesters are perfectly rational and thus able to compute the harvesting strategy that maximizes their discounted profits. The current paper presents an alternative approach based on bounded rationality and evolutionary mechanism...

This paper investigates the market microstructure of the Shanghai and Shenzhen Stock Ex-changes. The two major Chinese stock markets are pure order-driven trading mechanisms without market makers, and we analyze empirically both limit order books. We begin our empirical model-ing using the vector autoregressive model of Hasbrouck and extend the mod...

This paper assesses the contribution of monetary policy to the dynamics of bond real returns. We assume that the monetary authority controls the short-term nominal interest rate. We then model exogenously the joint dynamics of the aggregate endowment and the monetary policy variable, and determine bond real returns endogenously. Market segmentation...

This paper highlights the previously neglected role of the futures markets in US Treasury price discovery. The estimates of 5- and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5- and 10-year maturities but also decline after 1...

The paper analyzes the intensity of choice in an agent based financial optimization problem. Mean-variance optimizing agents choose among mutual funds of similar styles but varying performance. We specify a model for the allocation of new funds, switching between funds, and withdrawals and obtain statistically significant estimates of the intensity...

The Nasdaq stock market provides information about buying and selling interest in its limit order book. Using a vector autoregressive model of trades and returns, I assess the effect of the entire order book on the next tick. I also determine the influence of individual market makers and electronic networks and find evidence that the identity of ma...

This manuscript lists questions from a video interview with James Hamilton at the 16^th SNDE conference in San Francisco on April 4, 2008. The interview covers topics ranging from nonlinear time series analysis and monetary policy to energy prices.

Nous avons essayé à travers ce travail de vérifier dans le cadre du modèle de la juste valeur, la compatibilité de la comptabilité de couverture préconisée par la norme IAS 39 aux objectifs de la réglementation prudentielle sur les fonds propres bancaires. Nos conclusions soutiennent que la macro-couverture est l’approche la plus adéquate à l’activ...

We characterize the microstructure of the market for Treasury inflation-protected securities (TIPS) using novel tick data from the interdealer market. We find a marked difference in trading activity between on-the-run and off-the-run securities, as in the nominal Treasury securities market. We find little difference in bid-ask spreads or quoted dep...

Since the early 1980s, there has been a growing interest in stochastic nonlinear dynamical systems of the form x t+1 = f (x t , x t−1, …, x t−p ) + σ(x t )ε t , where \( {\left\{{x}_t\right\}}_{t=0}^{\infty } \) is a zero mean, covariance stationary process, f : R p+1 → R, σ is the conditional volatility, and \( {\left\{{\varepsilon}_t\right\}}_{t=...

We consider a model of an internet chat room with free entry but secure identity. Traders exchange messages in real time of both a fundamental and non-fundamental nature. We explore conditions under which traders post truthful information and make trading decisions. We also a describe an equilibrium in which momentum traders profit from their expos...

This article is a video presentation of an interview with Buz Brock at the 12th SNDE conference in Atlanta Georgia on March 12, 2004. The interview includes 15 questions on topics ranging from nonlinear dynamics, ecological modeling, and heterogenous agents.

This article discusses the microstructure of the U.S. Treasury securities market. Treasury securities are nominally riskless debt instruments issued by the U.S. government. Microstructural analysis is a field of economics/finance that examines the roles played by heterogenous agents, institutional detail, and asymmetric information in the trading p...

We study the functioning of secured and unsecured interbank markets in the presence of credit risk. The model generates empirical predictions that are in line with developments during the 2007–09 financial crisis. Interest rates decouple across secured and unsecured markets following an adverse shock to credit risk. The scarcity of underlying colla...

This paper highlights the previously neglected role of the futures markets in US Treasury price discovery. The estimates of 5- and 10-year GovPX spot market information shares typically fail to reach 50% from 1999 on. The GovPX information shares for the 2-year contract are higher than those of the 5- and 10-year maturities but also decline after 1...

The Enron Corporation went from a $65 billion dollar market capitalization to bankruptcy in just 16 months. Using statistical techniques for extracting the implied probability distributions built into option prices, I examine the market’s expectation of Enron’s risk of collapse. I find that the options market remained far too optimistic about the s...

We find that turnover rises on n-day highs and lows and is an increasing function of n. We offer several explanations from the technical and behavioural finance literature for why traders might use these signals. Turnover is persistent following these events, and new lows provide abnormal returns for up to 6 trading days. 'Technical analysis is abo...

This entry for the New Palgrave covers developments in nonlinear time series analysis over the last 25 years.

This article reviews the history of the recent shift to electronic trading in equity, foreign ex- change and fixed-income markets. We analyze a new data set: the eSpeed (Cantor Fitzgerald) electronic Treasury network. We contrast the market microstructure of eSpeed with the tradi- tional voice assisted networks that report through GovPX. The electr...

This paper examines how well the market anticipates regulatory sanction. We look at key dates of SEC, NASD, FTC, Congressional and foreign investigations and their subsequent resolution. Our event study confirms that the settlements provide little new information to the market. In six major case groupings, we find highly accurate predictions from m...

I examine the effects of Nasdaq's introduction of an anonymous trading facility called SIZE. I compare SIZE to competing ECNs in terms of liquidity and market impact. Despite rapid growth, SIZE has not yet attained a significant market share and rarely influences short-run price evolution. I conclude with discussion of the Nasdaq-ECN mergers and sp...

This article reviews the history of the recent shift to electronic trading in equity, foreign exchange, and fixed-income markets. The authors analyze a new data set: the eSpeed electronic Treasury network. They contrast the market microstructure of the eSpeed trading platform with the traditional voice-assisted networks that report through GovPX. T...

This paper is the first to characterize the tatonnement of high-frequency returns from U.S. Treasury spot and futures markets. In particular, we highlight the previously neglected role of the futures markets in price discovery. The lower-bound estimate of bivariate information shares for 30-year Treasury futures typically exceeds 50% from 1998 on....

Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulated moments estimator for option volatilities described in [Mizrach, B., 2002. When Did the Smart Money in Enron Lose Its’ Smirk? Rutgers University Working Pape...

Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulatedmoments estimator for option volatilities described in Mizrach (2002); the second is a new approach developed by Haas, Mittnik and Paolella (2004a) for fat-ta...

This paper assesses the contribution of monetary policy to bond returns volatility, assuming that the monetary authority controls the short-term nominal interest rate. We model exogenously the joint process for the aggregate endowment and the nominal interest rate, and we determine endogenously bond real returns. We introduce markets segmentation a...

I investigate the linkage between liquidity provision by Nasdaq market makers and analysts in the same firm. Using three measures of market activity, I find that Nasdaq firms are more likely to provide buy side liquidity in anticipation of upgrades in the period 1999-2000. ECN activity supports this pattern. Firm level evidence shows that 15 of 42...

The Nasdaq stock market provides information about buying and selling interest in what is called the Level II display. Using a bivariate VAR model of trades and quotes, I assess the effect of Level II prices and depths on short-run quote dynamics. I also determine the influence of individual market makers and electronic networks and find evidence o...

Changes in variance, or volatility, over time can be modeled using the approach based on autoregressive conditional heteroscedasticity. Another approach is to model variance as an unobserved stochastic process. Although it is not easy to obtain the exact likelihood function for such stochastic variance models, they tie in closely with developments...

This paper documents the significant role of ECNs in forming the inside market in NASDAQ securities. We argue that the ECNs need to be exposed to market orders through the SOES system.

This paper examines maximum likelihood estimation via hill climbing and the expectations maximization (EM) algorithm in the context of Hamilton's Markov switching framework. The techniques are explained in detail and are followed by a discussion of both analytic and computational issues. Both algorithms tend to be computer intensive, but an approxi...

This paper examines a variety of methods for extracting implied probability distributions from option prices. I critically analyze and extend approaches suggested by Derman and Kani (1994), Rubinstein (1994) and Shimko (1993). I develop a new simulated method of moments estimation procedure. I parameterize the underlying asset return process as a m...

Option prices seem to behave in ways inconsistent with the Black-Scholes model. Implied volatility varies with the strike price in a parabolic shape that is often called the volatility "smile." My objective in this paper is to identify implied probability distributions that might explain this anomaly. I develop a simulated method of moments estimat...

Despite the widespread use of the GARCH model, the specification of the heteroscedasticity is essentially ad hoc. This paper's contribution is to develop a model of asset pricing and learning where GARCH disturbances evolve naturally out of the decision problem of economic agents. An empirical example with the Italian-Lira German Deutschemark excha...

Time series evidence on exchange rates has been unable to reject the random walk hypothesis. A simple structural model that accounts for target zone nonlinearities provides conclusive evidence of mean reversion in EMS exchange rates.

This paper proposes a non-linear term structure model that nests the discrete and continuous time models as special cases. I estimate the model non-parametrically using nearest-neighbours regression. In sample, the non-linear model matches the standard theories, but out of sample, it offers substantial improvement. Linear models fail to track futur...

Economists have widely applied the correlation integral of Grassberger and Procaccia (1983) to determine the dimension of a nonlinear dynamical system. A key judgmental input into this procedure is the choice of delay time for reconstructing a possible attractor. The literature, however, lacks a rigorous procedure for choosing the delay time. In th...

Chinese policy-makers fear that an RMB appreciation will reduce low technology exports. We investigate this issue using data on China's exports to 30 countries. We find that an appreciation of the RMB would substantially reduce China's exports of clothing, furniture and footwear. We also find that an increase in foreign income, an increase in the C...

This paper provides empirical support for the second generation of target zone models with stochastic devaluation risk. I propose a simple non-linear framework with a time varying probability of exchange rate realignment. This model nests alternatives (i) with no devaluation risk; (ii) with constant devaluation risk; and (iii) the random walk. I re...

A stationary stochastic process is defined to be locally independent if it eventually becomes independent of pastrealizations. I develop a simple nonparametric test for this condition. Size and power comparisons favor this statistic over the one proposed by Brock, Dechert and Scheinkman (1987) in samples under 250 observations.

This paper compares foreign exchange market intervention in case there is no uncertainty about the extent of an imperfectly sustainable target zone and where there is uncertainty. A well-known example of the first case was the European Monetary System between 1979 and 1992. An example of the latter is the dirty floating of the dollar against the Dm...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

Nonlinearity is an omnipresent factor in economics. Monetary and fiscal policies change regime, exchange rates change from flexible to fixed and back again. Time series analysts have not been unaware of these nonlinearities; many simply felt that from the perspective of modelling, linear approximations were sufficient. A large part of this malign n...

Exchange rate modelling has been a persistent puzzle for international economists. Forecasts from popular models for the exchange rate generally fail to improve upon the random walk out-of-sample. While a multivariate nonparametric approach provides useful information about exchange rates, the model produces forecasts superior to the random walk fo...

The authors estimate the dimension of high-frequency stock-price data using the correlation integral of P. Grassberger and I. Procaccia. The data, even after filtering, appear to be of low dimension. To control for dependence in higher moments, the authors use a new technique known as the method of delays in their reconstruction. Delaying the data...

This note provides an exact finite sample distribution for the Theil (1966) U-statistic in correlated bivariate normal populations. The type II error rate using the F-distribution is shown to increase with the square of the correlation coefficient.