I propose two projects which aim to bridge the gab between the market microstructure and high-frequency econometric literature by developing new econometric methods. Abnormal behavior of cross-market high-frequency traders has recently been implicated as a potential cause for the occurrence of flash crashes. In order to understand the causal relationship between instances of abnormal behavior by high-frequency traders and market instability, we first need to be able to detect such behavior. To this end, I propose a new econometric method based on high-frequency data. The second project introduces a new method for studying the time-varying nature of the intraday periodicity of volatility, which has important implications for the distribution of risk exposures over the trading day. This endeavor is complicated by the fact that volatility is unobserved and furthermore that the periodic and stationary component of the volatility process cannot be identified separately.
