A Practitioner’s Guide to Market Microstructure Invariance

The authors present a hypothesis of market microstructure invariance, which follows from the assumption that risk transfer and transaction costs are the same for all stocks when trades are converted to bets, calendar time is converted to business time, and return volatility is converted to dollar vo...

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Published in:Journal of portfolio management 2016-10, Vol.43 (1), p.43-53
Main Authors: Kyle, Albert S., Obizhaeva, Anna A., Kritzman, Mark
Format: Article
Language:English
Subjects:
Calendars
Decomposition
Gambling
Hypotheses
Mathematical analysis
Profits
Risk management
Securities markets
Stocks
Studies
Transaction costs
Velocity
Volatility
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description The authors present a hypothesis of market microstructure invariance, which follows from the assumption that risk transfer and transaction costs are the same for all stocks when trades are converted to bets, calendar time is converted to business time, and return volatility is converted to dollar volatility. This hypothesis generates simple operational formulas for determining the distribution of bet sizes, trading patterns, and transaction costs as nonlinear functions of volume and volatility.
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subjects Calendars
Decomposition
Gambling
Hypotheses
Mathematical analysis
Profits
Risk management
Securities markets
Stocks
Studies
Transaction costs
Velocity
Volatility
title A Practitioner’s Guide to Market Microstructure Invariance
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