Liquidity and Impact in Fair Markets
| Autor: | Thibault Jaisson |
|---|---|
| Rok vydání: | 2015 |
| Předmět: |
050208 finance
Quantitative Finance - Trading and Market Microstructure 05 social sciences Mid price 01 natural sciences Liquidation value Market liquidity Trading and Market Microstructure (q-fin.TR) Microeconomics FOS: Economics and business 010104 statistics & probability Market depth Fair value 0502 economics and business Economics Fair market value 0101 mathematics Market value Limit price |
| DOI: | 10.48550/arxiv.1506.02507 |
| Popis: | We develop a theory which applies to any market dynamics that satisfy a fair market assumption on the nullity of the average profit of simple market making strategies. We show that for any such fair market, there exists a martingale fair price which corresponds to the average liquidation value (at the ask or the bid) of an infinitesimal quantity of stock. We show that this fair price is a natural reference price to compute the ex post gain of limit orders. Using only the fair market assumption, we link the spread to the impact of market orders on the fair price. We use our definition of the fair price to build empirical tests of the relevance of this notion whose results are consistent with our theoretical predictions. Comment: 19 pages |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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