Microstructure invariance in U.S. stock market trades

Albert S. Kyle, Anna A. Obizhaeva and Tugkan Tuzun

Journal of Financial Markets, 2020, vol. 49, issue C

Abstract: We examine invariance relationships in tick-by-tick transaction data in the U.S. stock market. Over the period 1993–2001, monthly regression coefficients of the log of the trade arrival rate on the log of trading activity have an almost constant value of 0.666, close to the value of two-thirds predicted by market microstructure invariance. Over the 2001–2014 period, after decimalization and the increasing use of electronic order matching systems and algorithmic trading, the coefficients increase to about 0.79. The evidence suggests that changes in coefficients are due to increasing importance of minimum lots size in a world where algorithmic traders split orders into tiny pieces.

Keywords: Market microstructure; Invariance; Transaction data; Market frictions; Trade size; Tick size; Order shredding; Clustering; TAQ data; Liquidity (search for similar items in EconPapers)
JEL-codes: G10 G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:49:y:2020:i:c:s1386418116303123

DOI: 10.1016/j.finmar.2019.100513

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