Microstructure Invariance in U.S. Stock Market Trades

Albert Kyle (), Anna Obizhaeva () and Tugkan Tuzun ()
Additional contact information
Albert Kyle: Robert H. Smith School of Business, University of Maryland
Anna Obizhaeva: New Economic School
Tugkan Tuzun: Board of Governors of the Federal Reserve System

No w0230, Working Papers from New Economic School (NES)

Abstract: This paper studies invariance relationships in tick-by-tick transaction data in the U.S. stock market. Over the 1993-2001 period, the estimated monthly regression coefficients of the log of trade arrival rate on the log of trading activity have an almost constant value of 0:666, strikingly close to the value of 2=3 predicted by the invariance hypothesis. Over the 2001-14 period, the estimated coefficients rise, and their average value is equal to 0:79, suggesting that the reduction in tick size in 2001 and the subsequent increase in algorithmic trading resulted in a more intense order shredding in more liquid stocks. The distributions of trade sizes, adjusted for differences in trading activity, resemble a log-normal before 2001; there is clearly visible truncation at the round-lot boundary and clustering of trades at even levels. These distributions change dramatically over the 2001-14 period with their means shifting downward. The invariance hypothesis explains about 88 percent of the cross-sectional variation in trade arrival rates and average trade sizes; additional explanatory variables include the invariance-implied measure of effective price volatility.

Keywords: market microstructure; transactions data; market frictions; trade size; tick size; order shredding; clustering; TAQ data (search for similar items in EconPapers)
JEL-codes: G10 G23 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.nes.ru/files/Preprints-resh/WP230.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:abo:neswpt:w0230

Access Statistics for this paper

More papers in Working Papers from New Economic School (NES) Contact information at EDIRC.
Bibliographic data for series maintained by Vladimir Ivanyukhin ( this e-mail address is bad, please contact ).