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Invariance of buy-sell switching points

Kyoung-hun Bae (), Albert Kyle (), Eun Jung Lee () and Anna Obizhaeva ()
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Kyoung-hun Bae: Ulsan National Institute of Science and Technology
Albert Kyle: Robert H. Smith School of Business, University of Maryland
Eun Jung Lee: Hanyang University

No w0232, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: Define the number of buy-sell “switching points” as the number of times that individual traders change the direction of their trading. Based on the hypothesis that switching points take place in business time, market microstructure invariance predicts that the aggregate number of switching points is proportional to the 2=3 power of the product of dollar volume and volatility. Using trading data from the Korea Exchange (KRX) from 2008 to 2010, we estimate the exponent to be 0.675 with standard error of 0.005. Invariance explains about 93% of the variation in the logarithm of the number of switching points each month across stocks. Most of the variation represents changes in the number of accounts trading the stock and not the number of switching points per account.

Keywords: Finance; market microstructure; invariance; trading volume; volatility; liquidity; price impact; market depth (search for similar items in EconPapers)
JEL-codes: G00 G12 G14 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-10
New Economics Papers: this item is included in nep-mst
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