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Market Microstructure Models and the Markov Property

João Amaro de Matos and Marcelo Fernandes

Economics Working Papers from European University Institute

Abstract: This paper develops a framework to test alternative market microstructure models of the bid-ask spread. If, on the one hand, information-based models result in bid and ask quotes that are non-Markovian, and the other hand, the Markov property may hold in equilibrium settings where the market maker serves as an intermediary.

Keywords: MARKET; TESTS; MODELS; INFORMATION (search for similar items in EconPapers)
JEL-codes: C14 C35 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2000
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