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on Market Microstructure |
| By: | Weibing Huang; Charles-Albert Lehalle; Mathieu Rosenbaum |
| Abstract: | The tick value is a crucial component of market design and is often considered the most suitable tool to mitigate the effects of high frequency trading. The goal of this paper is to demonstrate that the approach introduced in Dayri and Rosenbaum (2015) allows for an ex ante assessment of the consequences of a tick value change on the microstructure of an asset. To that purpose, we analyze the pilot program on tick value modifications started in 2014 by the Tokyo Stock Exchange in light of this methodology. We focus on forecasting the future cost of market and limit orders after a tick value change and show that our predictions are very accurate. Furthermore, for each asset involved in the pilot program, we are able to define (ex ante) an optimal tick value. This enables us to classify the stocks according to the relevance of their tick value, before and after its modification. |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1507.07052&r=mst |
| By: | Buss, Adrian; Dumas, Bernard J |
| Abstract: | In some situations, investment capital seems to move slowly towards profitable trades. We develop a model of a financial market in which capital moves slowly simply because there is a proportional cost to moving capital. We incorporate trading fees in an infinite-horizon dynamic general-equilibrium model in which investors optimally and endogenously decide when and how much to trade. We determine the steady-state equilibrium no-trade zone, study the dynamics of equilibrium trades and prices and compare, for the same shocks, the impulse responses of this model to those of a model in which trading is infrequent because of investor inattention. |
| Keywords: | frictions; general equilibrium; slow-moving capital; Trading fees |
| JEL: | G11 G12 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10737&r=mst |