
on Market Microstructure 
By:  Andrey Pankratov (University of Lugano; Swiss Finance Institute) 
Abstract:  I model a market in which a trader with superior information about an asset is subject to careful scrutiny by another agent who immediately observes the trading decisions of the informed agent with some noise and engages in (klepto)parasitic behavior by imicking the informed trader and trading on her own behalf (this can be interpreted as a broker or a highfrequency trader). I show that if the precision with which the parasitic trader observes the informed trader’s decisions is high enough, then the parasitic trader absorbs a dominant fraction of the expected abnormal profits coming from informed trading. My theory is able to explain why the percentage abnormal returns on the trades of corporate insiders are high while dollar returns on these trades can be quite moderate. Additionally, I explain through my model a sudden upsurge of HFT activity during a fiveyear period 20042009. 
Keywords:  Asymmetric information, Information leakages, Market microstructure, Market efficiency, Equilibrium, HFT, Sharing profits, Shortswing profit rule 
JEL:  G11 G12 G14 
Date:  2020–08 
URL:  http://d.repec.org/n?u=RePEc:chf:rpseri:rp2076&r=all 
By:  Olkhov, Victor 
Abstract:  This paper considers price volatility as the reason for description of the seconddegree economic variables, trades and expectations aggregated during certain time interval Δ. We call it  the secondorder economic theory. The nth degree products of costs and volumes of trades, performed by economic agents during interval Δ determine price nth statistical moments. First two price statistical moments define volatility. To model volatility one needs description of the squares of trades aggregated during interval Δ. To describe price probability one needs all nth statistical moments of price but that is almost impossible. We define squares of agent’s trades and macro expectations those approve the seconddegree trades aggregated during interval Δ. We believe that agents perform trades under action of multiple expectations. We derive equations on the seconddegree trades and expectations in economic space. As economic space we regard numerical continuous risk grades. Numerical risk grades are discussed at least for 80 years. We propose that econometrics permit accomplish risk assessment for almost all economic agents. Agents risk ratings distribute agents by economic space and define densities of macro seconddegree trades and expectations. In the linear approximation we derive mean square price and volatility disturbances as functions of the first and seconddegree trades disturbances. In simple approximation numerous expectations and their perturbations can cause small harmonic oscillations of the seconddegree trades disturbances and induce harmonic oscillations of price and volatility perturbations. 
Keywords:  volatility; economic theory; market trades; expectations; price probability 
JEL:  C1 D4 E4 G1 G2 
Date:  2020–09–06 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:102767&r=all 