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on Market Microstructure |
| By: | Çetin, Umut; Waelbroeck, Henri |
| Abstract: | We develop an equilibrium model for market impact of trades when investors with private signals execute via a trading desk. Fat tails in the signal distribution lead to a power law for price impact, while the impact is logarithmic for lighter tails. Moreover, the tail distribution of the equilibrium trade volume obeys a power law. The spread decreases with the degree of noise trading and increases with the number of insiders. In case of a monopolistic insider, the last slice traded against the limit order book is priced at the fundamental value of the asset reminiscent of [17]. However, competition among insiders leads to aggressive trading, hence vanishing prot in the limit. The model also predicts that the order book attens as the amount of noise trading increases converging to a model with proportional transactions costs with non-vanishing spread. |
| Keywords: | limit order book; price impact; power laws; equilibrium; market microstructure; h-transform |
| JEL: | C1 F3 G3 |
| Date: | 2023–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120809&r=mst |
| By: | Cipriani, Marco; Guarino, Antonio; Uthemann, Andreas |
| Abstract: | We develop a new methodology to estimate the impact of a financial transaction tax (FTT) on financial market outcomes. In our sequential trading model, there are price-elastic noise and informed traders. We estimate the model through maximum likelihood for a sample of 60 NYSE stocks in 2017. We quantify the effect of introducing an FTT given the parameter estimates. An FTT increases the proportion of informed trading, improves information aggregation, but lowers trading volume and welfare. For some less liquid stocks, however, an FTT blocks private information aggregation. |
| Keywords: | Financial transaction tax; Market microstructure; Structural estimation; ES/R009724/1; ES/K002309/1 |
| JEL: | G14 D82 C13 |
| Date: | 2022–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115664&r=mst |