Finance Research Seminar - Anna OBIZHAEVA
Anna OBIZHAEVA - New Economic School Moscow
Friday 11 October 2019 (10h30 - 12h00) - Extranef - 126
“Dimensional Analysis, Leverage Neutrality, and Market Microstructure Invariance”
This paper combines dimensional analysis, leverage neutrality, and a principle of market microstructure invariance to derive scaling laws expressing transaction costs functions, bid-ask spreads, bet sizes, number of bets, and other financial variables in terms of dollar trading volume and volatility. The scaling laws are illustrated using data on bid-ask spreads and number of trades for Russian and U.S. stocks. These scaling laws provide practical metrics for risk managers and traders; scientific benchmarks for evaluating controversial issues related to high frequency trading, market crashes, and liquidity measurement; and guidelines for designing policies in the aftermath of financial crisis.