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I am not sure if this is the correct site to ask this, if not I apologize.

I have noticed some markets that lack in liquidity, and wonder why market makers in these markets cannot provide liquidity on the same scale as in other markets.

I would appreciate some links to academic literature, general market making books etc...So I can learn ways to provide liquidity to illiquid markets and various general market making techniques.

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  • $\begingroup$ A standard on Market Microstructure is Harris: amazon.com/… . I'm not sure how it treats illiquid markets though. $\endgroup$
    – Olaf
    Commented Jan 21, 2016 at 11:40

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they are different books for quants addressing market microstructure

In terms of papers: Dealing with the Inventory Risk. A solution to the market making problem 2012 by Guéant, L and Fernandez-Tapia is the final extension of High-frequency trading in a limit order book 2007 by Avellaneda and Stoikov.

Most of these papers do not directly address the question of signals and toxicity metrics that market makers are using. That for, I recommend Section 4 ("Evidence for the use of signals in trading") of Incorporating Signals into Optimal Trading 2018, by Neuman and L.

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