11 votes
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How to make a trading universe of liquid futures contracts

Systematically finding most liquid futures instruments Can we put together a better list than the academic articles? Yes! The lists in existing publications [1, 2] are great, but fall slightly short ...
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  • 1,626
10 votes
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What are some currently open problems in market microstructure

They are a lot of open problems in market microstructure. To have an idea of the whole landscape, have a look at Market Microstructure in Practice, 2nd Edition, by L and Laruelle. I would split them ...
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6 votes
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What are the quantitative requirements to distinguish between asset classes?

Defining asset classes from a quantitative perspective is an interesting question that is not really addressed "officially" as far as I know. Let's try to write some requirements you want ...
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5 votes
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What makes open-outcry preferable to electronic trading and what are its consequences?

The better price will come from two live traders (one on each side of the trade) willing to take a smaller percentage commission for a large block trade. For example, if a trader's average commission ...
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  • 3,735
5 votes
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Transaction Costs for Currency Pairs

You've got your calculation of the spread wrong, for what you're trying to do. Looking at the spot prices: SGD = USD 0.8, MXN = USD 0.077, NOK = USD 0.16. So in descending order they are SGD, NOK, ...
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  • 3,589
5 votes

Research topics - neural networks and market liquidity

You can try using different approaches. Starting from something not that "heavy" like the NN. 0) Pre study - you need to prepare your data (how you will treat a negative spread (i.e. ASK - BID <...
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5 votes
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Implied volatility of hypothetical options market

The three ways to manufacture pseudo-implied vols I know of are: Find a related underlying and, even if only few options trade on it, 'borrow' its implied vols. Compute statistical vol from ...
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  • 5,028
4 votes
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How do I calculate approximate equity liquidity?

You can use refined methodologies but if you just need a rough estimation of liquidity, you can simply use an average of daily volume over N days. In practice, for equities, people tend to use N = 20 ...
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  • 870
4 votes
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Bond Valuation and liquidity

In practice, this equation won't even hold for the vast majority of bonds in the US Treasury market, which is the most liquid government bond market. The chart below shows the spreads of US ...
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  • 10.9k
4 votes

How Market makers work

Being recognised market maker allow to have some advantages: on some trading venues they can see the flows of incoming orders with more transparency, on others they pay less fees. Market makers do not ...
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  • 10.6k
3 votes

Market making in thinly traded assets

Research where the liquidity is, Who are the holders and who have historically been the buyers. Getting insight who the buyers and at what price level they would sell (or buy more) is a good technique....
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  • 131
3 votes
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Liquidity Traders

Liquidity traders have no discretion with regard to the timing of their trades. Their trades are triggered by exogenous (to the financial market) reasons and are not related to information. Then we ...
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  • 2,504
3 votes

Transaction Costs for Currency Pairs

The cost of forex trading is reflected through the bid-ask spread you pay as a retail client to a broker. period. There spread IS indicative of the cost of trading the pair, AT that specific point ...
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3 votes

How is the futures price set on days without trades?

There is a cascade of methods to choose a settlement price in futures markets - starting with trades in the relevant market, and going through trades in other expiries (plus spreads), quotes, quotes ...
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  • 5,628
2 votes

Disclosure of the liquidity provider identity in ITCH

My blog discusses this at length: https://mechanicalmarkets.wordpress.com/2015/02/16/protecting-client-interests-anonymity-in-us-equities/ . To quickly summarize, as Louis Marascio said, DirectEdge ...
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2 votes

Impact on bid/offer due to volume/size of trades placed

If you are after treasuries, you can check http://www.newyorkfed.org/research/staff_reports/sr381.pdf which discusses trade impact on BrokerTec. If you are after equities, the literature is ...
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  • 1,553
2 votes

Impact on bid/offer due to volume/size of trades placed

You should turn to market microstructure research. Large and frequent trades can temporarily increase the spread and observed transaction price. Additionaly, trades done near the release of new ...
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  • 411
2 votes

How do I calculate approximate equity liquidity?

I would consider Amihud (2002) as a good first approximation with that level of data.
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  • 1,049
2 votes

Estimating an appropriate haircut for illiquid stocks

You're going to have to do a lot of guesswork, obviously, so it's best to keep things mathematically simple. First off, choose a "certainty level" as some quantile $q$, perhaps around 0.9, and the ...
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2 votes
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Estimating an appropriate haircut for illiquid stocks

Generally if they are missing a completely at random data in few places, you do not have to be worried. I advice you to use one of the technics of imputation: - Previous value - cannot be used in ...
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2 votes
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Research topics - neural networks and market liquidity

I agree with all Robert says above, but if you already have the data, and you want to quickly create a neural network model and run the analysis, I would suggest the following: The Heaton Site has a ...
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2 votes
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weird stationary pattern in LDO.MI's stock price

Seems like the least interesting pattern of all - data errors at the Yahoo's side. Just checked with Bloomberg - nothing similar is present. If not a data error, this could be bid-ask bounce (...
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2 votes

Using option pricing methods to model real asset liquidity

I thought a little bit more about your problem and can suggest an analogy. I work in fixed income which deals with IBOR reference rates. One of the outstanding questions is often about the IBOR basis -...
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2 votes
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How does liquidity affect trading costs?

High volume leads to narrower bid-ask spreads and lower trading costs. The cost $S$ of trading a stock should be measured as $$S = X \left( \frac{\bar{P} }{ P_\rm{mid} } - 1\right)$$ where $X$ is ...
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  • 5,628
2 votes

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

If you are concerned about how fast can you convert your equity holdings into cash, then you would care about the ADV (average daily volume) and cost would be a secondary issue. What you can do is ...
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  • 1,708
2 votes

How to make a trading universe of liquid futures contracts

You could consider using the list of "liquid futures contracts" used in some previously published paper(s) on this subject, there are many. Alternatively, if you think previous studies missed some ...
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  • 9,462
2 votes

How do locked markets get resolved in a low-volume market?

Locked or crossed markets are generally not allowed except in extenuating circumstances where synchrony may be difficult, e.g. right after open or in the final minutes leading into the close. What ...
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  • 2,750
2 votes

What are the quantitative requirements to distinguish between asset classes?

A quant technique that could be used to (partially) address this problem is the Mean Variance Spanning Test of Huberman and Kandel (1987). Abstract This is a statistical test of whether adding K new ...
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  • 9,462
2 votes

How Market makers work

An official market maker at an exchange is supposed to continuously provide double sided quotes for the security they register for (they aren't generally market makers for all securities). These ...
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1 vote
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Measuring liquiduity of a portoflio of bonds

It does not take into consideration the fact that liquidity is not symmetric, also in Fixed Income markets. Indeed, there is much more liquidity pressure on the downside than on the upside. I suggest ...
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