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Microstructure invariance in U.S. stock market trades

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  • Kyle, Albert S.
  • Obizhaeva, Anna A.
  • Tuzun, Tugkan

Abstract

We examine invariance relationships in tick-by-tick transaction data in the U.S. stock market. Over the period 1993–2001, monthly regression coefficients of the log of the trade arrival rate on the log of trading activity have an almost constant value of 0.666, close to the value of two-thirds predicted by market microstructure invariance. Over the 2001–2014 period, after decimalization and the increasing use of electronic order matching systems and algorithmic trading, the coefficients increase to about 0.79. The evidence suggests that changes in coefficients are due to increasing importance of minimum lots size in a world where algorithmic traders split orders into tiny pieces.

Suggested Citation

  • Kyle, Albert S. & Obizhaeva, Anna A. & Tuzun, Tugkan, 2020. "Microstructure invariance in U.S. stock market trades," Journal of Financial Markets, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finmar:v:49:y:2020:i:c:s1386418116303123
    DOI: 10.1016/j.finmar.2019.100513
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    1. Upson, James & McInish, Thomas & IV, B. Hardy Johnson, 2021. "Order based versus level book trade reporting: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 125(C).

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    More about this item

    Keywords

    Market microstructure; Invariance; Transaction data; Market frictions; Trade size; Tick size; Order shredding; Clustering; TAQ data; Liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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