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Dimensional Analysis, Leverage Neutrality, and Market Microstructure Invariance

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Event details

Date and time 11.10.2019 10:3012:00  
Place and room
Speaker Anna OBIZHAEVA, New Economic School, Moscow
Category Conferences - Seminars

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.
 

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