A New Bayesian Model of Market Microstructure=20 Behaviour Applied to the Market in Irish Government=20 Securities; Identification Happens!

For the case of a market-making trading environment, this=20 study shows how a vector moving average representation of=20 transaction price returns and trade can be decomposed to a=20 finer degree than before so as to reveal, not just summary=20 measures of Microstructure characteristics, but also=20 estimates of the components that make up these measures.=20 This additional information reveals the source of=20 differences in microstructures rather than merely measuring=20 the effects of these differences. Quite a general=20 theoretical model underpins the empirical application and=20 this provides a framework for the analysis of trading cost=20 components and the information content of trade. The new=20 approach is applied to the case of the Irish market in=20 government securities.