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...

We derive invariance relationships for a dynamic infinite-horizon model of market microstructure with risk-neutral informed trading,noise trading,marketmaking, and endogenous production of information. Invariance relationships for bet sizes and transaction costs are obtained under the assumption...

For five stock market crashes, we compare price declines with predictions from market microstructure invariance. During the 1987 crash and the 2008 sales by Société Générale, prices fell by magnitudes similar to predictions from invariance. Larger-than-predicted temporary price declines...

Using the intuition that financial markets transfer risks in business time, we define “market microstructure invariance” as the hypothesis that the distribution of risk transfers (“bets”), transactions costs, market resiliency, and pricing accuracy are constant across assets when...

Theoretical predictions about market liquidity are usually hard to test empirically because they are expressed in terms of hard-to-observe quantities. We bridge the gap between theory and practice by adding ameta-model comprised of several generic equations shared by most models. The approach...

The hypothesis of “market microstructure invariance” — based on the intuition that the size and costs of transferring risk in “business time” is constant across assets and time — is tested using a database of 400,000 portfolio transition trades. Defining trading activity W as the...

Using the intuition that financial markets transfer risks in "business time," we define "market microstructure invariance" as the hypothesis that the size distribution and transaction costs of risk transfers ("bets") are constant across assets and time. Defining trading activity W as the product...

This paper studies invariance relationships in tick-by-tick transaction data in the U.S. stock market. Over the 1993–2001 period, the estimated monthly regression coefficients of the log of trade arrival rate on the log of trading activity have an almost constant value of 0.666, strikingly...