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...

This paper shows how to map predictions of theoretical models of market microstructure into operational empirical measures of liquidity. A meta-model implies an empirical measure of liquidity, denoted L, which describes various characteristics of trading and funding liquidity such as trading...

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...

Finding a universal market impact formula remains one of the most fascinating puzzles in finance. This paper reviews two possible approaches for imposing restrictions on this formula. First, restrictions can be obtained from a system of economic equations using trading volume and volatility, as...

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...