International College of Economics and Finance

Research seminar

Speaker: Anna Obizhaeva (University of Maryland)
Theme: «Trading Game Invariance in the TAQ Dataset»

On Wednesday, April 18 at 4.40 pm International College of Economics and Finance held Research seminar.
Speaker: Anna Obizhaeva (University of Maryland)
Theme: «Trading Game Invariance in the TAQ Dataset»
Venue: Pokrovski Bulvar, 11, Room Zh-822

Abstract: The trading game invariance hypothesis of Kyle and Obizhaeva (2011a) is tested using the Trades and Quotes (“TAQ”) dataset. Over the period 1993-2001, the estimated monthly regression coefficients of the log of trade arrival rate on the log of trading activity has an almost constant value of 0.690, slightly higher than the value of 2/3 predicted by the invariance hypotheses. Over the period 2001-2008, the coefficient estimates rise almost linearly, with an average value of 0.787. Average trade size, normalized for trading activity, falls dramatically over the period 1993-2008. The distribution of trade size adjusted for trading activity resembles a log-normal more closely in 1993 than in 2001 or 2008, with truncation below the 100-share odd-lot boundary becoming a more prominent feature over time. These results suggests that the 2001 reduction in minimum tick size to one cent and the subsequent increase in algorithmic trading have resulted in more intense order shredding in actively traded stocks than inactively traded stocks. The invariance hypothesis explains 91% of the cross-sectional variation in print arrival rates and average print size.

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