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 in a dynamic, infinite-horizon, equilibrium model of adverse selection with risk-neutral informed traders, noise traders, market makers, and with endogenous information production. The model solution depends on two state variables: stock price and...

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...

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...

Using the intuition that financial markets transfer risks in business time, “market microstructure invariance” is defined as the hypotheses that the distributions of risk transfers (“bets”) and transaction costs are constant across assets when measured per unit of business time. The...

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 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...

Define the number of buy-sell “switching points” as the number of times that individual traders change the direction of their trading. Based on the hypothesis that switching points take place in business time, market microstructure invariance predicts that the aggregate number of switching...