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Invariance of buy-sell switching points

Author

Listed:
  • Kyoung-hun Bae

    (Ulsan National Institute of Science and Technology)

  • Albert S. Kyle

    (Robert H. Smith School of Business, University of Maryland)

  • Eun Jung Lee

    (Hanyang University)

  • Anna Obizhaeva

    (New Economic School)

Abstract

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 points is proportional to the 2=3 power of the product of dollar volume and volatility. Using trading data from the Korea Exchange (KRX) from 2008 to 2010, we estimate the exponent to be 0.675 with standard error of 0.005. Invariance explains about 93% of the variation in the logarithm of the number of switching points each month across stocks. Most of the variation represents changes in the number of accounts trading the stock and not the number of switching points per account.

Suggested Citation

  • Kyoung-hun Bae & Albert S. Kyle & Eun Jung Lee & Anna Obizhaeva, 2016. "Invariance of buy-sell switching points," Working Papers w0232, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0232
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    References listed on IDEAS

    as
    1. Torben G. Andersen & Oleg Bondarenko & Albert S. Kyle & Anna Obizhaeva, 2016. "Intraday Trading Invariance in the E-mini S&P 500 Futures Market," Working Papers w0229, Center for Economic and Financial Research (CEFIR).
    2. Benoit Mandelbrot & Howard M. Taylor, 1967. "On the Distribution of Stock Price Differences," Operations Research, INFORMS, vol. 15(6), pages 1057-1062, December.
    3. Anna, Petrenko, 2016. "Мaркування готової продукції як складова частина інформаційного забезпечення маркетингової діяльності підприємств овочепродуктового підкомплексу," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 2(1), March.
    4. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Finance; market microstructure; invariance; trading volume; volatility; liquidity; price impact; market depth;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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