Markets, liquidity & information.

We test the invariance-of-bet hypothesis from Kyle and Obizhaeva (2016) for the Tokyo Stock Exchange (TSE). The pooled regression coefficients of the logarithm of the number of trades on the logarithm of trading activities range from 0.665 to 0.669, close to the theoretical value of two-thirds predicted by the invariance-of-bet hypothesis. European markets data also confirms the two-thirds relations implied by market invariance. Our results suggest that using alternative transaction data reduces the measurement errors in variables such as the number of trades and the trade sizes, explaining why the two-thirds relation might not hold using more recent U.S. data

We investigate the effects of market fragmentation on price impact. Using a newly launched exchange as a quasi-natural experiment, we find an increase in market fragmentation leads to a higher price impact of trading in U.S. equity exchanges. Our IV estimates suggest a 1.6% increase in market fragmentation level induces approximately 4.4 bps to 20.8 bps increases in exchange-based price impact. These effects are more pronounced for small stocks than large stocks. Our results suggest the introduction of a lit exchange changes the order book status in a multi-market setting, thereby leading to an increase in the price impact of trading.

This paper examines intraday liquidity patterns in U.S. equity markets based on market microstructure invariance. Using TAQ data from 2004 to 2023, we compare dollar depth, measured from quoted spreads and sizes, with the theoretically predicted liquidity derived from dimensional analysis and leverage neutrality. Both measures show highly correlated intraday patterns, with liquidity increasing throughout the trading day. Near the close, predicted liquidity increases more than the empirical dollar depth, suggesting that end-of-day trading volume---often from crossing trades, auctions, or mutual fund rebalancing---contributes less to dollar depth than other types of trading. Invariance is a robust tool for detecting market structure frictions.

We develop regression-based measures to evaluate the price efficiency of equity options contracts. Using intraday minute-by-minute option quotes, we find price efficiency varies substantially across contracts and is lowest for in-the-money options with short time to maturity. Bid–ask spreads and tick size affect the price efficiency of at-the-money and out-of-the-money options, while in-the-money options have higher delta and vega mispricing. Put–call parity holds less well for option pairs far from at-the-money, reflected by inefficiencies concentrated in the in-the-money option leg. Compared with simple variance-ratio tests, our proposed measures reduce false-positive diagnoses of price efficiency in options contracts.