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Theoretical and empirical analysis of trading activity
Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades N, the traded volume V, the asset price P, the squared volatility...
Autores principales: | , , , |
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Formato: | Online Artículo Texto |
Lenguaje: | English |
Publicado: |
Springer Berlin Heidelberg
2018
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Materias: | |
Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7319296/ https://www.ncbi.nlm.nih.gov/pubmed/32624621 http://dx.doi.org/10.1007/s10107-018-1341-x |
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author | Pohl, Mathias Ristig, Alexander Schachermayer, Walter Tangpi, Ludovic |
author_facet | Pohl, Mathias Ristig, Alexander Schachermayer, Walter Tangpi, Ludovic |
author_sort | Pohl, Mathias |
collection | PubMed |
description | Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades N, the traded volume V, the asset price P, the squared volatility [Formula: see text] , the bid-ask spread S and the cost of trading C. Different reasonings result in simple proportionality relations (“scaling laws”) between these variables. A basic proportionality is established between the trading activity and the squared volatility, i.e., [Formula: see text] . More sophisticated relations are the so called 3/2-law [Formula: see text] and the intriguing scaling [Formula: see text] . We prove that these “scaling laws” are the only possible relations for considered sets of variables by means of a well-known argument from physics: dimensional analysis. Moreover, we provide empirical evidence based on data from the NASDAQ stock exchange showing that the sophisticated relations hold with a certain degree of universality. Finally, we discuss the time scaling of the volatility [Formula: see text] , which turns out to be more subtle than one might naively expect. |
format | Online Article Text |
id | pubmed-7319296 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2018 |
publisher | Springer Berlin Heidelberg |
record_format | MEDLINE/PubMed |
spelling | pubmed-73192962020-07-01 Theoretical and empirical analysis of trading activity Pohl, Mathias Ristig, Alexander Schachermayer, Walter Tangpi, Ludovic Math Program Full Length Paper Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades N, the traded volume V, the asset price P, the squared volatility [Formula: see text] , the bid-ask spread S and the cost of trading C. Different reasonings result in simple proportionality relations (“scaling laws”) between these variables. A basic proportionality is established between the trading activity and the squared volatility, i.e., [Formula: see text] . More sophisticated relations are the so called 3/2-law [Formula: see text] and the intriguing scaling [Formula: see text] . We prove that these “scaling laws” are the only possible relations for considered sets of variables by means of a well-known argument from physics: dimensional analysis. Moreover, we provide empirical evidence based on data from the NASDAQ stock exchange showing that the sophisticated relations hold with a certain degree of universality. Finally, we discuss the time scaling of the volatility [Formula: see text] , which turns out to be more subtle than one might naively expect. Springer Berlin Heidelberg 2018-10-26 2020 /pmc/articles/PMC7319296/ /pubmed/32624621 http://dx.doi.org/10.1007/s10107-018-1341-x Text en © The Author(s) 2018 Open AccessThis article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. |
spellingShingle | Full Length Paper Pohl, Mathias Ristig, Alexander Schachermayer, Walter Tangpi, Ludovic Theoretical and empirical analysis of trading activity |
title | Theoretical and empirical analysis of trading activity |
title_full | Theoretical and empirical analysis of trading activity |
title_fullStr | Theoretical and empirical analysis of trading activity |
title_full_unstemmed | Theoretical and empirical analysis of trading activity |
title_short | Theoretical and empirical analysis of trading activity |
title_sort | theoretical and empirical analysis of trading activity |
topic | Full Length Paper |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7319296/ https://www.ncbi.nlm.nih.gov/pubmed/32624621 http://dx.doi.org/10.1007/s10107-018-1341-x |
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