New research reveals how market liquidity impacts pricing accuracy and resiliency.
The article explains how theoretical models of market microstructure can be used to measure liquidity in real-world trading. By using a meta-model, researchers can quantify trading and funding liquidity, including costs and capital requirements. This model also helps understand how adverse selection affects pricing accuracy and resiliency in trading. The study shows a strong link between time and adverse selection, shedding light on how these factors impact financial markets.