Economics, Econometrics and Finance
4 years ago

Market asymmetries impact trading prices and time-to-trade in financial markets

Carlo Alberto Notebooks
Equilibrium bid-ask spread and infrequent trade with outside options
Elisa Luciano, Riccardo Giacomelli

Paper Summary

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The article explores how the bid-ask spread and trading time are determined in financial markets. Market intermediaries set the trading price, while investors decide when to trade. The spread and trading time depend on the risk aversion of market participants and trading costs. Cash is preferred over other options. When spreads increase, trading decreases to protect investors. Switching to a competitive market lowers bid-ask fees but doesn't change trading patterns.