To capture trader heterogeneity in a market microstructure setting, we model a trader’s option to trade as an optimal stopping problem. This option to trade is much like a firm’s option to invest in the real options literature. The optimal bid-ask prices quoted by any trader are functions of the joint evolution of their own private value and the private value of their intended trading counterpa...

Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N commodities are traded at N(N − 1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints, enforced at each trading post separately, imply demand for a carrie...

We investigate the dynamics of return and liquidity (co) jumps for three most traded emerging market currencies vis-à-vis US dollar. Accordingly, an increase in average bid-ask spread (realized volatility) significantly reduces duration between consecutive (liquidity) jumps, while volatility only play a partial role on return-liquidity cojumps. There is also evidence vicious spirals views posit...

Modern portfolio theory is based on the relationship between risk and return and in this paper, specific uncertainty conditions are introduced as ambiguity which affects the asset pricing. Also, the relationship between risk, ambiguity and return is examined. First, ambiguity is estimated by the means of three-variable and main component method, trading volume, ask-bid spread, error of earnings...

Abstract: In this article the problem of optimal trading in illiquid markets is addressed when the deviations from a given stochastic target function describing, for instance, external aggregate client flow are penalised. Using techniques of singular stochastic control, we extend the results of [NW11] to a two-sided limit order market with temporary market impact and resilience, where the bid a...

The objectives of this study are to measure the level of voluntary disclosure provided in the annual reports of Jordanian companies and to examine the impact of disclosure level on the stock market liquidity using Jordanian data. To achieve the first objective, a self-constructed disclosure index consisting of 62 items was applied to the annual reports of 60 Jordanian non-financial companies li...

We consider a market dealer acting as a liquidity provider by continuously setting bid and ask prices for an illiquid asset in a quote-driven market. The market dealer may benefit from the bid-ask spread but has the obligation to permanently quote both prices while satisfying some liquidity and inventory constraints. The objective is to maximize the expected utility from terminal liquidation va...

We show that time variation in expected returns and/or partial price adjustments lead to a downward bias in previous estimators of both the spread and its components. We introduce a new approach that provides unbiased and efficient estimators of the components of the spread. We find that between 77 and 97 percent of the downward bias in previous spread estimates is caused by time variation in e...