Commodity money arises endogenously in a general equilibrium model with separate budget constraints for each transaction. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid good—with the smallest proportionate bid/ask spread—becomes commodity money. General equilibrium may not be Pareto efficient. If zero-transaction-cost money is available then the equil...

The bid /ask spread (inverse of liquidity) in turbulent financial markets—modeled theoretically—adjusts to market-makers’ average costs. Market liquidity declines (spread increases) with increasing absolute value of market-makers’ security inventories and volatility of security price and order flow.  2002 Elsevier Science B.V. All rights reserved.

Asymmetric information models predict comovements among trade characteristics such as returns, bid-ask spread, and trade volume on one hand and the trading intensity on the other hand. In this paper we investigate empirically the two-sided causality between trade characteristics and trading intensity. We apply a VAR-model for returns, bid-ask spread, trade volume, and trading intensity to trans...

We evaluate an agent-based model featuring nearzero-intelligence traders operating in a call market with a wide range of trading rules governing the determination of prices, which orders are executed as well as a range of parameters regarding market intervention by market makers and the presence of informed traders. We optimize these trading rules using a multi-objective population-based increm...

In this study, we examine the relations between the three keys variables of liquidity such as trading volume, bid-ask spread, and intraday price volatility. Hausman’s (1978) tests of specification confirmed that trading volume, bid-ask spread and intraday price volatility are jointly determined. Our study, leaded with a different approach to estimate the three parameters in a three-equation sim...

We examine the role of high-frequency traders (HFT) in price discovery. Overall HFT play a positive role in price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory pricing errors on average days and the highest volatility days. This is done through their marketable orders. In contrast, HFT passive non-marketable orders are adversely se...