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An immediacy and non-immediacy based trading model
Citation
Jeyasreedharan, N, An immediacy and non-immediacy based trading model, International Journal of Accounting & Business Finance, 2, (2) pp. 1-18. ISSN 2448-9867 (2016) [Refereed Article]
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Copyright Statement
Copyright 2016 International Journal of Accounting & Business Finance
Official URL: http://www.maco.jfn.ac.lk/ijabf/
Abstract
Market participants who want to trade "quickly" demand transactional liquidity. Market participants
who demand to trade "immediately" demand transactional immediacy. Traders supply immediacy
when the trading returns are high and demand immediacy when the trading returns are low. Traders
supply immediacy by being non-immediate and traders demand immediacy by being immediate. As
these time-based expectations are functions of the underlying distributions of the clearing prices, one
is able to define exact analytical functions for time-differing non-immediacy traders. As nonimmediacy
is heterogenous, a range of non-immediacy traders with differing non-immediacies can
compete in the marketplace and give rise to a "zone" of limit order functions. The bid-ask expectations
are also assumed to be rank-dependent to maintain transitivity and monotonicity. The limit orders
placed by non-immediacy traders can then be "picked" off by immediacy traders as they arrive at the
exchange. A simulation of a simple trading model is undertaken to illustrate the mechanism of price
formation under non-immediacy trading. In doing so, we show that immediacy is a consequence of
non-immediacy trading and is provided freely in any organised asset markets when participants
transmit their demand propensities to the market in the form of limit orders. While certain participants
such as dealers and specialists do indeed (at a price) provide immediacy, they need not be the only
providers.
Item Details
| Item Type: | Refereed Article |
|---|---|
| Keywords: | Immediacy; Non-immediacy; Rank-dependency; Trading expectations. |
| Research Division: | Commerce, Management, Tourism and Services |
| Research Group: | Banking, finance and investment |
| Research Field: | Banking, finance and investment not elsewhere classified |
| Objective Division: | Economic Framework |
| Objective Group: | Other economic framework |
| Objective Field: | Other economic framework not elsewhere classified |
| UTAS Author: | Jeyasreedharan, N (Dr Nagaratnam Jeyasreedharan) |
| ID Code: | 112279 |
| Year Published: | 2016 |
| Deposited By: | TSBE |
| Deposited On: | 2016-11-01 |
| Last Modified: | 2017-10-12 |
| Downloads: | 0 |
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