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Liquidity has gone down with the advent of HFT: http://opusminimax.wordpress.com/2012/04/20/ardent-support-for-hft-on-hacker-news/ http://opusminimax.wordpress.

Liquidity has gone down with the advent of HFT: http://opusminimax.wordpress.com/2012/04/20/ardent-support-for-hft-on-hacker-news/ http://opusminimax.wordpress.com/2012/04/20/ardent-support-f...

anonymoushn 14y ago
You don't seem to provide any evidence of this claim.
- yummyfajitas 14y ago
  Indeed - the author seems to confuse trade volume with liquidity.
  - ChristianMarks 14y ago
    The author gave you the benefit of the doubt by not spelling out the essential relation between liquidity and volume over time. Just what exactly do you think liquidity is, if it has nothing to do with volume over time?
    - anonymoushn 14y ago
      It is the ability to transact, rather than the fact of having transacted.
      - ChristianMarks 14y ago
        This is imprecise. OK, let's say that liquidity has gone up in the long run, thanks to automation (and to some extent, regulation). This reference http://www.tau.ac.il/~azibenr/Liquidity_BKW.pdf http://www.tau.ac.il/~azibenr/Liquidity_BKW.pdf shows that more liquidity has not helped: "...the effect of each unit of liquidity on returns has declined over the years." So one cannot flatly assert that HFT has led to improved liquidity and that this benefits everyone. And still one cannot discount the effect of decreased volume: this indicates that retail investors have left. Here's what that incontrovertible reference, the Wikipedia, states: Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one. The Wikipedia also "confuses" liquidity with volume: The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Source: http://en.wikipedia.org/wiki/Market_liquidity http://en.wikipedia.org/wiki/Market_liquidity
- ChristianMarks 14y ago
  http://www.zerohedge.com/news/market-stoned-its-1999 http://www.zerohedge.com/news/market-stoned-its-1999
  - anonymoushn 14y ago
    This, like your blog post, is about volume and not about liquidity. Do you have any evidence regarding liquidity? When answering, bear in mind that "liquidity" increases with the depth of the book, increases as the spread narrows, and does not have anything to do with "volume."
    - ChristianMarks 14y ago
      Observe the arrogant attempt to control the answer with the implication that the characterization of liquidity is a settled matter instead of an area of research. One model in your favor is given in this article: http://www.sciencedirect.com/science/article/pii/S0304405X07001985 http://www.sciencedirect.com/science/article/pii/S0304405X07... which says that liquidity is related to the variance of volume but is weakly correlated with volume. It does not mention depth of book, which would be "the number of shares that could be bought or sold without changing the price of a stock." There are other models, however.

Liquidity has gone down with the advent of HFT: http://opusminimax.wordpress.com/2012/04/20/ardent-support-for-hft-on-hacker-news/ http://opusminimax.wordpress.com/2012/04/20/ardent-support-f...

anonymoushn 14y ago

You don't seem to provide any evidence of this claim.

yummyfajitas 14y ago
Indeed - the author seems to confuse trade volume with liquidity.
- ChristianMarks 14y ago
  The author gave you the benefit of the doubt by not spelling out the essential relation between liquidity and volume over time. Just what exactly do you think liquidity is, if it has nothing to do with volume over time?
  - anonymoushn 14y ago
    It is the ability to transact, rather than the fact of having transacted.
    - ChristianMarks 14y ago
      This is imprecise. OK, let's say that liquidity has gone up in the long run, thanks to automation (and to some extent, regulation). This reference http://www.tau.ac.il/~azibenr/Liquidity_BKW.pdf http://www.tau.ac.il/~azibenr/Liquidity_BKW.pdf shows that more liquidity has not helped: "...the effect of each unit of liquidity on returns has declined over the years." So one cannot flatly assert that HFT has led to improved liquidity and that this benefits everyone. And still one cannot discount the effect of decreased volume: this indicates that retail investors have left. Here's what that incontrovertible reference, the Wikipedia, states: Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one. The Wikipedia also "confuses" liquidity with volume: The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Source: http://en.wikipedia.org/wiki/Market_liquidity http://en.wikipedia.org/wiki/Market_liquidity
ChristianMarks 14y ago
http://www.zerohedge.com/news/market-stoned-its-1999 http://www.zerohedge.com/news/market-stoned-its-1999
- anonymoushn 14y ago
  This, like your blog post, is about volume and not about liquidity. Do you have any evidence regarding liquidity? When answering, bear in mind that "liquidity" increases with the depth of the book, increases as the spread narrows, and does not have anything to do with "volume."
  - ChristianMarks 14y ago
    Observe the arrogant attempt to control the answer with the implication that the characterization of liquidity is a settled matter instead of an area of research. One model in your favor is given in this article: http://www.sciencedirect.com/science/article/pii/S0304405X07001985 http://www.sciencedirect.com/science/article/pii/S0304405X07... which says that liquidity is related to the variance of volume but is weakly correlated with volume. It does not mention depth of book, which would be "the number of shares that could be bought or sold without changing the price of a stock." There are other models, however.