Albert Pete Kyle from University of Maryland.
Paper: Dimensional Analysis, Leverage Neutrality, and Market Microstructure Invariance
This paper combines dimensional analysis, leverage neutrality, and a principle of market mi- crostructure invariance to derive scaling laws expressing transaction costs functions, bid-ask spreads, bet sizes, number of bets, and other financial variables in terms of dollar trading volume and volatility. The scaling laws are illustrated using data on bid-ask spreads and number of trades for Russian and U.S. stocks. These scaling laws provide practical metrics for risk managers and traders; scientific benchmarks for evaluating controversial issues related to high frequency trading, market crashes, and liquidity measurement; and guidelines for designing policies in the aftermath of financial crisis.