Uncertain Market Making

@inproceedings{Yueshen2016UncertainMM,
  title={Uncertain Market Making},
  author={Bart Zhou Yueshen and Andrew Ellul},
  year={2016}
}
This paper argues that market makers’ presence is uncertain over any short time interval, as their operations are subject to shocks and constraints of, e.g., capital, technology, and attention. Such uncertain market making implies a random pricing equilibrium in a noise rational expectations framework. Implications for risk, liquidity, and efficiency are discussed. A structural model captures from data the predicted dispersion of random pricing. In 2014, the estimated dispersion is around 10… CONTINUE READING

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