easy · Market Microstructure adverse-selection
What is the relationship between Kyle's Lambda (λ) and market liquidity?
- A higher λ signals a deep, liquid market with tight spreads.
- A higher λ indicates a less liquid market with higher price impact.
- Λ is simply the head count ratio of noise to informed traders.
- Λ is the probability that an arriving trader is informed, denoted separately as α.
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