medium · Market Microstructure spread-econ
A trader observes the following sequence for a stock: Trade 1 at $50.05, then a Quote Update at $50.00 Bid / $50.06 Ask, then Trade 2 at $50.03.
Using the Lee–Ready algorithm, how is Trade 2 classified?
- Buyer-initiated, because it is closer to the ask than the bid at the time of execution.
- Seller-initiated, because the quote rule always classifies midpoint trades as sells to protect dealers.
- Seller-initiated, because it occurred on a downtick from the previous price of $50.05.
- Inconclusive, because the Lee-Ready algorithm cannot classify midpoint trades.
Sign up free to see the explanation and track your rank →
More Market Microstructure spread-econ practice
- If the dealer uses a quote shading parameter of κ = 0.00004 to manage inventory, what is t
- In the Avellaneda-Stoikov model, a market maker who is currently 'long' a significant amou
- A stock has a daily price volatility of 1%. If a trader uses the Roll model and finds that
- Suppose the NBBO for GHI is $100.00 Bid × $100.05 Ask. A mar… — How will they likely 'shad
- If a stock's effective spread is $0.06 and the 5-minute realized spread for the same trade
- According to Roll's model, if the autocovariance of price changes for a stock is -0.0075
- If the market maker applies quote shading with a parameter κ = 0.0001, how will they adjus
- Using Roll's estimator, what is the estimated bid-ask spread?