microstructure-arb — Quantitative Finance Practice Questions

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1. Two assets are 'cointegrated'. What does this imply for a pairs-trading strategy that 'correlation' alone does
2. Which component of the bid-ask spread compensates the market maker for the risk of trading against a counterpa
3. A trader is analyzing two non-stationary price series that w… — Which statistical property does this describe
4. If the trader increases their risk aversion λ, what is the effect on the execution trajectory?
5. If the trader crosses the spread using a market order for the entire buy and then immediately liquidates with
6. If a fund executes a full turnover of a $10 million position using market orders, what is the total cost of cr
7. In an optimal execution framework like Almgren-Chriss, a trader who chooses to execute a large order slowly ov
8. According to Roll's effective spread estimator, what is the implied effective bid-ask spread?
9. What is the half-life of a deviation in the spread, and what does this imply for the strategy?
10. For a risk-averse trader who must liquidate a large block of shares, what is the characteristic shape of the o
11. According to the 'square-root law' of market microstructure, how does the impact change if the trade size Q in
12. In the context of 'Pairs Trading', what is the fundamental requirement for the relationship between two stock
13. According to the 'square-root law' of price impact, how does the impact of a trade scale relative to the trade
14. If the best bid is $100.00 and the spread is $0.10, what is the best ask?
15. In a limit order book, 'bids' are traditionally ranked in which order?
16. In the context of the Almgren-Chriss framework, what is the primary trade-off when executing a large order?
17. The bid-ask spread tends to be widest in which of the following market conditions?
18. The 'order-processing' component of the spread covers:
19. The presence of many informed traders in a market typically leads market makers to:
20. Under a standard price-time priority rule, if two limit orders to buy are placed at the same price, which one
21. What happens to the price of a stock when a very large market order to buy exceeds the available volume at the
22. What is the cost of 'crossing the spread'?
23. Which component of the bid-ask spread compensates a market maker for the administrative and technological cost
24. Which component of the bid-ask spread compensates the market maker for the risk of a price move while they are
25. Which of the following describes the 'top of the book' in a modern electronic exchange?
26. Which drift rate must be used for the underlying asset when calculating this expectation?
27. A portfolio manager is highly risk-averse (λ to ∞). According to the optimal execution tradeoff, which executi
28. Given a risk-free rate of 3%, which statement is correct?
29. If the mid-price is $100, and the trader executes 5,000 shares via market orders, what is the total dollar cos
30. If the spread is normally distributed with mean 0 and standard deviation 1.5, at what spread levels should the