The design of electronic markets is a time consuming process and often produces unpredictable results. This paper describes a component-based specification of the market microstructure parameters and their composition. In this approach, orthogonal components are defined by rules and algorithms. Composing these components results in a market structure an element of market space spanned by the co...

We present a model that investigates the spontaneous emergence of randomness in equity market microstructure. The phase space analysis of our model exposes an endogenous source of fluctuation in price and volume. We formulate a control problem for maximizing price regularity and stability while minimizing entanglement with the market, representing the NYSE specialists’ affirmative obligation to...

In this paper, we examine the statistical forecast accuracy of econometric models, surveys and futures rates in predicting the LIBOR-Federal Funds Rate (LIBOR-FF) spread during and after the financial crisis. We provide evidence that the futures market forecast outperforms all competing forecasts during and after the financial crisis. Our results also suggest that the predictive accuracy of the...

We use a novel framework that integrates standard asset pricing and microstructure models to study how asymmetric information, imperfect competition among market makers, and risk aversion affect equilibrium illiquidity and asset pricing. All the main results are obtained in closed-form. In our model, market power, asymmetric information, and market-making cost drive market illiquidity. This mod...