Ideas:
“
Market microstructure models price bid-ask spreads by order processing, inventory, and asymmetric information costs. Informed and noisy traders submit market and limit orders regarding immediacy. Agents in business-cycle CAPM invest with different economic-phase-dependent strategies. They collectively determine the market price by their expectations, formed from liquidity and credit risks. They feed into the market maker's cost function for bid-ask spreads. Because the agents use the information for expectations, the market-clearing feedback loop determines the short-run general equilibrium prices and spreads. Hence, they also change with liquidity and credit risks along the business cycles.
”
Feedback