Order Integration and the Dynamic Behavior of Security Prices

47 Pages Posted: 12 Mar 2014 Last revised: 18 Mar 2016

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - McDonough School of Business

Jian Hua

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Robert A. Schwartz

Baruch College - CUNY

Gregory Sipress

TraderEx LLC

Date Written: March 2, 2016

Abstract

Strengthening competition in the equity markets has long been a major public policy objective. This paper turns to another important determinant of market quality, one that has received relatively little attention in the public policy debates: order integration — the way in which orders are matched together and turned into trades. A conceptual framework is set forth, and simulation analysis undertaken in a laboratory-type setting. We find that imperfect order integration can generate the accentuated intra-day volatility, kurtosis, and returns autocorrelation that characterize the dynamic behavior of prices. The analysis has important implications for market structure and regulatory policy.

Keywords: stock return distribution, tail thickness, excess kurtosis, mixture of distributions, time-varying volatility

JEL Classification: G10, G12, C8, C9

Suggested Citation

Bali, Turan G. and Hua, Jian and Schwartz, Robert A. and Sipress, Gregory, Order Integration and the Dynamic Behavior of Security Prices (March 2, 2016). Available at SSRN: https://ssrn.com/abstract=2407278 or http://dx.doi.org/10.2139/ssrn.2407278

Turan G. Bali (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

Jian Hua

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Robert A. Schwartz

Baruch College - CUNY ( email )

Zicklin School of Business
17 Lexington Avenue
New York, NY 10010
United States
646-312-3467 (Phone)
646-312-3530 (Fax)

Gregory Sipress

TraderEx LLC ( email )

New York, NY
United States

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