Market Microstructure Invariance: A Dynamic Equilibrium Model

46 Pages Posted: 19 Mar 2016 Last revised: 17 Aug 2017

See all articles by Albert S. Kyle

Albert S. Kyle

University of Maryland

Anna A. Obizhaeva

New Economic School (NES)

Date Written: August 8, 2017


We derive invariance relationships for a dynamic infinite-horizon model of market microstructure with risk-neutral informed trading,noise trading,marketmaking, and endogenous production of information. Invariance relationships for bet sizes and transaction costs are obtained under the assumption that the effort required to generate one discrete bet does not vary across securities and time. Invariance relationships for pricing accuracy and market resiliency require the additional assumption that private information has the same signal-to-noise ratio across markets. Equilibrium prices follow a martingale with endogenously derived stochastic volatility.

Keywords: market microstructure, invariance, liquidity, bid-ask spread, market impact, transaction costs, market efficiency, efficient markets hypothesis, pricing accuracy, resiliency, order size

JEL Classification: G10, G14

Suggested Citation

Kyle, Albert (Pete) S. and Obizhaeva, Anna A., Market Microstructure Invariance: A Dynamic Equilibrium Model (August 8, 2017). Available at SSRN: or

Albert (Pete) S. Kyle

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Anna A. Obizhaeva (Contact Author)

New Economic School (NES) ( email )

100A Novaya ul
Moscow, Skolkovo 143026

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