The Microstructure of Cointegrated Assets

17 Pages Posted: 12 Apr 2021

See all articles by Sasha Stoikov

Sasha Stoikov

Cornell Financial Engineering Manhattan

Peter Decrem

Citibank, N.A. - Citi Fixed Income Currency & Commodities

Yikai Hua

Cornell Financial Engineering Manhattan

Anne Shen

Cornell Financial Engineering Manhattan

Date Written: April 11, 2021

Abstract

We define the micro price of multiple cointegrated assets. This yields a notion of fair prices, as a function of the observable state of multiple order books. We compute the microprices of two highly cointegrated assets, using Level-1 data collected on Interactive Brokers. We design an execution algorithm based on this two dimentional microprice and show that it can save half of the bid-ask spread cost.

The code for this paper is available here: https://github.com/xhshenxin/Micro_Price

Keywords: microprice, cointegration, microstructure, order books, high frequency trading, algorithmic trading

JEL Classification: G12, C44, C51, C32,C58

Suggested Citation

Stoikov, Sasha and Decrem, Peter and Hua, Yikai and Shen, Anne, The Microstructure of Cointegrated Assets (April 11, 2021). Available at SSRN: https://ssrn.com/abstract=3824298 or http://dx.doi.org/10.2139/ssrn.3824298

Sasha Stoikov (Contact Author)

Cornell Financial Engineering Manhattan ( email )

2 W Loop Rd
New York, NY New York 10044
United States

HOME PAGE: http://www.sashastoikov.com

Peter Decrem

Citibank, N.A. - Citi Fixed Income Currency & Commodities ( email )

390 Greenwich Street
4th Floor
New York, NY 1001
United States

Yikai Hua

Cornell Financial Engineering Manhattan ( email )

NY
United States

Anne Shen

Cornell Financial Engineering Manhattan

NY
United States

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