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Financial Market Structure and the Ergocicity of Prices

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  • Domowitz, I. El-Gamal, M.
Abstract
The properties of prices, especially with respect to initial conditions related to market startup and unusual shocks to the market environment, are of concern to regulators assessing alternative financial market structures. A natural way to investigate the importance of initial conditions is to evaluate the ergodicity of the price process. A consistent nonparametric test for ergodic failure is introduced for this purpose. We compare the ergodic properties of prices across (i) a computerized market, characterized by an electronic limit order book and a separate batch opening protocol; and (ii) a traditional open-outcry floor market. The work is enabled in part by unusual matched high-frequency trading data on identical financial instruments traded in both markets over the same 24-hour period.

Suggested Citation

  • Domowitz, I. El-Gamal, M., 1997. "Financial Market Structure and the Ergocicity of Prices," Working papers 9719, Wisconsin Madison - Social Systems.
    • Handle: RePEc:att:wimass:9719
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    File URL: http://www.ssc.wisc.edu/econ/archive/wp9719.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    AUCTIONS ; FINANCIAL MARKET;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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