Sujet 7: Liquidity formation and interaction with price discovery

Imagine that all traders have the same information set and fully agree on the price. All buyers arrive in the market on Monday and all sellers on Tuesday. No trade would occur  and the market would collapse. The prices in the market would be affected by the competing strategies of the buyers (on Monday) to attract sellers. So the prices would reflect the lack of liquidity, rather than the fundamentals. In the extreme opposite scenario, imagine that there are many traders (high liquidity) but each one holds a different small piece of information about the fundamentals of an asset. On an intraday time framework, prices will need some time to adjust and fully reflect all the information, because agents need to learn first. Overall, on a shorter time frame, market efficiency is significantly challenged, because prices are affected both by liquidity and information. Consequently, price discovery and its quality become more prominent when focusing on intraday trading activity. Potential research topics on intraday price discovery could focus on:

a) Modelling how liquidity and information interact

b) How liquidity and/or information can be measured

c) Development of strategies to benefit from liquidity induced price discovery momentums.

d) How the structure of a market and wider regulations can affect prevailing liquidity and information dissemination and thus price discovery.

e) What is the ability of the market to absorb shocks and how long does it take to resolve uncertainty, ambiguity, etc.

 Pre-requisites: a) Fluency in English; b) Solid knowledge of econometrics and statistics.

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Contacts

Coordinateurs scientifiques du projet :

François LANGOT (francois.langot @ univ-lemans.fr)

Directeur du GAINS (Groupe d'Analyse des Itinéraires et Niveaux Salariaux)

Laurent DENIS (laurent.denis @ univ-lemans.fr)

LMM (Laboratoire Manceau de Mathématiques)

Mélanie COUELLIER (panorisk-ecodroit @ univ-lemans.fr)

Chargée de gestion administrative et d'aide au pilotage

Tel. (33) (0)2 43 83 31 11