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A comment on Finding Signal in the Noise: Machine Learning and the Markets (Jane Street). Parent comment
I think about it like this:
How stable are prices of low liquidity instruments compared to the most liquid instruments?
What happens in the first 10-15 mins after the markets open? EXTREME volatility.
Longer trading sessions, higher volume and more liquidity lowers volatility on average.
A hypothetical X percent worse spread on my mortgage bonds, means I have to borrow X% more to buy the house. That’s meaningful money for most people.
Market makers will still earn the spread. More trading just means it gets lowered because of competition and volume.
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I think about it like this:
How stable are prices of low liquidity instruments compared to the most liquid instruments?
What happens in the first 10-15 mins after the markets open? EXTREME volatility.
Longer trading sessions, higher volume and more liquidity lowers volatility on average.
A hypothetical X percent worse spread on my mortgage bonds, means I have to borrow X% more to buy the house. That’s meaningful money for most people.
Market makers will still earn the spread. More trading just means it gets lowered because of competition and volume.