Theoretical and empirical analysis of trading activity

Mathias Pohl, Alexander Ristig, Walter Schachermayer, Ludovic Tangpi

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades N, the traded volume V, the asset price P, the squared volatility σ2, the bid-ask spread S and the cost of trading C. Different reasonings result in simple proportionality relations (“scaling laws”) between these variables. A basic proportionality is established between the trading activity and the squared volatility, i.e., N∼ σ2. More sophisticated relations are the so called 3/2-law N3 / 2∼ σPV/ C and the intriguing scaling N∼ (σP/ S) 2. We prove that these “scaling laws” are the only possible relations for considered sets of variables by means of a well-known argument from physics: dimensional analysis. Moreover, we provide empirical evidence based on data from the NASDAQ stock exchange showing that the sophisticated relations hold with a certain degree of universality. Finally, we discuss the time scaling of the volatility σ, which turns out to be more subtle than one might naively expect.

Original languageAmerican English
Pages (from-to)405-434
Number of pages30
JournalMathematical Programming
Issue number2
StatePublished - Jun 1 2020

ASJC Scopus subject areas

  • Software
  • General Mathematics


Dive into the research topics of 'Theoretical and empirical analysis of trading activity'. Together they form a unique fingerprint.

Cite this