Albert J. Menkveld

My two cents

Crowd-Sourced Knowledge

October 30, 2020
This is my crowd-sourced knowledge week for two reasons: In a Whatsapp group, my old college friends and I share information so that, as a group, we stay informed. This week, one of my friends shared a life-saving piece of advice: . We launched …

Illiquidity everywhere?

December 6, 2019
The gentleman is advised to keep a balanced portfolio: Liquid assets but also illiquid ones to avoid “compromising the overall performance of [his] portfolio.” If you are a large investor the set of liquid assets might be smaller than you …

Deep enough to dive?

October 25, 2019
There will always be daredevils who ignore all signs, no? Well, the boy on the left seems to have second thoughts… Unfortunately there are no warning signs by many of the liquidity pools that investors use to execute their orders. They need to …

Who likes large uninformed orders? Anyone?

January 31, 2019
Increased intermediation has led to large institutional investors who occasionally demand liquidity beyond what a market can offer instantly. These investors resort to splitting their order to trade small (child) orders optimally through time, often …

The fundamental value of bitcoins

October 5, 2018
“What do you think of bitcoins? You are an economist, no? Is there any value to them?” The conversation falls silent and all eyes turn in your direction. This undoubtedly is an all too familiar experience for many of us economists, …

Fake news?

August 1, 2018
Perhaps this blog post is. Fake news. How do we tell information from merely gossip? How do we separate the wheat from the chaff? Or, closer to home, how do we know which dealer is most informed, and how the information is learned? It has long been …

Cat and Mouse Play between Investors and HFTs

September 26, 2017
Institutional investors and high-frequency traders can benefit from each other’s presence. This is the case when investors demand liquidity and HFTs supply it. This however is not the end of the story. For some of their largest orders, …

Bidding by HFTs and non-HFTs

August 16, 2017
Bidding is not gratis. In the old days, a bidder needed to stay around on the trading floor to wait for someone to “bite.” An economist would call this the opportunity cost of his time. Bidding remains costly in modern markets, albeit …

Prices Vibrate Before They Crash

May 17, 2017
Animals feel earthquakes a lot earlier than we do. It has been suggested that they respond to relatively mild P-waves that travel through the earth faster than the powerful S-waves that cause the severe shaking. Prices seem to mildly vibrate across …

Systemic Risk in Real Time

December 16, 2016
Can central clearing parties (CCPs) weather a sudden storm? CCPs were recently introduced for standard derivatives to remove counter-party risk from trades. Should the buyer or seller default, then the CCP will take over his trade commitment. CCPs …

High-Frequency Trading as Viewed Through an Electron Microscope

November 25, 2016
The arrival of an electron microscope improved our vision by a factor of one million. Humans could finally see atoms. I just released a short study on Nasdaq data that hopes to make a similar leap by studying trades at nanoseconds, a million times …

HFT Good or Bad? A Literature Survey

June 1, 2016
Today the Dutch regulator AFM published a study on high-frequency trading (HFT). They characterize it as a data driven assessment of HFT trading strategies. In parallel, I released a survey of the academic literature on HFT. AFM kindly let me use …

Information Flows - Euro Swiss Franc (Crash)

April 26, 2016
In which market does information originate and, how does it flow? This is not such an interesting question if there is a single national exchange. That exchange however no longer receives streams of buy and sell orders, but flocks of tourists …

High-Frequency Trading around Large Institutional Orders

June 18, 2015
When high-frequency traders (HFTs) enter markets, the bid-ask spread declines. Several academic studies have reported such result. Investors pay less for each market order they send. All good and everyone happy. Everyone? Retail investors, probably. …

Who Supplies Liquidity? We Need A New Definition

February 24, 2015
I plead for a new, more general definition of liquidity suppliers in securities markets. I propose “He who trades against price pressures, supplies liquidity," instead of “He whose price quote is taken by an incoming market order, …

Shades of Darkness. A Pecking Order of Trading Venues

October 16, 2014
Suppose you gave your girlfriend her favorite concert on her birthday. The cry of joy and the smile across her face. Irresistible. But, you don’t have the ticket yet. You just created yourself a short position of a ticket, or two tickets …

Pay-to-Play Equilibria

July 7, 2014
It was in Thomas Sargent’s class at NYU that I first came upon the “want” operator. When complexity started to overwhelm, he would write “want” on the white board, followed by a colon. Want: … This way he would …

Dutch High-Frequency Traders Soon Faster than Speed of Light?

June 16, 2014
Albert Einstein famously doubted one of the implications of his quantum theory. He did not believe that information could be transmitted without moving the material to which it was attached. “Spooky action at a distance,” is what he …

Is an Even Faster Exchange Good For Market Quality?

May 28, 2014
Flash boys want flash markets. Exchanges invest to make their matching engines clock at ever higher speeds. High-frequency traders claim they can provide more liquidity as a result. Investors – the low-frequency traders in the market – …

Crowded Trades Hidden Risk for CCPs

April 8, 2014
Central clearing counterparties (CCPs) are particularly vulnerable if multiple traders collapse at the same time. One source of such risk is when trades crowd on a single security or risk factor. This risk is overlooked in standard CCP risk …