Title: Systematic staleness
Authors: Davide Pirino - University of Rome Tor Vergata (Italy) [presenting]
Federico Bandi - Johns Hopkins University (United States)
Roberto Reno - University of Verona (Italy)
Abstract: Asset prices are stale. We define a measure of systematic (market-wide) staleness as the percentage of small price adjustments over multiple assets. A notion of idiosyncratic (asset-specific) staleness is also established. For both systematic and idiosyncratic staleness, we provide a limit theory based on joint asymptotics relying on increasingly-frequent observations over a fixed time span and an increasing number of assets. Using systematic and idiosyncratic staleness as moment conditions, we introduce novel structural estimates of market liquidity and funding liquidity based on transaction prices only. The estimates yield revealing information about the dynamics of the two notions of liquidity and their interaction.