Bid-Ask Spread Dynamics - A Market Microstructure Invariance Approach

Abstract: The theory of Market Microstructure Invariance proposed by Kyle and Obizhaeva (2010) is presented and tested on spread data for bond futures. The data used are transformations from over 150,000 observations of futures on German government debt securities (Schatz and Bund) and 10-year US treasury notes. To account for the possible presence of long memory processes, we perform a GPH-test that displays no long memory processes in the data. Our findings support the theory of Market Microstructure Invariance, however the results differ between futures.