The Microstructure of Cointegrated Assets

Sasha Stoikov

By:

Senior Research Associate, Cornell Financial Engineering Manhattan

The paper “The Microstructure of Cointegrated Assets” is available via SSRN:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3824298

Authors:

Sasha Stoikov
Cornell Financial Engineering Manhattan

Peter Decrem
Citibank, N.A. – Citi Fixed Income Currency & Commodities

Yikai Hua
Cornell Financial Engineering Manhattan

Anne Shen
Cornell Financial Engineering Manhattan

Date Written: April 11, 2021


Abstract

We define the micro price of multiple cointegrated assets. This yields a notion of fair prices, as a function of the observable state of multiple order books. We compute the microprices of two highly cointegrated assets, using Level-1 data collected on Interactive Brokers. We design an execution algorithm based on this two dimentional microprice and show that it can save half of the bid-ask spread cost.

Stoikov, Sasha and Decrem, Peter and Hua, Yikai and Shen, Anne, The Microstructure of Cointegrated Assets (April 11, 2021). Available at SSRN: https://ssrn.com/abstract=3824298 or http://dx.doi.org/10.2139/ssrn.3824298

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