Self-organization and information effect in financial market

Abstract

The paper proposes a self-organization model for bid-ask spread transition in markets. In market microstructure theory, bid-ask spread has been explained as the result of an overall market players' intention. We focus on bid-ask spread transition after market opening and forward to closing, and interpret it by information effect. Our approach is based on a modeling methodology for viscoelastic material, that can consider the memory effect of information for a market system. Under the modeling process, we suggest 2 parameters that are related to a sensitivity effect and relaxation time effect of information into a market. Lastly, we empirically show the model explained as bid-ask spread transition in the Japanese equity market.