Trading pattern synchronization in multi-asset market

Abstract

This paper presents a market microstructure model to explain how traders’ strategic behavior interacts with asymmetric market closures in sequential auctions. The spikes in intraday trading volume and return volatility emerge simultaneously in all traded assets due to the accumulation of liquidity trading in that period because, for discretionary liquidity traders who can choose when to trade, it is less costly when (i) more assets are traded and (ii) the magnitude of liquidity trading in any asset is high. The U-shaped trading volume and return volatility, with increasing return correlation, suggest that liquidity traders primarily drive the intensified trading in the earlier period, while the latter is attributed to informed traders. Our findings align with the observed stylized facts in assets within the same market and across different markets, as reported in the literature.