Analytical and simulational approaches to the relation between the stock market liquidity and the traders’ utility

In stock markets, it is often argued that increased liquidity contributes to the public benefit of the market as a whole, but it is not self-evident. In this study, we analyze the impact of increasing market liquidity on traders’ utility mathematically. We analytically calculate the average utility for one trader using a simple model in which we assume orders follow independent uniform distributions. Furthermore, even when we assume more complicated models where orders follow general distributions and interact with each other, we obtain the result consistent with the first simple model in the limit of infinite number of orders. Also, we define a balance price on the order book, and we analyze the behavior of the balance price.