Adverse Selection and Toxicity
A passive fill is adverse when the counterparty tends to trade before prices move against the resting quote. The fill itself can contain information.
Central questions
- What post-trade horizon defines an adverse outcome?
- How are information, volatility, and mechanical price movement separated?
- Which toxicity measure is observable in real time?
Planned model
Mix informed, liquidity-motivated, and random arrivals. Compare maker P&L at several marking horizons and expose selection bias from conditioning on fills.