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on Market Microstructure |
| By: | Barardehi, Yashar H. (Argyros School of Business & Economics, Chapman University and the U.S. Securities and Exchange Commission); Bernhardt, Dan (Department of Economics at the University of Illinois and the University of Warwick); Da, Zhi (Mendoza College of Business, University of Notre Dame); Mitch Warachka, Mitch (Argyros School of Business & Economics, Chapman University) |
| Abstract: | The decision of wholesalers to internalize retail order flow primarily reflects institutional liquidity demand. We first use the Tick Size Pilot to highlight this decision’s influence on the retail trade imbalances denoted Mroib by Boehmer et al. (2021). We then show that wholesalers internalize more retail order flow when institutional demand is higher, leading Mroib to be inversely related to institutional order flow. Intraday returns move in the same direction as institutional price pressure but the opposite direction of Mroib. Moreover, |Mroib| is highest when institutional trading costs are highest. Distant future returns display strong ∪-shaped patterns conditional on Mroib, consistent with a permanent liquidity premium driving the positive relation between these returns and the magnitude of |Mroib|. |
| Keywords: | Retail Trade ; Institutional Trade ; Payment for Order Flow ; Liquidity ; Microstructure |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1394&r= |
| By: | Oleh Danyliv |
| Abstract: | The article is an empirical study of market impact through order book events. It describes a mechanism of extracting an average participation rate and a market impact of small orders which represent individual slices of large metaorders. The study is based on tick data for futures contracts. It is shown that the impact could be either linear or a concave function as a function of trading volume, depending on the instrument. After normalisation, this dependency is shown to be very similar for a wide range of instruments. A simple yet effective model for market impact estimation is proposed. This model is linear in nature and is derived based on straightforward microstructure reasoning. The estimation shows satisfactory results for both concave and linear market impact volume dependencies. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.02983&r= |
| By: | Yulin Liu; Yuxuan Lu; Kartik Nayak; Fan Zhang; Luyao Zhang; Yinhong Zhao |
| Abstract: | Transaction fee mechanism (TFM) is an essential component of a blockchain protocol. However, a systematic evaluation of the real-world impact of TFMs is still absent. Using rich data from the Ethereum blockchain, mempool, and exchanges, we study the effect of EIP-1559, one of the first deployed TFMs that depart from the traditional first-price auction paradigm. We conduct a rigorous and comprehensive empirical study to examine its causal effect on blockchain transaction fee dynamics, transaction waiting time and security. Our results show that EIP-1559 improves the user experience by making fee estimation easier, mitigating intra-block difference of gas price paid, and reducing users' waiting times. However, EIP-1559 has only a small effect on gas fee levels and consensus security. In addition, we found that when Ether's price is more volatile, the waiting time is significantly higher. We also verify that a larger block size increases the presence of siblings. These findings suggest new directions for improving TFM. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.05574&r= |
| By: | Tolga U. Kuzubas; Burak Saltoglu |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bou:wpaper:2021/06&r= |