nep-mst New Economics Papers
on Market Microstructure
Issue of 2022‒07‒11
three papers chosen by
Thanos Verousis

  1. When is the Order to Trade Ratio fee effective? By NIdhi Aggarwal; Venkatesh Panchapagesan; Susan Thomas
  2. Static Replication of Impermanent Loss for Concentrated Liquidity Provision in Decentralised Markets By Jun Deng; Hua Zong
  3. Abuse of dominance in intraday coupled electricity markets/ Impact onmarket integration of renewables By Podlesnaya Alina

  1. By: NIdhi Aggarwal (Indian Institute of Management, Udaipur); Venkatesh Panchapagesan (Indian Institute of Management, Bangalore); Susan Thomas (xKDR Forum)
    Abstract: Regulators use measures such as a fee on high order to trade ratio (OTR) to slow down high frequency trading. Their impact on market quality is, however, mixed. We study a natural experiment in the Indian stock market where such a fee was introduced twice, with differences in motivation and implementation. Using a difference-in-difference approach, we find that the fee decreased OTR and improved market quality when it was imposed on all orders, while it had little effect when it was imposed selectively on some orders. Improvement in liquidity was driven by a reduction in adverse selection costs following lower OTR.
    JEL: G14 G18
    Date: 2022–03
  2. By: Jun Deng; Hua Zong
    Abstract: This article analytically characterizes the impermanent loss of concentrated liquidity provision for automatic market makers in decentralised markets such as Uniswap. We propose two static replication formulas for the impermanent loss by a combination of European calls or puts with strike prices supported on the liquidity provision price interval. It facilitates liquidity providers to hedge permanent loss by trading crypto options in more liquid centralised exchanges such as Deribit. Numerical examples illustrate the astonishing accuracy of the static replication.
    Date: 2022–05
  3. By: Podlesnaya Alina (Department of Economics, Lomonosov Moscow State University)
    Abstract: Electricity market coupling aimed at reducing electricity price differential by optimizing cross-border capacity allocation is the main mechanism of the EU electricity market integration. The paper considers the problem of the abuse of dominance in intraday coupled electricity markets and the consequences of this abuse for the market integration of renewables. The paper found that the abuse of dominance in coupled markets could occur when the owner of essential facilities (i.e. power exchange) prohibits his competitors access to the infrastructure necessary for the intraday coupled auctions (i.e. shared order book). Since intraday coupled auctions combine two main instruments of market integration of renewables, i.e. close to real time trading and optimization of cross-border capacity allocation, distortion of competition in intraday coupled electricity markets can prevent efficient market integration of renewables and the greening of the power industry.
    Keywords: market coupling, intraday electricity market, renewables, abuse of dominance
    JEL: K21 L40 L41 Q20
    Date: 2022–04

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