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on Market Microstructure |
| By: | Ioane Muni Toke (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec - Université Paris-Saclay); Nakahiro Yoshida (Graduate school of mathematics - UTokyo - The University of Tokyo) |
| Abstract: | This paper extends the analysis of Muni Toke and Yoshida (2020) to the case of marked point processes. We consider multiple marked point processes with intensities defined by three multiplicative components, namely a common baseline intensity, a state-dependent component specific to each process, and a state-dependent component specific to each mark within each process. We show that for specific mark distributions, this model is a combination of the ratio models defined in Muni Toke and Yoshida (2020). We prove convergence results for the quasi-maximum and quasi-Bayesian likelihood estimators of this model and provide numerical illustrations of the asymptotic variances. We use these ratio processes in order to model transactions occuring in a limit order book. Model flexibility allows us to investigate both state-dependency (emphasizing the role of imbalance and spread as significant signals) and clustering. Calibration, model selection and prediction results are reported for high-frequency trading data on multiple stocks traded on Euronext Paris. We show that the marked ratio model outperforms other intensity-based methods (such as "pure" Hawkes-based methods) in predicting the sign and aggressiveness of market orders on financial markets. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02465428&r=mst |
| By: | Agostino Capponi; Ruizhe Jia; Brian Zhu |
| Abstract: | We study just-in-time (JIT) liquidity provision within blockchain-based decentralized exchanges (DEXs). In contrast to passive liquidity providers (LPs) who deposit assets into liquidity pools before observing order flows, JIT LPs take a more active approach. They monitor pending orders from public blockchain mempools and swiftly supply liquidity, only to withdraw it in the same block. Our game-theoretical analysis uncovers a paradoxical scenario: the presence of a JIT LP, rather than enhancing liquidity as expected, can inadvertently reduce it. A central reason behind the paradox is the adverse selection problem encountered by passive LPs, stemming from the presence of informed arbitrageurs. Unlike passive LPs, JIT LPs have the advantage of analyzing the order flow prior to providing liquidity and block confirmation. We show that this second-mover advantage mitigates their adverse selection costs and potentially crowds out passive LPs, particularly when order flows are not highly elastic to changes in pool liquidity. These equilibrium effects may lead to an overall reduction of pool liquidity and to an increased execution risk for liquidity demanders. To alleviate the detrimental effects of JIT liquidity, we propose a two-tiered fee structure for passive and JIT LPs. We show that this structure may prevent crowding out and improve welfare. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.18164&r=mst |
| By: | Bruno Durin; Mathieu Rosenbaum; Gr\'egoire Szymanski |
| Abstract: | The goal of this paper is to disentangle the roles of volume and of participation rate in the price response of the market to a sequence of transactions. To do so, we are inspired the methodology introduced in arXiv:1402.1288, arXiv:1805.07134 where price dynamics are derived from order flow dynamics using no arbitrage assumptions. We extend this approach by taking into account a sophisticated market participant having superior abilities to analyse market dynamics. Our results lead to the recovery of two square root laws: (i) For a given participation rate, during the execution of a metaorder, the market impact evolves in a square root manner with respect to the cumulated traded volume. (ii) For a given executed volume $Q$, the market impact is proportional to $\sqrt{\gamma}$, where $\gamma$ denotes the participation rate, for $\gamma$ large enough. Smaller participation rates induce a more linear dependence of the market impact in the participation rate. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.18283&r=mst |
| By: | Lucas Dyskant; André F. Silva; Bruno Sultanum |
| Abstract: | We introduce a model to explain how an increase in intermediation costs leads to structural changes in the corporate bond market. We state three facts on corporate bond markets after the Dodd-Frank act: (1) an increase in customer liquidity provision through prearranged matches, (2) a paradoxical decrease in measured illiquidity, and (3) an increase in the illiquidity component on the yield spread. Investors take longer to finish a trade and require higher illiquidity premium even though measured illiquidity decreased. We introduce a search and matching model which explains these facts. It also suggests the possibility of multiple equilibria and financial instability when dealers face high costs to intermediate transactions. |
| Keywords: | over-the-counter markets; intermediation costs; liquidity; corporate bonds; Volcker rule; post-2008 regulation |
| JEL: | D53 G12 G18 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:97438&r=mst |
| By: | Fernando D. Chague; Bruno Giovannetti; Bernard Herskovic |
| Abstract: | Using granular data on the entire Brazilian securities lending market merged with all trades in the centralized stock exchange, we identify information leakage from short sellers. Our identification strategy explores trading execution mismatches between short sellers’ selling activity in the centralized exchange and borrowing activity in the over-the-counter securities lending market. We document that brokers learn about informed directional bets by intermediating securities lending agreements and leak that information to their clients. We find evidence that the information leakage is intentional and that brokers benefit from it. We also study leakage effects on stock prices. |
| JEL: | G12 G14 G23 G24 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31927&r=mst |
| By: | Rohan Kekre; Moritz Lenel |
| Abstract: | We study the effects of dollar swap lines using high frequency responses in asset prices around policy announcements. News about expanded dollar swap lines causes a reduction in liquidity premia, compression of deviations from covered interest parity (CIP), and depreciation of the dollar. Equity prices rise and the VIX falls, while the response of long-term government bond prices is mixed. The cross-section of high frequency responses implies that swap lines affect the dollar factor or the price of risk. Our findings are qualitatively consistent with models relating the supply of dollar liquidity to the broader economy. |
| JEL: | E44 F31 G15 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31901&r=mst |