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on Market Microstructure |
| By: | Alicia Vidler; Toby Walsh |
| Abstract: | The over-the-counter (OTC) government bond markets are characterised by their bilateral trading structures, which pose unique challenges to understanding and ensuring market stability and liquidity. In this paper, we develop a bespoke ABM that simulates market-maker interactions within a stylised government bond market. The model focuses on the dynamics of liquidity and stability in the secondary trading of government bonds, particularly in concentrated markets like those found in Australia and the UK. Through this simulation, we test key hypotheses around improving market stability, focusing on the effects of agent diversity, business costs, and client base size. We demonstrate that greater agent diversity enhances market liquidity and that reducing the costs of market-making can improve overall market stability. The model offers insights into computational finance by simulating trading without price transparency, highlighting how micro-structural elements can affect macro-level market outcomes. This research contributes to the evolving field of computational finance by employing computational intelligence techniques to better understand the fundamental mechanics of government bond markets, providing actionable insights for both academics and practitioners. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.16331 |
| By: | Masaaki Fukasawa; Basile Maire; Marcus Wunsch |
| Abstract: | We present a mathematical formulation of liquidity provision in decentralized exchanges. We focus on constant function market makers of utility indifference type, which include constant product market makers with concentrated liquidity as a special case. First, we examine no-arbitrage conditions for a liquidity pool and compute an optimal arbitrage strategy when there is an external liquid market. Second, we show that liquidity provision suffers from impermanent loss unless a transaction fee is levied under the general framework with concentrated liquidity. Third, we establish the well-definedness of arbitrage-free reserve processes of a liquidity pool in continuous-time and show that there is no loss-versus-rebalancing under a nonzero fee if the external market price is continuous. We then argue that liquidity provision by multiple liquidity providers can be understood as liquidity provision by a representative liquidity provider, meaning that the analysis boils down to that for a single liquidity provider. Last, but not least, we give an answer to the fundamental question in which sense the very construction of constant function market makers with concentrated liquidity in the popular platform Uniswap v3 is optimal. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.01931 |
| By: | Cuñat, Vicente; Xu, Moqi |
| Abstract: | Investors have limited and time-varying attention. These constraints are heterogeneous across investors, which can create asymmetric information and adverse selection problems. We show how firms take these constraints into account: They release harder-to-process news in periods when investor attention is higher. We use an institutional discontinuity within the U.S. corporate filing system to measure these effects. Filings before 5:30 p.m. become available immediately, whereas filings after 5:30 p.m. only become visible the next morning and attract less attention. Firms release longer and more complex news just before the cutoff, giving investors the longest possible period to absorb the information before markets open. Firms experience faster price convergence and more liquidity after precutoff news despite their complexity, which is consistent with the additional attention that they attract. We outline a framework in which the need for investors to spread their attention across different ideas induces firms to file their more complex filings at times when investor attention is higher. Our results are consistent with an equilibrium in which investors pay more attention to complex news and in which firms with complex news time them to target investor attention. This paper was accepted by David Sraer, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.03722 . |
| Keywords: | investor attention; strategic timing; news |
| JEL: | D83 G14 |
| Date: | 2025–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:122380 |