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on Market Microstructure |
| By: | Czech, Robert (Bank of England); Monroe, Win (Imperial College Business School) |
| Abstract: | In this paper, we empirically study the role of information in safe asset liquidity crises, using the 2022 UK LDI crisis as a laboratory. Contrary to traditional adverse selection models, which predict higher liquidity costs due to the presence of informed traders, we find that dealers initially reduce liquidity costs for informed investors, and subsequently raise costs and reduce liquidity for the broader market. We interpret this as evidence of dealers seeking to learn from informed investors and then restricting liquidity as they process this information. We also document that dealers exploit their informational advantage in anonymous interdealer markets and that similar dynamics are present in other crises. These patterns reverse when central bank interventions restore market liquidity, thereby mitigating the effects of dealers’ information chasing and their liquidity reallocation. |
| Keywords: | D82; E44; G12; G14; G15; G21 |
| JEL: | D82 E44 G12 G14 G15 G21 |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1113 |
| By: | Mark Paddrik; Stathis Tompaidis |
| Abstract: | A model and empirical tests show that the density of the intermediation network impacts dealer-provided liquidity and affects the cost of trade differentially (Working Paper no. 24-01). |
| Keywords: | credit default swaps, dealers, intermediation costs, liquidity, OTC trading networks |
| Date: | 2024–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:wpaper:24-01 |
| By: | Thomas Ruchti; Yashar Barardehi; Andrew Bird; Stephen A. Karolyi |
| Abstract: | Temporary short-selling restrictions, triggered by a sharp decline in a stock’s price, reduce market volatility and improve pricing and market liquidity (Working Paper no. 23-08). |
| Keywords: | short-selling, short selling, market stability, uptick rule, securities regulation, Rule 201, short-selling restrictions |
| Date: | 2023–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:wpaper:23-08 |
| By: | Timoth\'ee Fabre; Ioane Muni Toke |
| Abstract: | This work focuses on a self-exciting point process defined by a Hawkes-like intensity and a switching mechanism based on a hidden Markov chain. Previous works in such a setting assume constant intensities between consecutive events. We extend the model to general Hawkes excitation kernels that are piecewise constant between events. We develop an expectation-maximization algorithm for the statistical inference of the Hawkes intensities parameters as well as the state transition probabilities. The numerical convergence of the estimators is extensively tested on simulated data. Using high-frequency cryptocurrency data on a top centralized exchange, we apply the model to the detection of anomalous bursts of trades. We benchmark the goodness-of-fit of the model with the Markov-modulated Poisson process and demonstrate the relevance of the model in detecting suspicious activities. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.04027 |