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on Market Microstructure |
| By: | Michael J. Fleming; Weiling Liu; Giang Nguyen |
| Abstract: | Using thirty-three years of intraday Treasury data, we provide the first high-frequency evidence on auction-day price pressure: yields rise in the hours before auction and reverse afterward. This pressure strengthens when dealers face tighter risk-bearing constraints and weakens when investor demand is stronger or more elastic. More importantly, net order flow dominates in explaining the pressure, providing the first direct evidence that trading transmits dealer constraints into prices. Despite concerns about dealer capacity amid rapid federal debt growth, price pressure has not increased in recent years, partly because non-dealer participants now absorb more auction supply and ease dealers’ intermediation burden. |
| Keywords: | Treasury auctions; dealer intermediation; order flow; Price pressure; Supply effects; risk bearing capacity; returns; demand elasticity; liquidity; frictions |
| JEL: | G12 G14 E43 H63 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102915 |
| By: | Chengqi Zang; Zhenghui Wang; Weitong Zhang |
| Abstract: | Automated Market Makers (AMMs) are a central component of decentralized exchanges, yet their equilibrium foundations and microeconomic mechanisms remain incompletely understood. This paper develops a dynamic equilibrium framework for Constant Function Market Makers (CFMMs) that formalizes the strategic interaction between arbitrageurs and liquidity providers (LPs) over time. We make three main contributions. First, we derive and empirically validate an intrinsic buy-sell asymmetry in CFMM price impact. Even in the absence of directional price movements, the geometric structure of constant product AMMs implies systematically different execution costs for buying and selling, a prediction that we confirm using on-chain transaction data. Second, we characterize the optimization problems of arbitrageurs and LPs in closed form, incorporating slippage and fees. In a baseline environment with only informed arbitrageurs, we show that providing liquidity is strictly dominated for LPs: arbitrage-driven price corrections generate negative jump returns that cannot be offset by fees, yielding a degenerate equilibrium with minimal liquidity provision. Third, motivated by empirical evidence, we extend the model to include agent heterogeneity, endogenous gas fees, and time varying volatility. In this extended environment, noise trading, arbitrage races, and execution costs jointly determine LP returns, giving rise to an interior equilibrium in which optimal liquidity provision is non-monotonic in volatility and exhibits a hump-shaped relationship. Overall, this paper builds a dynamic equilibrium model calibrated on extensive data that characterize the complex interaction between informed arbitrageurs, noise traders, and liquidity providers. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.08603 |
| By: | Bernhard K Meister |
| Abstract: | Financial markets convert the incremental arrival of information into asset price changes. In a sandpile model grains of sand represent bits of data, and the size of an avalanche, governed by a scaling law, is linked to price volatility. While this model of self-organized criticality reproduces stylized facts, it also identifies a structural tension between the non-arbitrage condition and price adjustments consistent with a constant Sharpe ratio. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.00361 |
| By: | Thomas Dulak; Guntram Wolff |
| Abstract: | Since the first green bond was issued in 2007, the market has expanded significantly and now accounts for around 3% of the global bond universe. Westudy the liquidity of green bonds. In particular, we are the first to investigategreen bonds’ daily trading volumes and frequency with a unique dataset fromEuroclear. Studying these dimensions of liquidity is particularly important in relatively small markets. Our dataset, covering the period 2020 to 2025, allows us todirectly compare green bonds with conventional bonds. We find that green bondsdo not suffer from a systematic liquidity disadvantage relative to conventionalbonds. On the contrary, they are traded in higher aggregate volumes, drivenby more frequent trading rather than by larger transaction sizes. These differences persist during periods of heightened market-wide stress. Within the greenbond universe, third-party certification is associated with higher trading volumesthrough more intensive trading when bonds are active, while green bonds funding more common project types are traded more regularly than bonds financingmore niche projects |
| Keywords: | Green bonds; Bond liquidity; Trading activity; Market stress; Certification |
| JEL: | G11 G23 Q56 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/404323 |