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on Market Microstructure |
| By: | Boulis Maher Ibrahim (HWU - Heriot-Watt University [Edinburgh]); Iordanis Angelos Kalaitzoglou (Audencia Business School) |
| Abstract: | This study proposes "reflexive crowdedness" as a mechanism through which order flow can become toxic at ultra-high frequencies (UHFs). Crowdedness, a coordination problem arising from the inability of traders to accurately gauge competition, leads to significant unbalanced mispricing in the form of liquidity costs. This mispricing is amplified by (reflexive) feedforward loops between liquidity and price components and can accumulate rapidly when high-speed traders engage. We develop an empirical framework to examine this mechanism in UHF trading. Results on trades of Dow 30 stocks show that reflexive crowdedness triggers speculative algorithmic trading and drives order flow toxicity and market instability at high frequencies. We formulate a UHF measure of reflexive crowdedness and find it predicts various UHF phenomena, including flash crashes and spikes, more reliably than price volatility and the Volume Synchronised Probability of Informed Trading (VPIN). This makes it highly relevant to investors, market operators, and regulators. |
| Keywords: | High frequency trading (HFT), Overreaction, Arbitrage capacity, Microstructure, Crowdedness, Mispricing, Crashes |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05141161 |
| By: | Haotian Chen; Bruce Sacerdote |
| Abstract: | Do elected officials exploit informational advantages for personal financial gain? This question has attracted heightened attention amid increased scrutiny of congressional stock trading, particularly following the COVID-19 pandemic. Prior research finds little evidence that legislators outperform the market, but existing studies rely on limited time periods and offer limited insight into the mechanisms underlying trade timing. We revisit this question by constructing a novel dataset covering the stock trading activity of all U.S. members of Congress and their immediate families from 2012 to 2023. We find that, on average, legislators’ portfolios underperform or, at best, match market benchmarks after the STOCK Act. What explains this mediocre performance? We show that legislators’ positions track financial professionals’ recommendations, and that their timing largely reflects prevailing market sentiment, estimated from retail investors’ social media posts, rather than anticipating future price changes. Together, these results suggest that legislators’ observable trading behavior is more consistent with public-signal-following than with systematically profitable use of private information. |
| JEL: | G14 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35041 |
| By: | Daniel Pastorek (Faculty of Business and Economics, Mendel University in Brno, Czech Republic); Peter Albrecht (Faculty of Business and Economics, Mendel University in Brno, Czech Republic) |
| Abstract: | We study how post-trade settlement frictions introduced by spot ETFs reshape cryptocurrency market dynamics. Unlike crypto markets with near-instant delivery, crypto ETF trading is governed by an equity-style clearing and settlement clock, effectively importing a second timing regime into cryptocurrency markets. Using daily ETF failures-to-deliver (FTDs) data, securities-lending conditions, and close-aligned spot prices from ETF inception until 2025, we show that FTDs act as an intertemporal liquidity buffer. Local projections indicate that unexpected increases in FTD intensity do not raise contemporaneous spot volatility on the trade date. Instead, volatility materializes around the regulatory settlement date and spills over into the next session to some extent. In a competing-shocks framework, this response centered around the settlement date remains distinct from standard volatility shocks, which load immediately and mean-revert. Panel regressions further show that FTDs arise systematically when lending constraints bind. Finally, higher FTDs coincide with larger ETF spot tracking errors, consistent with temporary impairments in arbitrage. Overall, spot crypto ETFs import traditional settlement frictions into markets, where these frictions did not occur previously. It reallocates volatility over time and intermittently weakens price parity. |
| Keywords: | Bitcoin, Ethereum, ETFs, Volatility, Market dynamics, FTDs, Settlement frictions |
| JEL: | G11 G12 G14 G23 C58 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:men:wpaper:109_2026 |