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on Market Microstructure |
| By: | Levon Mahseredjian |
| Abstract: | This paper develops a theoretical mesoscopic model of the limit order book driven by multivariate Hawkes processes, designed to capture temporal self-excitation and the spatial propagation of order flow across price levels. In contrast to classical zero-intelligence or Poisson based queueing models, the proposed framework introduces mathematically defined migration events between neighbouring price levels, whose intensities are themselves governed by the underlying Hawkes structure. This provides a principled stochastic mechanism for modeling interactions between order arrivals, cancellations, and liquidity movement across adjacent queues. Starting from a microscopic specification of Hawkes driven order flow, we derive a diffusion approximation which yields a reflected mesoscopic stochastic differential equation (SDE) system for queue volumes. The limiting generator is obtained through a Taylor expansion of the microscopic generator, demonstrating how temporal excitation together with spatial migration determine the drift and diffusion structure of the limit order book in the mesoscopic regime. The resulting model extends existing diffusion limits by incorporating correlated excitations and price level to price level liquidity movement within a unified Hawkes based formulation. By establishing this diffusive limit, the paper provides a mathematically consistent bridge between high frequency event based models and macroscopic stochastic descriptions of market microstructure. The work is entirely theoretical and lays a foundation for future analytical and numerical developments without relying on empirical calibration. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.18117 |
| By: | Clemens Sialm; David X. Xu |
| Abstract: | Mutual funds create liquidity for investors by issuing demandable equity shares while holding illiquid securities. We study the implications of this liquidity creation by examining frequent trading suspensions in China, which temporarily eliminate market liquidity in affected stocks. These suspensions cause significant mispricing of mutual funds due to inaccurate valuations of their illiquid holdings. We find that investors actively acquire information about suspended stocks held by mutual funds, driving flows into underpriced funds. This information is subsequently incorporated into stock prices when trading resumes. Our findings suggest that mutual fund liquidity creation stimulates information acquisition about illiquid, information-sensitive assets. |
| JEL: | G11 G12 G14 G15 G23 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34520 |
| By: | Alberto Cavallo; Paola Llamas; Franco M. Vazquez |
| Abstract: | We use high-frequency retail microdata to measure the short-run impact of the 2025 U.S. tariffs on consumer prices. By matching daily prices from major U.S. retailers to product-level tariff rates and countries of origin, we construct price indices that isolate the direct effects of tariff changes across goods and trading partners. Prices began rising immediately after the broader tariff measures announced in early March and continued to increase gradually over subsequent months, with imported goods rising roughly twice as much as domestic ones. Our estimated retail tariff pass-through is 20 percent, with a cumulative contribution of about 0.7 percentage points to the all-items Consumer Price Index by September 2025. Our results show that tariff costs were gradually but steadily transmitted to U.S. consumers, with additional spillovers to domestic goods. |
| JEL: | E31 F13 F14 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34496 |