Market Liquidity Research Articles

Short-Term Electricity Futures Investment Strategies for Power Producers Based on Multi-Agent Deep Reinforcement Learning

The global development and enhancement of electricity financial markets aim to mitigate price risk in the electricity spot market. Power producers utilize financial derivatives for both hedging and speculation, necessitating careful selection of portfolio strategies. Current research on investment strategies for power financial derivatives primarily emphasizes risk management, resulting in a lack of a comprehensive investment framework. This study analyzes six short-term electricity futures contracts: base day, base week, base weekend, peak day, peak week, and peak weekend. A multi-agent deep reinforcement learning algorithm, Dual-Q MADDPG, is employed to learn from interactions with both the spot and futures market environments, considering the hedging and speculative behaviors of power producers. Upon completion of model training, the algorithm enables power producers to derive optimal portfolio strategies. Numerical experiments conducted in the Nordic electricity spot and futures markets indicate that the proposed Dual-Q MADDPG algorithm effectively reduces price risk in the spot market while generating substantial speculative returns. This study contributes to lowering barriers for power generators in the power finance market, thereby facilitating the widespread adoption of financial instruments, which enhances market liquidity and stability.

A Study on the Impact of Indian Taxation on Virtual Digital Assets in India

The study explores the implications of India's taxation policies on Virtual Digital Assets (VDAs), including crypto currencies and non-fungible tokens (NFTs). With the introduction of the Finance Act of 2022, which imposed a 30% tax on VDA profits and a 1% Tax Deducted at Source (TDS) on transactions, the digital asset landscape in India has undergone significant shifts. This research examines the economic and behavioural impact of these regulations on individual investors, start-ups, and the broader VDA ecosystem. The findings suggest that the flat tax rate and TDS have led to reduced market liquidity and deterred small-scale traders, highlighting challenges in compliance and record-keeping. However, these measures also formalize the VDA market, potentially attracting institutional investors by providing regulatory clarity. The study identifies gaps in the current policies and offers recommendations to balance regulation with market growth, ensuring a sustainable future for India's VDA sector.

From Algorithms to Market Dynamics: A Literature Review on High-Frequency Trading

Abstract: High-frequency trading (HFT) uses advanced technologies and sophisticated algorithms to make transactions at unprecedented speeds, which could significantly impact modern financial markets. This literature review examines the technological foundations, primary trading strategies, market impacts, regulatory environment, risk management practices, and future research directions in HFT. The findings reveal that HFT could increase market liquidity and price discovery but also increase volatility during periods of high market stress. Regulatory frameworks such as the SECs Market Access Rule and MiFID II aim to monitor and control HFT activities, at the same time effective risk management practices are crucial for maintaining market stability. Future research should focus on emerging technologies such as AI, ML, quantum computing, and blockchain, along with a better understanding of market structure and global regulatory coordination. This review provides valuable insights for market participants, regulators and researchers, contributing to a balanced perspective on HFTs role in contemporary financial markets.

Price-mediated contagion with endogenous market liquidity

AbstractPrice-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market liquidity without regards to the level of stress applied to the system. This paper introduces a framework to understand price-mediated contagion in a system where the capacity of the market to absorb liquidated assets is determined endogenously. In doing so, we construct a joint clearing system in interbank payments, asset prices, and market liquidity. We establish mild assumptions which guarantee the existence of greatest and least clearing solutions. We conclude with detailed numerical case studies which demonstrate the, potentially severe, repercussions of endogenizing the market liquidity on system risk.

Performance of Closed-Ended Mutual Funds: A Test of Market Efficiency

Background: Mutual funds, known for aggregating funds from a diverse investor base, play a crucial role in managing small funds smartly. This study evaluates the performance of selected closed-ended mutual funds and examines market efficiency in Nepal. Methods: Using a descriptive and casual-comparative research design, the study spans forty-eight months from January 15, 2018, to January 14, 2022. Monthly data from five mutual funds are analyzed, with metrics such as the Treynor ratio, Sharpe ratio, and Jensen alpha. The study variables include market returns, assets, expense ratios, fund age, liquidity, and mutual fund returns. Various statistical tests, including correlation analysis, Integrated Ranking Analysis, ANOVA test, t-test, and P-value tests, are conducted to determine the significance and statistical relevance of the study variables. Results: The findings reveal that mutual fund performance is influenced by factors such as return, age, liquidity, asset, and expense ratio. Expense ratio and age emerge as the most impactful factors, demonstrating a statistically significant relationship with market return (p < 0.05). All selected mutual funds outperform the market return (NEPSE), with Sanima Equity Fund securing the top rank in all three measures. Conclusion: The Sharpe ratio, Treynor ratio, and Jensen alpha measures for mutual funds surpass those of the market, indicating market inefficiency in its semi-strong form. Novelty: This study uniquely evaluates closed-ended mutual funds using comprehensive performance metrics, demonstrating their significant outperformance compared to market benchmarks. It underscores their effectiveness in actively managing passive funds and challenges the efficient market hypothesis.

Capital market opening, digital transformation and corporate risk-taking ——empirical evidence from Shanghai Shenzhen-Hong Kong stock connect

"Shanghai-Hong Kong stock connect" and "Shenzhen-Hong Kong stock connect", as important policies for the two-way opening of China's capital market, have positive effects on expanding investment channels for investors and improving market liquidity. Taking Shanghai Shenzhen-Hong Kong stock connect as a quasi natural experiment, this paper examines the impact of capital market opening on corporate risk-taking and its mechanism by using a multi period DID model. The empirical results show that the Shanghai Shenzhen-Hong Kong stock connect can reduce corporate risk-taking, and digital transformation plays a positive moderating role between the two; the mechanism analysis finds that the Shanghai Shenzhen-Hong Kong stock connect reduces corporate risk-taking by increasing analysts' attention, and this indirect impact process is also positively moderated by digital transformation. The heterogeneity test finds that the impact of Shanghai Shenzhen-Hong Kong stock connect on corporate risk-taking is mainly reflected in the companies with higher product market competition and faster regional marketization process. The above conclusions provide empirical evidence for the effectiveness of the capital market opening policy at micro level, and provide enlightenment for the role of digital transformation in promoting healthy development of the capital market.

Insider trading at a random deadline with correlation between dynamic asset and stochastic liquidity

We propose a generalized continuous-time insider trading model, building upon the frameworks of Caldentey and Stacchetti (2010) and Collin-Dufresne and Fos (2016), with a correlation between the value of a risky asset following an Ornstein-Uhlenbeck-type process and the noise trading volume with volatility characterized by a general stochastic process. And a closed form of the market equilibrium is established, consisting of the insider's trading strategy and the market makers' pricing rule. It shows that at the equilibrium: (i) all of the insider's private information is released at the end of the transaction; (ii) market depth and market liquidity evolve as semi-martingales, respectively; and (iii) the equilibrium price is driven by a bridge process that solves an Ornstein-Uhlenbeck-type SDE. Numerical simulations show that as the correlation coefficient increases, the equilibrium price becomes more informative, leading to a decrease in both the trading intensity and the expected payoff for the insider.

The impact of stock index futures margin levels on market quality

We examine the impact of margin levels on market quality in the China Shanghai–Shenzhen 300 (CSI 300) Stock Index Futures market. Utilizing microstructure theory and the OPOK model, we specifically focus on volatility, liquidity, and effectiveness. Our findings reveal that lowering the margin level for stock index futures reduces capital constraints for both informational and non-informational traders. Furthermore, we show that a reduction in margin levels enhances market liquidity and effectiveness. Improvements in liquidity and effectiveness subsequently reduce market volatility, indicating that a decrease in margin levels does not necessarily increase market risk. Based on these results, we recommend setting margins for stock index futures with comprehensive consideration of their combined effects on volatility, liquidity, and effectiveness.

Impact of Equity Liquidity on Corporate Value—— Based on The Empirical Analysis of China's A-Share Listed Companies

Since the establishment of the Shanghai and Shenzhen Stock Exchange, China's stock market has experienced a development process from scratch, from small to large, and from weak to strong. During this period, the liquidity of China's stock market has increased significantly. The stock market can affect the real economy by changing the motivation and influencing the behavior of enterprises, which is crucial to economic development. Many scholars at home and abroad have studied the impact of stock liquidity on enterprise value from different perspectives. This paper finds that the stock liquidity has a significant positive impact on the value of enterprises. The higher the level of stock liquidity, the higher the enterprise value, and the company's equity structure can play a role as an intermediary variable in the process of stock liquidity affecting the enterprise value.

Effect of media freedom on liquidity and information asymmetry: evidence from non-U.S. stocks in the NYSE

ABSTRACT While previous studies have mainly explored the impact of media freedom on macroeconomic variables, there is a relative scarcity of research on how media freedom affects stock markets. This paper examines the relationship between media freedom and the liquidity and information asymmetry of non-U.S. stocks listed on the New York Stock Exchange by demonstrating how these factors affect the liquidity dynamics of stocks from countries with varying degrees of media freedom. Ultimately, this study reveals that non-U.S. stocks from countries with limited press freedom experience poorer market liquidity. These conclusions hold even when considering a broader concept, voice and accountability, which includes media freedom, as well as different measures of liquidity and asymmetry, which reaffirms the reliability of the results. Our research illustrates the vital significance of media freedom in enhancing the liquidity of individual company stocks and mitigating market information asymmetry, suggesting that a nation’s press freedom can profoundly influence its stock market performance.

Dampak Rasio Kecukupan Modal dan Risiko terhadap Profitabilitas pada Bank Konvensional di Indonesia

Purpose: To determine the effect of capital adequacy ratio, market risk, credit risk, liquidity risk, operational risk, bank size, and other variables on banking profitability in Indonesia. Methodology: Panel data regression analysis; purposive sampling; capital adequacy ratio, market risk, credit risk, liquidity risk, operational risk, bank size as instruments; 39 banks listed on Indonesia Stock Exchange; return on assets as dependent variable. Results: Capital adequacy ratio and bank size have a positive and significant influence on profitability. Credit risk and operational risk have a significant negative effect. Market risk and liquidity risk have no significant effect. Limitations: The study is limited to data from banks listed on the Indonesia Stock Exchange between 2018-2024, so it may not reflect conditions outside this period or region. Contribution: This research is useful in the fields of banking management, corporate finance, and investment strategy.

The Mediating Effect Of Market Liquidity On The Relationship Between Financial Liberalization And Stock Market Returns Among East Africa Community Member Countries

The motivation for this study stems from the critical role of financial markets in economic development and the need to understand the factors influencing stock market performance in the East African Community (EAC) member countries. Financial liberalization, market liquidity, and macroeconomic stability are pivotal in shaping stock market returns. However, empirical studies examining these relationships within the EAC context are limited, prompting this comprehensive analysis. The general objective of this study was to investigate the effect of financial liberalization, market liquidity, and macroeconomic factors on stock market returns among EAC member countries. The study was anchored on the theory of financial liberalization, neoclassical theory, efficient market hypothesis, behavioral finance theory, and the general theory of employment, interest, and money. Data were collected from secondary sources, including financial reports, stock exchange databases, and relevant economic databases, covering the period from 2002 to 2021.The study employed fixed-effects regression models, chosen based on the Hausman specification test, to control for unobserved heterogeneity across countries. Baron and Kenny’s approach was used to test for mediation and moderation effects. The analysis involved examining the direct and, mediating relationships between the key variables. The findings revealed that financial liberalization significantly and positively affects stock market returns. Conversely, market liquidity was found to mediate this relationship, enhancing the positive effects of financial liberalization. The study concludes that financial liberalization is a crucial determinant of stock market performance in the EAC region. Market liquidity plays a significant role in amplifying the benefits of financial liberalization. For policymakers, the study recommends policymakers in EAC should focus on developing infrastructure that supports efficient trading systems. This recommendation is based on the finding that higher market liquidity significantly boosts the positive effects of foreign assets and liabilities on stock market returns

The Impact of Monetary Policy on the Liquidity of Bond Market——Based on Chinese Local Government Bond Market

The bond market serves dual roles in fiscal and financial spheres, playing a crucial role in coordinating monetary policy. This paper investigates the impact of quantitative and price-based monetary policies on the liquidity level of China’s bond market. A comprehensive index measuring the liquidity of the local bond market is constructed using a combination weighting method that integrates the entropy method and the coefficient of variation. Employing the time-varying stochastic volatility structure vector autoregression (TVP-SV-SVAR) model on data spanning from 2013 to 2021, the study empirically compares the impulse response of local bond market liquidity to monetary policy shocks. Findings reveal that both types of monetary policy operations exhibit asymmetric, nonlinear, and time-varying impacts on bond market liquidity. Quantitative monetary instruments induce deeper impulse responses, with longer-lasting effects. These conclusions offer insights for monetary policy reforms and bond market development in China.

Vulnerable options with regime switching and stochastic liquidity

Investigating default risk in pricing options holds significant practical importance, as nearly all market participants and institutions face credit risk. Additionally, economic cycles and asset liquidity are crucial factors that should be incorporated. This paper considers these factors and derives an analytical pricing formula. Specifically, we model the economic cycles through switching volatility driven by a continuous-time Markov chain, while we adopt a discounting factor based on market liquidity levels to model the asset liquidity. We establish a risk-neutral measure after embracing a regime-switching Esscher transform, and formulate a price representation to value vulnerable options analytically despite the complexity of the developed model. We conduct several numerical experiments to validate the model’s efficacy and flexibility.

ANALYZING THE DETERMINANTS OF BOND MARKET DEVELOPMENT IN NIGERIA

<span>This study examines the key factors influencing the development of Nigeria’s bond market using time series data from 1981 to 2022. While employing quantitative methods, the study identifies a strong long-term relationship between key economic variables and bond market development. Major findings highlight the critical roles of inflation, fiscal deficit, foreign direct investment, and per capita income in shaping market growth. The study provides practical policy recommendations, including measures to boost market liquidity, improve transparency, and promote public-private partnerships for sustainable bond market development. These findings contribute significantly to understanding the dynamics of emerging bond markets and their potential for economic development in Nigeria.</span>

The role of blockchain technology and smart contracts in enhancing the transparency of fragmented investments in overseas real estate

As the mobility of global capital is getting higher, more and more investors tend to invest in overseas real estate. However, the conventional model of investing in real estate possesses several disadvantages including high entry hurdles, low levels of market liquidity, and low transparency, particularly for retail investors. This article will seek to establish how blockchain technology as applied in smart contracts can help in the clarification of unclear fragmented investments in overseas property. First of all, this paper begins with the definition and examples of applying conventional and advanced blockchain technology and then describes the work of smart contracts and the comparison between regular contracts and smart contracts. The paper also evaluates the nature of fragmented investment in overseas property and its associated risks before suggesting the use of blockchain and smart contracts for a new institutional structure of the investment platform. This study demonstrates how the technologies can advance data sec, promote trust in transactions, and how investment can be automated. It can be concluded that blockchain technology, and smart contracts, can enhance Overseas Real Estate Investment by increasing transparency and decreasing the investment threshold as well as the instances of fraud. This study also presents an analysis of the potential difficulties that may be encountered in real-world applications and a recommendation of what may be done in subsequent studies. On one hand, this research offers a new perspective to the theoretical world, on the other hand, it offers practical problems and solutions to the practitioners who are a part of overseas real estate markets and businesses by steadily helping the overseas real estate markets to move in the fairer and more transparent direction.

Time Series Analysis of the Connection between Exchange Rate of EUR/USD, Bond Yields, and Trade Growth

In the context of the growing importance of global trade, the US dollar plays a crucial role as the currency for international transactions. The exchange rate of the dollar and the monetary policies of other countries influence each other. This study delves into the connection among the exchange rate of Euro/United States dollar (EUR/USD), the 10-year government bond rates with the international trade growth rates of 20 European countries from January 1991 to December 2016. By employing descriptive statistics, correlation analysis, regression modeling, and time series analysis, this research aims to uncover the underlying dependencies and predictive insights among these financial variables. The results indicate that the EUR/USD exchange rate has an insignificant impact on bond yields (R = 0.003), suggesting that other factors such as monetary policy, inflation expectations, and market liquidity play more significant roles. However, a weaker currency is linked to lower growth rates is shown by a strong negative correlation for the exchange rate and trade growth rates (R = 0.210). The multivariate regression model shows that bond yields and trade growth rates together explain 44.5% of the exchange rate variations, highlighting the interconnections among these economic variables. These findings highlight the necessity for policymakers to take these interconnected factors into account when developing economic and monetary policies to ensure stable and sustainable economic growth.

Residents’ willingness to pay to avoid crime

How much is a resident willing to pay to avoid a crime in the neighborhood? House price changes following a crime do not fully reflect the willingness to pay to avoid crime. Besides prices the market’s liquidity needs to be taken into account in this context. We detect market freezes following shootings, assaults, robberies, and burglaries. We propose a model, supported by empirical evidence, that combines the price and quantity dimensions into a single measure: economic welfare. The willingness to pay depends on the type of crime and averages between 7% and 18% of house valuations. These predictions are manifolds of the effect on prices estimated in this paper (0%–10%) and documented in the literature. Overall, our findings highlight the importance of considering market liquidity when examining the impact of crime on the real estate market.

Macroeconomic factors and venture capital market liquidity: evidence from Europe*

Macroeconomic factors and venture capital market liquidity: evidence from Europe*

Impact of arbitrage trading between an ETF and its underlying assets on market liquidity of their markets using an agent-based simulation

Impact of arbitrage trading between an ETF and its underlying assets on market liquidity of their markets using an agent-based simulation