Published papers
Arbitrage with Financial Constraints and Market Power, Journal of Economic Theory, vol. 217, April 2024
When arbitrageurs are competitive, VaR-based constraints may impair their ability to provide liquidity, lowering other investors' welfare. But when arbitrageurs have market power, these constraints can make everyone better off and increase liquidity. Alternative constraints (fixed margins, position limits) have the same effects as VaR constraints in competitive but not in oligopolistic markets.
(previous title: Market Structure and the Limits of Arbitrage)
Sequential Entry in Illiquid Markets, Supplementary Appendix , Journal of Financial Markets, vol. 64, Jun 2023
The anticipation of entry of a new intermediary by other market participants can limit entry. Nevertheless, the mere threat of entry can reduce spreads and overturns the effects of market power on prices and liquidity.
(Previous title: Which Markets Attract Arbitrageurs?)
Under revision
Strategic Trading around Anticipated Supply/Demand Shocks , Revise and Resubmit, Journal of Financial Economics
When strategic traders trade with a competitive fringe, anticipated shocks create V-shaped price patterns around the realization of the shocks. Inventory dynamics depend on whether strategic traders use market or limit orders.
Working papers
Asymmetric Thin Markets, Supplementary Appendix
Using a new equilibrium representation, I characterize dynamic, nonstationary risk-sharing in a complete information setting among strategic traders submitting demand schedules and heterogeneous in risk aversion. In equilibrium, more risk-averse (smaller) traders diversify more aggressively due to endogenously lower price impact. This creates term structure effects, where smaller traders dynamically hedge the persistent order flow of larger, slower traders and become the marginal pricers at short horizons. When pre-announced security issuances (e.g., bond reopenings) or predictable trades take place, the model generates the gradual, V-shaped price response observed around these events and delivers new predictions about institutional trading.
Predatory Trading in a Rational Market
When rational investors anticipate that predatory traders will push a financially-constrained rival (prey) into distress, prices drop in anticipation of the prey's firesales and a trader's price impact becomes an increasing function of her financial strength. This reduces the cost of predation for predators.
(Previous title: Strategic Liquidity Provision and Predatory Trading)
In Progess
Optimal Latency, with A. Boulatov and S. Carré
Inactive Working Paper