Arbitrage with financial constraints and market power

• 成果类型: Article
• 署名作者: Fardeau, Vincent
• 署名单位: HSE University (National Research University Higher School of Economics)
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2024.105825
• 发表日期: 2024
• 关键词: Strategic arbitrage; liquidity; market structure; Margin requirements; VaR; Volcker Rule

摘要

I study how (VaR-based) financial constraints affect liquidity and welfare under different structures of the arbitrage industry. When capital is dispersed across competitive arbitrageurs, financial constraints may impair their ability to provide liquidity, lowering other investors' welfare. However, when capital is concentrated among arbitrageurs with market power, introducing constraints can make everyone better off and increase liquidity. Further, alternative constraints (fixed margins, position limits) have the same effects as VaR constraints when arbitrageurs are competitive, but not when they have market power. These results lead to new policy implications for margin and capital requirements and yield new empirical predictions.