Impact of arbitrage between leveraged ETF and futures on market liquidity during market crash

Battle Count: 72

The paper provides valuable insights into how arbitrage between leveraged ETFs and futures affects market liquidity during crashes, which is directly relevant to quantitative traders executing cross-market arbitrage strategies. Understanding liquidity transmission (SellDepth, Tightness, Volume) helps in designing execution algorithms and assessing market impact during volatile periods. However, the findings are simulation-based and may not directly translate to live trading without empirical validation. The paper is more relevant to market microstructure researchers and risk managers than to high-frequency trading strategies.

The agent-based simulation involves multiple interacting agent types with distinct strategies (fundamental, technical, noise), a continuous double auction mechanism, order book management, and cross-market arbitrage logic. The model is well-specified with clear equations and parameters, but implementing the full system requires careful handling of order matching, tick-size rounding, order cancellation, and the two arbitrage modes (instant and limit-order-based). The simulation runs 30 trials per scenario with 100,000 time steps, requiring moderate computational resources.

The paper provides detailed simulation parameters (n=1000, weights, tick size, fundamental prices, erroneous order period, leverage ratio, etc.) and describes the agent strategies and arbitrage logic in detail. However, no source code or simulation platform is publicly available. The model builds on prior work by Mizuta et al. [10] and Mizuta and Yagi [11], which would need to be consulted for full implementation details. The original Japanese version is available via DOI.