Herding and Liquidity in Order-Book Markets. III. Leverage and the Onset of Endogenous Liquidity Crises under Weak Anchoring

RESUMO

Fundamental-value anchoring of resting liquidity is a causal stabiliser of an order-book market: while the anchor holds, even a heavily leveraged book stays quiet. Taking that anchor strength as continuous control, the authors characterise endogenous liquidity crises that appear once it is nearly removed. In a single continuous-double-auction market driven by anchored noise traders, chartists, herders, and a population of funding-constrained market makers with leveraged holders subject to margin calls, no exogenous shock is injected, so any crisis is self-generated. Weakening the anchor turns on classical leverage and stylised facts: return tail exponent falls from about 6.5 to 2.3, integrated volatility autocorrelation roughly doubles. Isolating matched-herding and levered-minus-unlevered book-depletion, the authors find crisis confined to a narrow region of weak anchor and intermediate herding. Its onset is governed by leverage and margin buffer. The leverage-margin plane shows how crises collapse order onto this buffer, leading to tightening maintenance margin as destabilising. The onset is smooth with latent sharp tipping.