Work

The effect of inventory on asset prices

Year: 2025

Type: article

Abstract: In this paper, we extend the existing asset pricing model of the market maker mechanism to consider the market maker clearing the market price through inventory. Using the stability and branching theory of discrete dynamical systems, we discuss the existence of the steady state and the influence of the change with the adjustment rate of the market maker’s inventory on the stability region of the model. Through numerical simulation, we obtain the result that the faster or slower the adjustment of the market maker’s inventory, the more unstable the market price is. We establish a linear regression model and analyze it by empirical tests using the stock data of Lanqi Technology, which shows that there is a positive correlation between the market maker’s inventory and price; the increase of the market maker’s inventory will cause the price to increase. By analyzing the theoretical model data through the TVP-VAR model, it can also be obtained that there is a positive correlation between the price and the market maker’s inventory.

Source: Results in Applied Mathematics

DOI: 10.1016/j.rinam.2025.100650

Authors: Jiaqi Hou, Jing Wang, Zhi Yang

Institution: Yili Normal University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $1,770

Funders: Xinjiang Uygur Autonomous Region Department of Education, Yili Normal University