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Trading dynamics and state-dependent adjustment in stablecoin peg deviations

Author

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  • Wu, Shih-Wei
  • Yeh, Fang-Ju
  • Chu, Tai-Lin

Abstract

Stablecoins are designed to maintain a one-to-one peg with the U.S. dollar, yet their prices frequently deviate from parity and may remain misaligned even when arbitrage opportunities are present. Using daily data for major U.S. dollar–pegged stablecoins from January 2020 to September 2025, this study examines how trading dynamics and market conditions are associated with peg deviations. Trading dynamics are proxied by abnormal trading volume and directional return continuation. Peg deviations are highly persistent, with lagged deviation accounting for most of the variation. After controlling for persistence, trading variables do not exhibit a uniform effect: directional return continuation becomes relevant only in dynamic specifications, while abnormal trading volume shows no consistent association. The relationship varies across market conditions. During periods of stress, deviations increase and become more persistent, indicating state-dependent dynamics. These patterns are consistent with limits to arbitrage and funding constraints that hinder the correction of price deviations under adverse conditions.

Suggested Citation

  • Wu, Shih-Wei & Yeh, Fang-Ju & Chu, Tai-Lin, 2026. "Trading dynamics and state-dependent adjustment in stablecoin peg deviations," Journal of Behavioral and Experimental Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:beexfi:v:50:y:2026:i:c:s2214635026000523
    DOI: 10.1016/j.jbef.2026.101190
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