nep-mst New Economics Papers
on Market Microstructure
Issue of 2017‒11‒26
two papers chosen by
Thanos Verousis

  1. An index of Treasury Market liquidity: 1991-2017 By Adrian, Tobias; Fleming, Michael J.; Vogt, Erik
  2. Uncertainty about Informed Trading in Dealer Markets - An Experiment" By Yaroslav Rosokha; Chi Sheh

  1. By: Adrian, Tobias (International Monetary Fund); Fleming, Michael J. (Federal Reserve Bank of New York); Vogt, Erik (‎Citadel LLC)
    Abstract: Order book and transactions data from the U.S. Treasury securities market are used to calculate daily measures of bid-ask spreads, depth, and price impact for a twenty-six-year sample period (1991-2017). From these measures, a daily index of Treasury market liquidity is constructed, reflecting the fact that the varying measures capture different aspects of market liquidity. The liquidity index is then correlated with various metrics of funding liquidity, volatility, and macroeconomic conditions. The liquidity index points to poor liquidity during the 2007-09 financial crisis and around the near failure of Long-Term Capital Management, but suggests that current liquidity is good by historical standards. Market liquidity tends to be strongly correlated with funding liquidity at times of market stress, but otherwise exhibits little correlation.
    Keywords: Treasury securities; market liquidity; funding liquidity; volatility; index
    JEL: G12
    Date: 2017–11–01
  2. By: Yaroslav Rosokha; Chi Sheh
    Abstract: We use an economic experiment to examine the impact of an uncertain level of asymmetric information on the behavior of security dealers. Speci cally, we distinguish three types of uncertainty with respect to informed trading { risk, compound risk, and ambiguity { for both a monopoly and a duopoly market setting. We nd no di erence in dealers' bidding behavior between compound risk and ambiguity. At the same time, we nd that bidding behavior is more aggressive under risk than under compound risk or ambiguity. In addition, we nd that stochastic models of choice does well in explaining the observed di erences in market outcomes for both individual (monopoly) and strategic (duopoly) settings..
    Keywords: Experiments, Uncertainty, Dealer Markets, Stochastic Choice
    Date: 2017–07

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