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Title:Quoted spreads and trade imbalance dynamics in the European treasury bond market PDF Logo
Authors:Caporale, Guglielmo Maria
Girardi, Alessandro
Paesani, Paolo
Issue Date:2010
Series/Report no.:CESifo working paper: Monetary Policy and International Finance 3281
Abstract:Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) orders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider (narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, stock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities.
Subjects:liquidity
trading activity
treasury bond market
Europe
commonality
JEL:G10
G15
C32
C33
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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