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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/46557
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| Title: | | Quoted spreads and trade imbalance dynamics in the European treasury bond market  |
| 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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