Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/303177 
Year of Publication: 
2024
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2024-29
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Many financial markets are populated by dealers, who commit to participate regularly in the market, and non-dealers, who do not commit. This market structure introduces a trade-off between competition and volatility, which we study using data on Canadian treasury auctions. We document a consistent exit trend by dealers and increasing, but irregular, participation by non-dealer hedge funds. Using a structural model, we evaluate the impact of dealer exit on hedge fund participation and its consequences for market competition and volatility. We find that hedge fund entry was partially driven by dealer exit, and that gains thanks to stronger competition associated with hedge fund entry are offset by losses due to the irregular market participation of hedge funds. We propose an issuance policy that stabilizes hedge fund participation at a sufficiently high average level and achieves revenue gains.
Subjects: 
Debt management
Financial markets
Financial institutions
Market structure and pricing
JEL: 
D44
D47
G12
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.