IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v65y2010i1p295-331.html
   My bibliography  Save this article

Time Variation in Liquidity: The Role of Market‐Maker Inventories and Revenues

Author

Listed:
  • CAROLE COMERTON‐FORDE
  • TERRENCE HENDERSHOTT
  • CHARLES M. JONES
  • PAMELA C. MOULTON
  • MARK S. SEASHOLES

Abstract

We show that market‐maker balance sheet and income statement variables explain time variation in liquidity, suggesting liquidity‐supplier financing constraints matter. Using 11 years of NYSE specialist inventory positions and trading revenues, we find that aggregate market‐level and specialist firm‐level spreads widen when specialists have large positions or lose money. The effects are nonlinear and most prominent when inventories are big or trading results have been particularly poor. These sensitivities are smaller after specialist firm mergers, consistent with deep pockets easing financing constraints. Finally, compared to low volatility stocks, the liquidity of high volatility stocks is more sensitive to inventories and losses.

Suggested Citation

  • Carole Comerton‐Forde & Terrence Hendershott & Charles M. Jones & Pamela C. Moulton & Mark S. Seasholes, 2010. "Time Variation in Liquidity: The Role of Market‐Maker Inventories and Revenues," Journal of Finance, American Finance Association, vol. 65(1), pages 295-331, February.
    • Handle: RePEc:bla:jfinan:v:65:y:2010:i:1:p:295-331
    DOI: 10.1111/j.1540-6261.2009.01530.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1540-6261.2009.01530.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6261.2009.01530.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:65:y:2010:i:1:p:295-331. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.