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Trader Exploitation Of Order Flow Information During The Ltcm Crisis

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  • Fang Cai
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    Abstract

    Abstract By using a unique data set of audit trail transactions, I examine the trading behavior of market makers in the Treasury-bond futures market during the Long-Term Capital Management (LTCM) crisis in 1998. I find strong evidence that during the crisis market makers in the aggregate engaged in anticipatory trading against customer orders from a particular clearing firm (coded PI7) that closely match various features of LTCM's trades through Bear Stearns. I also show that a significant percentage of market makers made abnormal profits during the crisis. Their aggregate abnormal profits, however, were more than offset by abnormal losses following the recapitalization of LTCM. Copyright (c) 2009 The Southern Finance Association and the Southwestern Finance Association.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 32 (2009)
    Issue (Month): 3 ()
    Pages: 261-284

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    Handle: RePEc:bla:jfnres:v:32:y:2009:i:3:p:261-284

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