Market-making costs in Treasury bills: A benchmark for the cost of liquidity
AbstractWe focus on market-making costs by examining the daily bid-ask spreads for off-the-run, one-month Treasury bills around two liquidity-changing events. Event one, Salomon Brothers' supply shock, results in a roughly 2.5-basis-point increase in the spread because of an increase in ask prices; and event two, the Long-Term Capital Management demand shock, results in a doubling of the spread because of a decrease in bid prices. Our results provide a benchmark for researchers examining bid-ask spreads of securities that include a liquidity premium, a risk premium, and an asymmetric information premium.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 34 (2010)
Issue (Month): 9 (September)
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Web page: http://www.elsevier.com/locate/jbf
Liquidity Bid-ask spread Market-making costs;
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