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Liquidity of the Government of Canada Securities Market: Stylised Facts and Some Market Microstructure Comparisons to the United States Treasury Market

In: Market Liquidity: Research Findings and Selected Policy Implications

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  • Toni Gravelle

    (Bank of Canada)

Abstract

The aims of this study are to examine how liquidity in the Government of Canada securities market has evolved over the 1990s and to determine what factors influence the level of liquidity in this market, with some comparisons to the U.S. Treasury securities market. We find empirical support for the hypothesis that an increase in effective supply of the securities enhances market liquidity. Empirical evidence also indicates that interest rate volatility tends to reduce market liquidity. The study finds that dealer concentration has either remained constant or has declined slightly from 1993 to 1998; that the share of interdealer trading carried out via interdealer brokers has increased significantly; and that non-resident trading has increased over the sample period. We argue that these changes would, in theory, enhance market liquidity. The study indicates a higher degree of market transparency in the U.S. Treasury securities market than in the Government of Canada securities market. The difference in transparency has likely engendered a significant difference in the level of market liquidity across countries. (Note that, since this study has been written, the CanPX transparency system has been introduced. This has had the effect of reducing the transparency discrepancy across the markets.)

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This chapter was published in:

  • Bank for International Settlements, 1999. "Market Liquidity: Research Findings and Selected Policy Implications," CGFS Papers, Bank for International Settlements, number 11, January.
    This item is provided by Bank for International Settlements in its series CGFS Papers chapters with number 11-06.

    Handle: RePEc:bis:biscgc:11-06

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Michael J. Fleming & Eli M. Remolona, 1997. "Price formation and liquidity in the U.S. Treasury market: evidence from intraday patterns around announcements," Staff Reports 27, Federal Reserve Bank of New York.
    2. Gravelle, Toni, 1998. "Buying Back Government Bonds: Mechanics and Other Considerations," Working Papers 98-9, Bank of Canada.
    3. Robert F. Engle & Joe Lange, 1997. "Measuring, Forecasting and Explaining Time Varying Liquidity in the Stock Market," NBER Working Papers 6129, National Bureau of Economic Research, Inc.
    4. Mark D. Flood Ronald Huisman Kees G. Koedijk and Richard Lyons., 1998. "Search Costs: The Neglected Spread Component," Research Program in Finance Working Papers RPF-285, University of California at Berkeley.
    5. John Board & Charles Sutcliffe, 1996. "Trade Transparency and the London Stock Exchange," European Financial Management, European Financial Management Association, vol. 2(3), pages 355-365.
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    Cited by:
    1. Malcolm Edey & Luci Ellis, 2002. "Implications of declining government debt for financial markets and monetary operations in Australia," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 25-42 Bank for International Settlements.
    2. Kai Daniel Schmid & Michael Schmidt, 2012. "EMU and the Renaissance of Sovereign Credit Risk Perception," IAW Discussion Papers 87, Institut für Angewandte Wirtschaftsforschung (IAW).
    3. Erik Makela, 2014. "The Price of Euro: Evidence from Sovereign Debt Markets," Discussion Papers 90, Aboa Centre for Economics.
    4. Toni Gravelle, 2002. "The Microstructure of Multiple-Dealer Equity and Government Securities Markets: How They Differ," Working Papers 02-9, Bank of Canada.
    5. Bernoth, Kerstin & Hagen, Jürgen von & Schuknecht, Ludger, 2006. "Sovereign Risk Premiums in the European Government Bond Market," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 151, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    6. Kerstin Bernoth & Guntram B. Wolff, 2006. "Fool the Markets? Creative Accounting, Fiscal Transparency and Sovereign Risk Premia," CESifo Working Paper Series 1732, CESifo Group Munich.
    7. Toni Gravelle, 1999. "The Market Microstructure of Dealership Equity and Government Securities Markets: How They Differ," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-16 Bank for International Settlements.
    8. Obert Nyawata, 2012. "Treasury Bills and/Or Central Bank Bills for Absorbing Surplus Liquidity," IMF Working Papers 12/40, International Monetary Fund.
    9. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2007. "Government Risk Premiums in the Bond Market: EMU and Canada," CEPR Discussion Papers 6579, C.E.P.R. Discussion Papers.
    10. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Working Papers 04-16, Bank of Canada.
    11. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
    12. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Sciences Po publications 2, Sciences Po.
    13. Schmid, Kai Daniel & Schmidt, Michael, 2012. "EMU, the changing role of public debt and the revival of sovereign credit risk perception," University of Tuebingen Working Papers in Economics and Finance 48, University of Tuebingen, Faculty of Economics and Social Sciences.

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