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

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  • Gravelle, Toni

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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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 99-11.

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Length: 55 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:bca:bocawp:99-11

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Keywords: Financial markets;

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References

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  1. 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.
  2. 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.
  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. Gravelle, Toni, 1998. "Buying Back Government Bonds: Mechanics and Other Considerations," Working Papers 98-9, Bank of Canada.
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Cited by:
  1. Kerstin Bernoth & Guntram B. Wolff, 2008. "Fool The Markets? Creative Accounting, Fiscal Transparency And Sovereign Risk Premia," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 465-487, 09.
  2. Stefano Schiavo, 2005. "Euro bonds: in search of financial spillovers," Department of Economics Working Papers 0502, Department of Economics, University of Trento, Italia.
  3. Obert Nyawata, 2012. "Treasury Bills and/Or Central Bank Bills for Absorbing Surplus Liquidity," IMF Working Papers 12/40, International Monetary Fund.
  4. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
  5. 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.
  6. 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.
  7. 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.
  8. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2008. "Government risk premiums in the bond market: EMU and Canada," Working Paper Series 0879, European Central Bank.
  9. 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.
  10. Chris D'Souza & Charles Gaa, 2004. "The Effects of Economic News on Bond Market Liquidity," Working Papers 04-16, Bank of Canada.
  11. Erik Makela, 2014. "The Price of Euro: Evidence from Sovereign Debt Markets," Discussion Papers 90, Aboa Centre for Economics.
  12. Toni Gravelle, 2002. "The Microstructure of Multiple-Dealer Equity and Government Securities Markets: How They Differ," Working Papers 02-9, Bank of Canada.
  13. Kai Daniel Schmid & Michael Schmidt, 2012. "EMU and the Renaissance of Sovereign Credit Risk Perception," IAW Discussion Papers 87, Institut für Angewandte Wirtschaftsforschung (IAW).

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