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Changes in the Returns to Market Making

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Abstract

Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.

Suggested Citation

  • Tobias Adrian & Michael J. Fleming & Or Shachar & Daniel Stackman & Erik Vogt, 2015. "Changes in the Returns to Market Making," Liberty Street Economics 20151007, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87069
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    Cited by:

    1. Erik Vogt & Michael Fleming & Or Shachar & Tobias Adrian, 2017. "Market Liquidity After the Financial Crisis," Annual Review of Financial Economics, Annual Reviews, vol. 9(1), pages 43-83, November.

    More about this item

    Keywords

    market making; security brokers and dealers; returns;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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