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Market Liquidity After the Financial Crisis

Author

Listed:
  • Erik Vogt

    (Citadel LLC, Chicago, Illinois 60603)

  • Michael Fleming

    (Federal Reserve Bank of New York, New York, NY 10045)

  • Or Shachar

    (Federal Reserve Bank of New York, New York, NY 10045)

  • Tobias Adrian

    (International Monetary Fund, Washington, DC 20431)

Abstract

This article examines market liquidity in the postcrisis era in light of concerns that regulatory changes might have reduced dealers’ ability and willingness to make markets. We begin with a discussion of the broader trading environment, including an overview of regulations and their potential effects on dealer balance sheets and market making, but also considering additional drivers of market liquidity. We document a stagnation of dealer balance sheets after the financial crisis of 2007–2009, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for US Treasuries and corporate bonds, we find only limited evidence of a deterioration in market liquidity.

Suggested Citation

  • 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.
  • Handle: RePEc:anr:refeco:v:9:y:2017:p:43-83
    DOI: 10.1146/annurev-financial-110716-032325
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    More about this item

    Keywords

    corporate bonds; liquidity; market making; regulation; Treasury securities;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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