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
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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- Flood, Mark D. & Huisman, Ronald & Koedijk, Kees G. & Lyons, Richard K., 2012.
"Search Costs: The Neglected Spread Component,"
Research Program in Finance, Working Paper Series
qt5q05g9pt, Research Program in Finance, Institute for Business and Economic Research, UC Berkeley.
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"Trading Volume and Asset Liquidity,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 104(2), pages 255-274.
- 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.
- Gravelle, Toni, 1998. "Buying Back Government Bonds: Mechanics and Other Considerations," Staff Working Papers 98-9, Bank of Canada.
- 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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