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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.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Toni Gravelle, 1999. "Liquidity of the Government of Canada Securities Market: Stylised Facts and Some Market Microstructure Comparisons to the United States Treasury Market," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-37, Bank for International Settlements.
    • Handle: RePEc:bis:biscgc:11-06
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    References listed on IDEAS

    as
    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. 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, November.
    3. Andrew Branion, 1995. "The Government of Canada bond market since 1980," Bank of Canada Review, Bank of Canada, vol. 1995(Autumn), pages 3-21.
    4. Toni Gravelle, 1998. "Buying Back Government Bonds: Mechanics and Other Considerations," Staff Working Papers 98-9, Bank of Canada.
    5. 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.
    6. 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.
    7. Lyons, Richard K., 1996. "Optimal Transparency in a Dealer Market with an Application to Foreign Exchange," Journal of Financial Intermediation, Elsevier, vol. 5(3), pages 225-254, July.
    8. Hirotaka Inoue, 1999. "The Structure of Government Securities Markets in G10 Countries: Summary of Questionnaire Results," CGFS Papers chapters, in: Bank for International Settlements (ed.), Market Liquidity: Research Findings and Selected Policy Implications, volume 11, pages 1-22, Bank for International Settlements.
    9. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 255-274.
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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