IDEAS home Printed from https://ideas.repec.org/p/cty/dpaper/13-14.html
   My bibliography  Save this paper

Quantifying preferential trading in the e-MID interbank market

Author

Listed:
  • Hatzopoulos, V.
  • Iori, G.
  • Mantegna, R.
  • Micciche, S.
  • Tumminello, M.

Abstract

Interbank markets allow credit institutions to exchange capital for purposes of liquidity management. These markets are among the most liquid markets in the financial system. However, liquidity of interbank markets dropped during the 2007-2008 financial crisis, and such a lack of liquidity influenced the entire economic system. In this paper, we analyze transaction data from the e-MID market which is the only electronic interbank market in the Euro Area and US, over a period of eleven years (1999-2009). We adapt a method developed to detect statistically validated links in a network, in order to reveal preferential trading in a directed network. Preferential trading between banks is detected by comparing empirically observed trading relationships with a null hypothesis that assumes random trading among banks doing a heterogeneous number of transactions. Preferential trading patterns are revealed at time windows of 3-maintenance periods. We show that preferential trading is observed throughout the whole period of analysis and that the number of preferential trading links does not show any significant trend in time, in spite of a decreasing trend in the number of pairs of banks making transactions. We observe that preferential trading connections typically involve large trading volumes. During the crisis, we also observe that transactions occurring between banks with a preferential connection occur at larger interest rates than the complement set - an effect that is not observed before the crisis.

Suggested Citation

  • Hatzopoulos, V. & Iori, G. & Mantegna, R. & Micciche, S. & Tumminello, M., 2013. "Quantifying preferential trading in the e-MID interbank market," Working Papers 13/14, Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:13/14
    as

    Download full text from publisher

    File URL: https://openaccess.city.ac.uk/id/eprint/2929/1/13_14_Giulia.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Craig, Ben & von Peter, Goetz, 2014. "Interbank tiering and money center banks," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 322-347.
    2. Affinito, Massimiliano, 2012. "Do interbank customer relationships exist? And how did they function in the crisis? Learning from Italy," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3163-3184.
    3. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
    4. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
    5. Kovářík Jaromír & van der Leij Marco J., 2014. "Risk Aversion and Social Networks," Review of Network Economics, De Gruyter, vol. 13(2), pages 121-155.
    6. Anand, Kartik & Gai, Prasanna & Kapadia, Sujit & Brennan, Simon & Willison, Matthew, 2013. "A network model of financial system resilience," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 219-235.
    7. Ruggero Grilli & Gabriele Tedeschi & Mauro Gallegati, 2015. "Markets connectivity and financial contagion," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 287-304, October.
    8. F.R. Liedorp & L. Medema & M. Koetter & R.H. Koning & I. van Lelyveld, 2010. "Peer monitoring or contagion? Interbank market exposure and bank risk," DNB Working Papers 248, Netherlands Central Bank, Research Department.
    9. Castiglionesi, F. & Navarro, N., 2007. "Optimal Fragile Financial Networks," Discussion Paper 2007-100, Tilburg University, Center for Economic Research.
    10. Hyun Song Shin, 2010. "Financial intermediation and the post-crisis financial system," BIS Working Papers 304, Bank for International Settlements.
    11. Michele Manna & Carmela Iazzetta, 2009. "The topology of the interbank market: developments in Italy since 1990," Temi di discussione (Economic working papers) 711, Bank of Italy, Economic Research and International Relations Area.
    12. Bech, Morten L. & Atalay, Enghin, 2010. "The topology of the federal funds market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5223-5246.
    13. Martínez-Jaramillo Serafín & Alexandrova-Kabadjova Biliana & Bravo-Benítez Bernardo & Solórzano-Margain Juan Pablo, 2012. "An Empirical Study of the Mexican Banking System's Network and its Implications for Systemic Risk," Working Papers 2012-07, Banco de México.
    14. Gabrieli, S., 2012. "Too-connected versus too-big-to-fail: banks network centrality and overnight interest rates," Working papers 398, Banque de France.
    15. Silvia Gabrieli, 2010. "The functioning of the European interbank market during the 2007-08 financial crisis," CEIS Research Paper 158, Tor Vergata University, CEIS, revised 28 May 2010.
    16. Fabio Castiglionesi, 2008. "Optimal Fragile Financial Networks," 2008 Meeting Papers 658, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Iori, Giulia & Mantegna, Rosario N. & Marotta, Luca & Miccichè, Salvatore & Porter, James & Tumminello, Michele, 2015. "Networked relationships in the e-MID interbank market: A trading model with memory," Journal of Economic Dynamics and Control, Elsevier, vol. 50(C), pages 98-116.
    2. Temizsoy, Asena & Iori, Giulia & Montes-Rojas, Gabriel, 2017. "Network centrality and funding rates in the e-MID interbank market," Journal of Financial Stability, Elsevier, vol. 33(C), pages 346-365.
    3. Paul Glasserman & Peyton Young, 2015. "Contagion in Financial Networks," Economics Series Working Papers 764, University of Oxford, Department of Economics.
    4. Paul Glasserman & H. Peyton Young, 2015. "Contagion in Financial Networks," Working Papers 15-21, Office of Financial Research, US Department of the Treasury.
    5. Morteza Alaeddini & Philippe Madiès & Paul J. Reaidy & Julie Dugdale, 2023. "Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 573-654, April.
    6. Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2015. "Drivers of demand and supply in the Euro interbank market: the role of “Key Players” during the recent turmoil," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(3), pages 207-250, August.
    7. Blasques, Francisco & Bräuning, Falk & Lelyveld, Iman van, 2018. "A dynamic network model of the unsecured interbank lending market," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 310-342.
    8. Blasques, Francisco & Bräuning, Falk & Lelyveld, Iman van, 2018. "A dynamic network model of the unsecured interbank lending market," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 310-342.
    9. Andre R. Neveu, 2018. "A survey of network-based analysis and systemic risk measurement," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 13(2), pages 241-281, July.
    10. Glasserman, Paul & Young, H. Peyton, 2016. "Contagion in financial networks," LSE Research Online Documents on Economics 68681, London School of Economics and Political Science, LSE Library.
    11. Hüser, Anne-Caroline, 2016. "Too interconnected to fail: A survey of the Interbank Networks literature," SAFE Working Paper Series 91, Leibniz Institute for Financial Research SAFE, revised 2016.
    12. Sam Langfield & Kimmo Soramäki, 2016. "Interbank Exposure Networks," Computational Economics, Springer;Society for Computational Economics, vol. 47(1), pages 3-17, January.
    13. Caterina Liberati & Massimiliano Marzo & Paolo Zagaglia & Paola Zappa, 2012. "Structural Distortions in the Euro Interbank Market: The Role of 'Key Players' during the Recent Market Turmoil," Working Paper series 57_12, Rimini Centre for Economic Analysis.
    14. Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn, 2023. "Networks, interconnectedness, and interbank information asymmetry," Journal of Financial Stability, Elsevier, vol. 67(C).
    15. Leonardo Bargigli & Giovanni di Iasio & Luigi Infante & Fabrizio Lillo & Federico Pierobon, 2015. "Interbank markets and multiplex networks: centrality measures and statistical null models," Papers 1501.05751, arXiv.org.
    16. Craig, Ben & Ma, Yiming, 2022. "Intermediation in the interbank lending market," Journal of Financial Economics, Elsevier, vol. 145(2), pages 179-207.
    17. Affinito, Massimiliano & Franco Pozzolo, Alberto, 2017. "The interbank network across the global financial crisis: Evidence from Italy," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 90-107.
    18. Marco Bardoscia & Paolo Barucca & Stefano Battiston & Fabio Caccioli & Giulio Cimini & Diego Garlaschelli & Fabio Saracco & Tiziano Squartini & Guido Caldarelli, 2021. "The Physics of Financial Networks," Papers 2103.05623, arXiv.org.
    19. Pablo Rovira Kaltwasser & Alessandro Spelta, 2019. "Identifying systemically important financial institutions: a network approach," Computational Management Science, Springer, vol. 16(1), pages 155-185, February.
    20. Augusto Hasman, 2013. "A Critical Review Of Contagion Risk In Banking," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 978-995, December.

    More about this item

    Keywords

    Interbank markets; interbank rates; preferential links; statistically validated networks;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cty:dpaper:13/14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Research Publications Librarian (email available below). General contact details of provider: https://edirc.repec.org/data/decituk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.