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Market liquidity after the financial crisis

Listed author(s):
  • Adrian, Tobias

    (International Monetary Fund)

  • Fleming, Michael J.

    (Federal Reserve Bank of New York)

  • Shachar, Or

    (Federal Reserve Bank of New York)

  • Vogt, Erik

    (Citadel LLC)

This paper examines market liquidity in the post-crisis 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 2007-09, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for U.S. Treasury securities and corporate bonds, we find only limited evidence of a deterioration in market liquidity.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 796.

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Length: 45 pages
Date of creation: 19 Oct 2016
Date of revision: 01 Jun 2017
Handle: RePEc:fip:fednsr:796
Note: An earlier version of this paper circulated in May 2015 under the title “Vol-of-Vol and Market Making.”
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