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Market liquidity after the financial crisis

Author

Listed:
  • Tobias Adrian
  • Michael J. Fleming
  • Or Shachar
  • Erik Vogt

Abstract

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.

Suggested Citation

  • Tobias Adrian & Michael J. Fleming & Or Shachar & Erik Vogt, 2016. "Market liquidity after the financial crisis," Staff Reports 796, Federal Reserve Bank of New York, revised 20 Oct 2016.
    • 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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    References listed on IDEAS

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    7. Adrian, Tobias & Boyarchenko, Nina & Shachar, Or, 2017. "Dealer balance sheets and bond liquidity provision," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 92-109.
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    More about this item

    Keywords

    liquidity; Treasury market; regulation; corporate bonds; market making;

    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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