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Market liquidity after the financial crisis

Author

Listed:
  • 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)

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

  • Adrian, Tobias & Fleming, Michael J. & Shachar, Or & Vogt, Erik, 2016. "Market liquidity after the financial crisis," Staff Reports 796, Federal Reserve Bank of New York, revised 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Revisiting Market Liquidity: The Case of U.S. Corporate Bonds
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-04-17 18:34:54
    2. Treasury Round II: The Capital Markets Report
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-10-23 17:04:21

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    Cited by:

    1. 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.
    2. Adrian, Tobias & Fleming, Michael J. & Vogt, Erik, 2017. "An index of Treasury Market liquidity: 1991-2017," Staff Reports 827, Federal Reserve Bank of New York.
    3. Mike Anderson & René M. Stulz, 2017. "Is Post-Crisis Bond Liquidity Lower?," NBER Working Papers 23317, National Bureau of Economic Research, Inc.
    4. Jaewon Choi & Yesol Huh, 2017. "Customer Liquidity Provision : Implications for Corporate Bond Transaction Costs," Finance and Economics Discussion Series 2017-116, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

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

    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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