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Trading Strategies in the Overnight Money Market: Correlations and Clustering on the e-MID Trading Platform

  • Daniel Fricke

We analyze the correlations in patterns of trading for members of the Italian interbank trading platform e-MID. The trading strategy of a particular member institution is defined as the sequence of (intra-) daily net trading volumes within a certain semester. Based on this definition, we show that there are significant and persistent bilateral correlations between institutions' trading strategies. In most semesters we find two clusters, with positive correlations within the clusters and negative correlations between them. We show that the two clusters mostly contain continuous net buyers and net sellers of money, respectively, and that cluster memberships of individual banks are highly persistent. Additionally, we highlight some problems related to our definition of trading strategies. Our findings add further evidence on the fact that preferential lending relationships on the micro-level lead to community structure on the macro-level

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File URL: https://www.ifw-members.ifw-kiel.de/publications/trading-strategies-in-the-overnight-money-market-correlations-and-clustering-on-the-e-mid-trading-platform-1/correlation_emid_kwp.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1766.

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Length: 29 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:kie:kieliw:1766
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  1. Michael Boss & Helmut Elsinger & Martin Summer & Stefan Thurner, 2004. "Network topology of the interbank market," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 677-684.
  2. G. De Masi & G. Iori & G. Caldarelli, 2006. "A fitness model for the Italian Interbank Money Market," Papers physics/0610108, arXiv.org.
  3. Iori, G. & Masi, G. D. & Precup, O. V. & Gabbi, G. & Caldarelli, G., 2005. "A network analysis of the Italian oversight money market," Working Papers 05/05, Department of Economics, City University London.
  4. G. Livan & S. Alfarano & E. Scalas, 2011. "The fine structure of spectral properties for random correlation matrices: an application to financial markets," Papers 1102.4076, arXiv.org.
  5. F. Kyriakopoulos & S. Thurner & C. Puhr & S. W. Schmitz, 2009. "Network and eigenvalue analysis of financial transaction networks," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 71(4), pages 523-531, October.
  6. Ilija I. Zovko & J. Doyne Farmer, 2007. "Correlations and clustering in the trading of members of the London Stock Exchange," Papers 0709.3261, arXiv.org.
  7. Cocco, João F. & Gomes, Francisco J. & Martins, Nuno C., 2009. "Lending relationships in the interbank market," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 24-48, January.
  8. Thomas Lux, Daniel Fricke, 2012. "Core-Periphery Structure in the Overnight Money Market: Evidence from the e-MID Trading Platform," Kiel Working Papers 1759, Kiel Institute for the World Economy.
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