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Title: Quoted spreads and trade imbalance dynamics in the European treasury bond market
Authors: Caporale, GM
Girardi, A
Paesani, P
Keywords: Liquidity;Trading activity;Treasury bond market;Europe;Commonality
Issue Date: 2010
Publisher: Brunel University
Citation: Economics and Finance Working Paper, Brunel University, 10-28
Abstract: Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) rders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, tock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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