Journal Article

Evaluation of value-at-risk models using historical data

Abstract: We study the effect of restrictions on dual trading in futures contracts. Previous studies have found that dual trading restrictions can have a positive, negative, or neutral effect on market liquidity. In this paper, we propose that trader heterogeneity may explain these conflicting empirical results. We find that, for contracts affected by restrictions, the change in market activity following restrictions differs between contracts. More important, the effect of a restriction varies among dual traders in the same market. For example, dual traders who ceased trading the S&P 500 index futures following restrictions had the highest personal trading skills prior to restrictions. However, realized bid-ask spreads for customers did not increase following restrictions. Our results imply that securities regulation may adversely affect customers, but in ways not captured by broad-based liquidity measures, such as the bid-ask spread.

Keywords: Econometric models; Investments; Risk;

Status: Published in Risk measurement and systemic risk: joint central bank research conference (1995: November 16-17)

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Volume: 2

Issue: Apr

Pages: 39-69