Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of New York
Economic Policy Review
Trading activity and price transparency in the inflation swap market
Michael J. Fleming
John Sporn
Abstract

The issues of liquidity and price transparency in derivatives markets have taken on greater import given regulatory efforts under way to improve their transparency. To date, the lack of transaction data has impeded the understanding of how the inflation swap and other derivatives markets operate. This article broadens that understanding by using a novel transaction data set to examine trading activity and price transparency in the quickly growing U.S. inflation swap market. The authors find that the market appears reasonably liquid and transparent, despite its over-the-counter nature and modest level of trading activity. Specifically, they find that transaction prices are typically quite close to widely available end-of-day quoted prices and that realized bid-ask spreads are modest, even though the reasonably comprehensive data set from 2010 contains just over two trades per day on average. The authors also identify concentrations of activity in certain tenors (ten years) and trade sizes ($25 million) and among certain market participants, as well as various attributes that help explain trade sizes and price deviations. Their study can serve as a resource for policymakers considering public reporting and other regulatory initiatives and for market participants and observers more generally interested in the workings of the inflation swap market.


Download Full text
Cite this item
Michael J. Fleming & John Sporn, "Trading activity and price transparency in the inflation swap market" , Federal Reserve Bank of New York, Economic Policy Review, issue May, pages 45-57, 2013.
More from this series
JEL Classification:
Subject headings:
Keywords: Swaps (Finance) ; Inflation (Finance) ; Derivative securities ; Liquidity (Economics) ; Transparency ; Stock - Prices
For corrections, contact Amy Farber ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal