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Discussion Paper
The Indirect Costs of Lehman’s Bankruptcy
Sarkar, Asani; Denison, Erin; Fleming, Michael J. (2019-01-17)
In our previous post, we assessed losses to customers and clients from foregone opportunities after Lehman Brothers filed for bankruptcy in September 2008. In this post, we examine losses to Lehman and its investors in anticipation of bankruptcy. For example, if bankruptcy is expected, Lehman’s earnings may decline as customers close their accounts or certain securities (such as derivatives) to which Lehman is a counterparty may lose value. We estimate these losses by analyzing Lehman’s earnings and stock, bond, and credit default swap (CDS) prices.
Liberty Street Economics , Paper 20190117

Report
An analysis of CDS transactions: implications for public reporting
Chen, Kathryn; Sarkar, Asani; Li, Ada; Fleming, Michael J.; Jackson, John (2011)
Ongoing regulatory reform efforts aim to make the over-the-counter derivatives market more transparent by introducing public reporting of transaction-level information, including price and volume of trades. However, to date there has been a scarcity of data on the structure of trading in this market. This paper analyzes three months of global credit default swap (CDS) transactions and presents findings on the market composition, trading dynamics, and level of standardization. We find that trading activity in the CDS market is relatively low, with a majority of reference entities for ...
Staff Reports , Paper 517

Report
Are market makers uninformed and passive? Signing trades in the absence of quotes
Menkveld, Albert J.; Sarkar, Asani; Van der Wel, Michel (2009)
We develop a new likelihood-based approach to signing trades in the absence of quotes. This approach is equally efficient as the existing Markov-chain Monte Carlo methods, but more than ten times faster. It can address the occurrence of multiple trades at the same time and allows for analysis of settings in which trade times are observed with noise. We apply this method to a high-frequency data set of thirty-year U.S. Treasury futures to investigate the role of the market maker. Most theory characterizes the market maker as an uninformed, passive supplier of liquidity. Our findings suggest, ...
Staff Reports , Paper 395

Report
The microstructure of cross-autocorrelations
Subrahmanyam, Avanidhar; Sarkar, Asani; Chordia, Tarun (2007)
This paper examines the mechanism through which the incorporation of information into prices leads to cross-autocorrelations in stock returns. The lead-lag relation between large and small stocks increases with lagged spreads of large stocks. Further, order flows in large stocks significantly predict the returns of small stocks when large stock spreads are high. This effect is consistent with the notion that trading on common information takes place first in the large stocks and is then transmitted to smaller stocks with a lag, suggesting that price discovery takes place in the large stocks.
Staff Reports , Paper 303

Report
An empirical analysis of stock and bond market liquidity
Chordia, Tarun; Sarkar, Asani; Subrahmanyam, Avanidhar (2003)
This paper explores liquidity movements in stock and Treasury bond markets over a period of more than 1800 trading days. Cross-market dynamics in liquidity are documented by estimating a vector autoregressive model for liquidity (that is, bid-ask spreads and depth), returns, volatility, and order flow in the stock and bond markets. We find that a shock to quoted spreads in one market affects the spreads in both markets, and that return volatility is an important driver of liquidity. Innovations to stock and bond market liquidity and volatility prove to be significantly correlated, suggesting ...
Staff Reports , Paper 164

Discussion Paper
Dutch Treat: The Netherlands’ Exorbitant Privilege in the Eighteenth Century
Berre, Stein; Sarkar, Asani (2025-10-07)
The term “exorbitant privilege” emerged in the 1960s to describe the advantages derived by the U.S. economy from the dollar’s status as the de facto global reserve currency. In this post, we examine the exorbitant privilege that accrued to the Netherlands in the eighteenth century, when the Dutch guilder enjoyed global reserve currency status. We show how the private actions of financial institutions created and maintained this privilege, even in the absence of a central bank. While privilege benefited the Dutch financial system in many ways, it also laid the seeds of later financial ...
Liberty Street Economics , Paper 20251007

Discussion Paper
Is Bitcoin Really Frictionless?
Sarkar, Asani; Kroeger, Alexander (2016-03-23)
Bitcoin is the most popular virtual currency yet developed. Proponents assert that bitcoin can remove frictions involved in payment and settlement systems by eliminating the need for the financial intermediaries that exist in traditional currencies. In this blog post, we show that while bitcoin transfers themselves are relatively frictionless for the user, there are significant frictions when bitcoins trade in exchange markets resulting in meaningful and persistent price differences across bitcoin exchanges. These exchange-related frictions reduce the incentive of market participants to use ...
Liberty Street Economics , Paper 20160323

Discussion Paper
Did Changes to the Paycheck Protection Program Improve Access for Underserved Firms?
Kaplan, Nathan; Kramer, Claire; Sarkar, Asani (2022-07-06)
Prior research has shown that many small and minority-owned businesses failed to receive Paycheck Protection Program (PPP) loans in 2020. To increase program uptake to underserved firms, several changes were made to the PPP in 2021. Using data from the Federal Reserve Banks’ 2021 Small Business Credit Survey, we argue that these changes were effective in improving program access for nonemployer firms (that is, businesses with no employees other than the owner(s)). The changes may also have encouraged more applications from minority-owned firms, but they do not appear to have reduced ...
Liberty Street Economics , Paper 20220706

Conference Paper
Liquidity and price shocks in futures markets
Locke, Peter; Sarkar, Asani (1995)
Proceedings

Report
Coexistence of Banks and Non-Banks: Intermediation Functions and Strategies
Cetorelli, Nicola; Cisternas, Gonzalo; Sarkar, Asani (2025-03-01)
What is the essence of non-bank financial intermediation? How does it emerge and interact with intermediation performed by banks? To investigate these questions, we develop a model-based survey: we classify existing models into different intermediation functions á la Merton (1995) to show that variations of them admit a common modeling structure; then, we extend or reinterpret the resulting models to connect equilibrium strategies to non-bank activities in practice. Particular emphasis is placed on the coexistence of banks and non-banks: how their competition, or the extent of cooperation ...
Staff Reports , Paper 1145

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