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Keywords:Liquidity (Economics) 

Journal Article
The recent growth of financial derivative markets

This article examines the reasons for the phenomenal growth of financial derivative markets in recent years. The author shows how specific demand forces have largely determined the direction and speed of the derivatives' spread.
Quarterly Review , Volume 17 , Issue Win

Report
Volatility and liquidity in futures markets

We study the provision of liquidity in futures markets as price volatility changes. For both active and inactive contracts, customer trading costs do not increase with volatility. However, for three of the four contracts studied, the nature of liquidity supply changes with volatility. Specifically, for relatively inactive contracts, customers as a group trade more with each other (and less with market makers) on higher volatility days. By contrast, for the most active contract, trading between customers and market makers increases with volatility. We also find that market makers' income per ...
Research Paper , Paper 9612

Report
Consumption and credit: a model of time-varying liquidity constraints

This paper investigates the role of consumer credit in determining real consumption growth in aggregate, post-war U.S. data. This paper presents evidence that predictable growth in consumer credit is significantly related to consumption growth. The finding is inconsistent with the predictions of (I) the permanent income/life cycle hypothesis, (ii) the "rule of thumb" models where some agents simply consume their current income, and (iii) models of liquidity constraints where individuals face a fixed borrowing limit. I argue that this finding calls for reinterpretation of the excess ...
Research Paper , Paper 9624

Report
Market liquidity and trader welfare in multiple dealer markets: evidence from dual trading restrictions

Dual trading is the practice whereby futures floor traders execute trades both for their own and customers' accounts on the same day. We provide evidence, in the context of restrictions on dual trading, that aggregate liquidity measures, such as the average bid-ask spread, may be misleading indicators of traders' welfare in markets with multiple, heterogeneously skilled dealers. In our theoretical model, hedgers and informed customers trade through futures floor traders of different skill levels: more skilled floor traders attract more hedgers to trade. We show that customers' welfare and ...
Research Paper , Paper 9721

Report
Traders' broker choice, market liquidity and market structure

Hedgers and a risk-neutral informed trader choose between a broker who takes a position in the asset (a capital broker) and a broker who does not (a discount broker). The capital broker exploits order flow information to mimic informed trades and offset hedgers' trades, reducing informed profits and hedgers' utility. But the capital broker has a larger capacity to execute hedgers' orders, increasing market depth. In equilibrium, hedgers choose the broker with the lowest price per unit of utility while the informed trader chooses the broker with the lowest price per unit of the informed ...
Research Paper , Paper 9701

Report
A general model of brokers' trading, with applications to order flow internalization, insider trading and off-exchange block sales

Multiple informed traders and noise traders pay fees to trade through multiple brokers. Brokers may trade with their customers in the same transaction (simultaneous dual trading) or trade after their customers in a separate transaction (consecutive dual trading). Brokers' expected profits from fees and trading, net of brokerage costs, are zero and so brokers are indifferent between simultaneous and consecutive dual trading. Market depth and price informativeness are higher with consecutive dual trading, compared to both simultaneous dual trading and the no-dual-trading benchmark. If the ...
Research Paper , Paper 9715

Report
Default and liquidity risk in the junk bond market

Research Paper , Paper 8816

Report
A comparison of market making structures

Research Paper , Paper 8821

Report
Money and interest rates: the effects of temporal aggregation and data revisions

Research Paper , Paper 8908

Speech
What the euro crisis means for taxpayers and the U.S. economy

Testimony before the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, Committee on Oversight and Government Reform, U.S. House of Representatives.
Speech , Paper 71

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