Abstract
Proprietary traders’ role in capital markets has received heightened attention with the debate over the Volcker Rule following the 2008-09 financial crisis. To date, there is little evidence on whether proprietary traders provide or take liquidity and how their behavior evolves over the business cycle. Using a unique dataset of proprietary trading activity, we show that proprietary traders concentrate their trades in a subset of stocks that are liquid to begin with. On average, proprietary traders provide liquidity in their trades, but they do so selectively, in large and liquid stocks, and when intermediary balance sheets are strong. Finally, proprietary traders do not increase their liquidity provision during periods of low returns when liquidity dries up.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
