Abstract
We examine the short horizon relation between liquidity and trading activity in the US Treasury market during nonannouncement periods at 5-, 10- and 30-minute intervals. Our results provide an interesting contrast to the findings of Lee et al. (1993), who examine this relation for the New York Stock Exchange (NYSE). Similar to the NYSE, we find that market-makers adjust both spread and depth simultaneously in managing their inventory positions. However, in contrast to the NYSE, we find a positive, not negative, relation between trading activity and liquidity after controlling for adverse selection. These results are robust to whether we measure trading activity with volume or number of trades and whether we measure liquidity using bid–ask spread or depth.
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.
