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Dealer intermediation strategies and implications for market liquidity

This project considers the recent evolution of dealer intermediation strategies in financial markets and implications for market liquidity in light of concerns about regulatory changes raising intermediation costs for large financial institutions. Using newly available transaction-level data tracking individual participants in US corporate bond markets, we characterize dealer intermediation strategies by quantifying inventory holdings and trading patterns for various securities. We assess whether the evolution of trading strategies post-crisis suggests that regulation has permanently or temporarily increased the cost of market-making, and implications for liquidity supply, customer trading costs, and vulnerability to shocks.

Project period: January 2018 - November 2018

PI: Giancarlo Corsetti, Faculty of Economics

End of Award Report - April 2019

Project Update - August 2018

Project Update - April 2018