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Liquidity Providers (liquidity + provider)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking

THE JOURNAL OF FINANCE, Issue 1 2002
Anil K. Kashyap
What ties together the traditional commercial banking activities of deposit-taking and lending? We argue that since banks often lend via commitments, their lending and deposit-taking may be two manifestations of one primitive function: the provision of liquidity on demand. There will be synergies between the two activities to the extent that both require banks to hold large balances of liquid assets: If deposit withdrawals and commitment takedowns are imperfectly correlated, the two activities can share the costs of the liquid-asset stockpile. We develop this idea with a simple model, and use a variety of data to test the model empirically. [source]

Volatility, Market Structure, and the Bid-Ask Spread,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 1 2009
Kee H. Chung
Abstract We test the conjecture that the specialist system on the New York Stock Exchange (NYSE) provides better liquidity services than the NASDAQ dealer market in times of high return volatility when adverse selection and inventory risks are high. We motivate our conjecture from the observation that there is a designated specialist for each stock on the NYSE who is directly responsible for maintaining a reasonable level of liquidity (i.e., the bid-ask spread) as the ,liquidity provider of last resort' whereas there is no such designated dealer on NASDAQ. Empirical evidence is consistent with our conjecture. In a similar vein, we show that the specialist system provides better liquidity than the dealer market in thin markets. [source]

Corporate Governance and Equity Liquidity: analysis of S&P transparency and disclosure rankings

CORPORATE GOVERNANCE, Issue 4 2007
Wei-Peng Chen
This paper sets out to investigate the effects of disclosure, and other corporate governance mechanisms, on equity liquidity, arguing that those companies adopting poor information transparency and disclosure practices will experience serious information asymmetry. Since poor corporate governance leads to greater information asymmetry, liquidity providers will incur relatively higher adverse information risks and will therefore offer higher information asymmetry components in their effective bid-ask spreads. The Transparency and Disclosure (T&D) rankings of the individual stocks on the S&P 500 index are employed to examine whether firms with greater T&D rankings have lower information asymmetry components and lower stock spreads. Our results reveal that the economic costs of equity liquidity, i.e. the effective spread and the quoted half-spread, are greater for those companies with poor information transparency and disclosure practices. [source]

Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities and Exchange Commission Rule Changes

FINANCIAL REVIEW, Issue 4 2002
Kee H. Chung
This paper examines liquidity and quote clustering on the NYSE and Nasdaq using data after the two market reforms,the 1997 order,handling rule and minimum tick size changes. We find that Nasdaq,listed stocks exhibit wider spreads and smaller depths than NYSE,listed stocks and stocks with higher proportions of even,eighth and even,sixteenth quotes have wider quoted, effective, and realized spreads on both the NYSE and Nasdaq. This result differs from the findings by Bessembinder (1999, p. 404) that "trade execution costs on Nasdaq in late 1997 are no longer significantly explained by a tendency for liquidity providers to avoid odd,eighth quotations," and "odd,sixteenth avoidance has little relevance for explaining post,reform Nasdaq trading costs." [source]

What determines transaction costs in foreign exchange markets?

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2008
Tarun Ramadorai
Abstract Using detailed data on the currency transactions of institutional fund managers, this paper shows that funds that experience high returns on their currency holdings also incur lower transaction costs on their currency trades. This finding holds both in the cross section, i.e. funds that perform better on average incur lower average transaction costs, as well as in time series, i.e. funds that do better over the past two months incur lower transaction costs on subsequent transactions. The results are consistent with foreign exchange dealers bidding for information from successful traders. They are also consistent with foreign exchange dealers exploiting price inelastic demand for foreign currency trades, or funds acting as secondary liquidity providers in foreign exchange markets. The paper also investigates the role of fund size, transaction frequency and return volatility on transactions costs. Copyright © 2007 John Wiley & Sons, Ltd. [source]

LIQUIDITY AND QUOTE CLUSTERING IN A MARKET WITH MULTIPLE TICK SIZES

THE JOURNAL OF FINANCIAL RESEARCH, Issue 2 2005
Kee H. Chung
Abstract We analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity providers on the KLSE do not always quote larger depths for stocks with larger tick sizes. Overall, our results suggest that larger tick sizes for higher priced stocks are detrimental to market liquidity, although the adverse effect of larger tick sizes is mitigated by lower negotiation costs (i.e., less quote clustering). [source]