Quoted spreads and trade imbalance dynamics in the European treasury bond market

Arbeitspapier

Using high-frequency transaction data for the three largest European markets (France, Germany and Italy), this paper documents the existence of an asymmetric relationship between market liquidity and trading imbalances: when quoted spreads rise (fall) and liquidity falls (increases) buy (sell) orders tend to prevail. Risk-averse market-makers, with inventory-depletion risk being their main concern, tend to quote wider (narrower) spreads when they think bond appreciation is more (less) likely to occur. It is also found that the probability of being in a specific regime is related to observable bond market characteristics, stock market volatility, macroeconomic releases and liquidity management operations of the monetary authorities.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1080

Classification and Topics

• Classification: Wirtschaft ; International Financial Markets ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: Liquidity ; trading activity ; Treasury bond market ; Europe ; commonality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Caporale, Guglielmo Maria ; Girardi, Alessandro ; Paesani, Paolo
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/49399
• Last update: 10.03.2025, 11:42 AM CET