Market-making costs in Treasury bills: A benchmark for the cost of liquidity
We focus on market-making costs by examining the daily bid-ask spreads for off-the-run, one-month Treasury bills around two liquidity-changing events. Event one, Salomon Brothers' supply shock, results in a roughly 2.5-basis-point increase in the spread because of an increase in ask prices; and event two, the Long-Term Capital Management demand shock, results in a doubling of the spread because of a decrease in bid prices. Our results provide a benchmark for researchers examining bid-ask spreads of securities that include a liquidity premium, a risk premium, and an asymmetric information premium.
Year of publication: |
2010
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Authors: | Griffiths, Mark D. ; Lindley, James T. ; Winters, Drew B. |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 34.2010, 9, p. 2146-2157
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Publisher: |
Elsevier |
Subject: | Liquidity Bid-ask spread Market-making costs |
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