Using confidential microdata, we show that shocks to primary dealers' risk-bearing constraints have significant effects on the US Treasury securities market. In response to tighter constraints, dealers reduce their Treasury positions, triggering a reduction in aggregate turnover and an increase...

This paper uses regulatory data to assess the value of retail order flow in the German equity market. To this end, we examine the performance of specialized retail market makers (RMMs) that internalize a large share of retail activity via affiliated trading venues. We show that retail market...

Mutual fund families are increasingly assigning traders to manage corporate bond mutual funds. Using this setting to study the role of traders in investment management, we document that trader managers identify and exploit short-term trading opportunities at lower transaction costs. These skills...

This report looks backwards to the worldwide use of (enhanced) lender of last resort (LOLR) and market maker of last resort (MMLR) facilities during the global financial and the pandemic crises. It discusses how LOLR and MMLR facilities have worked; looking ahead, it considers what benefits and...

Using data with trader identities for all transactions in SENSEX-index stocks on the Bombay Stock Exchange over seven years, we identify individual day traders (IDT) to be “noise traders”, who play an important role in market microstructure models in the literature.IDT contribute 10% to...

We consider Geometric Mean Market Makers – a special type of Decentralized Exchange – with two types of users: liquidity takers and arbitrageurs. Liquidity takers trade at prices that can create arbitrage opportunities, while arbitrageurs align the exchange’s price with the external market...

Automated market makers (AMMs) are a new type of trading venue where the rules for liquidity provision and liquidity taking are considerably different from those of the traditional electronic trading venues. AMMs have become one of the key markets to trade crypto-currencies, whose liquidity is...

We study the stability of noncognitive skills by comparing experimental results gathered before and during the COVID-19 pandemic. Using a sample of professional traders, we find a significant decrease in agreeableness and locus of control and a moderate decrease in grit. These patterns are...

We show a significant loss in U.S. Treasury market functionality when intensive use of dealer balance sheets is needed to intermediate bond markets, as in March 2020. Although yield volatility explains most of the variation in Treasury market liquidity over time, when dealer balance sheet...

Diese Geschichte ist eine wahre Geschichte. Sie erzählt von Else Goldschmidt, der ersten Börsenmaklerin der Welt. Ihr Leben ist von Erwartungen, Emanzipation und Leidenschaft geprägt, aber auch von Existenzsorgen, Emigration und Heimatlosigkeit. Zufälle gehören zu diesem Leben ebenso dazu...

We present evidence that in May 2022 several retail brokers who do not charge wholesalers for their marketable orders routed most of their marketable orders to wholesalers for order handling and execution. Using proprietary marketable order flow data from one or more wholesaler(s) for May 2022,...

In this paper, we characterise the liquidity provision and price discovery roles of dealers and HFTs in the FX spot market during the sample period between 2012 and 2015. We find that they have different responses to adverse market conditions: HFT liquidity provision is less sensitive to spikes...

When brokers, analysts, and fund managers buy or sell stocks for their own accounts, these “access employees” of financial institutions outperform retail investors over short windows up to a month. They earn particularly high abnormal returns when they trade before earnings announcements,...

We find that the leverage of primary dealers has predictive power in forecasting exchange rates. Importantly, we find that dealer heterogeneity matters and that the marginal participant in financial markets changes over time. The leverage of foreignheadquartered dealers in the U.S. drives the...

Random changes in firms' stock index membership have important implications on sell-side analysts' career outcomes. Covered firms moving from the bottom of Russell 1000 to the top of Russell 2000 significantly increase an analyst's likelihood of moving to a high-status broker or receiving a...

Do competition and incentives offered to designated market makers (DMMs) improve market liquidity? We employ data from NYSE Euronext Paris to show that exogenous changes in contract design lead to significant decreases in quoted and effective spreads. In particular, market liquidity increases...

We run an experiment where professional traders, endowed with private information, trade an asset over multiple periods. After the trading game, we gather information about the professional traders' characteristics by having them carry out a series of tasks. We study which of these...

This working paper was written by Max Bruche (Humboldt University of Berlin) and John C.F. Kuong (INSEAD).We consider a model in which dealers intermediate trades between clients and provide immediacy, or, market liquidity. Dealers can exert unobservable effort to improve the chance of...

We document low cross-sectional correlations between high-frequency market maker (MM) inventory positions, suggesting poor risk sharing. Using a unique data set on Canadian futures markets, a simple inventory cost estimate is 300% above the optimal benchmark. Our model explains how heterogeneity...

Individual investors significantly reduce their trading activity in financial markets after the release of negatively biased Hollywood movies related to financial markets. These movies regularly depict financial markets and professionals active in them as marked by ‘greed and corruption’...

Individual investors significantly reduce their trading activity in financial markets after the release of negatively biased Hollywood movies related to financial markets. These movies regularly depict financial markets and professionals active in them as marked by ‘greed and corruption’...

60% of the ESG mutual funds introduced after 2013 are managed by teams that also manage non-ESG funds. The co-managed non-ESG funds increase their holdings of high ESG stocks and exhibit superior performance among these stocks, reflecting an ability to cherry-pick the best ideas. Despite being...

Designated market makers (DMMs) are contractually obligated to increase liquidity provision when trading volume breaches a floor. Using this feature in a regression discontinuity design, we show that increased DMM participation facilitates price informativeness with respect to earnings news....

This paper documents important differences in payment for order flow (PFOF), spreads, and price improvement across asset classes. In stocks, we show that PFOF is small. While many retail trades are executed off-exchange, we find that they receive meaningful price improvement, particularly when...

Climate change is a “crisis multiplier” that has profound effects on various aspects of household decisions. We study the impact of climate change concern on household’s climate-risk-based investment decisions using administrative account-level data of all retail investors from the...

Prior research has established that the presence of designated market makers (DMMs) in an electronic open limit order book increases liquidity. We analyze whether the presence of additional DMMs results in a further improvement in liquidity. Using data from Deutsche B ̈orse’s Xetra system we...