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| Author: | Reiss, P. C. Werner, I. M. |
| Title: | Does risk sharing motivate interdealer trading? |
| Journal: | Journal of Finance
1998 : OCT, VOL. 53:5, p. 1657-1703 |
| Index terms: | Stock exchanges Dealer spreads Econometric models |
| Language: | eng |
| Abstract: | The authors use data from the London Stock Exchange to test whether interdealer trade facilitates inventory risk sharing among dealers. They develop a methodology that focuses on periods of "extreme" inventories - inventory cycles. They distinguish between inventory cycles that are unanticipated and those that are anticipated because of "worked" orders. The pattern of interdealer trade during inventory cycles matches theoritical predictions for the direction of trade and the inventories of trade counterparts. They also show that London dealers receive higher trading revenues for taking larger positions. |
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