Experimentation in Financial Markets
36 Pages Posted: 4 Nov 1999 Last revised: 2 Sep 2008
Date Written: August 21, 2008
We study the strategies of the market in the inter-dealer market. We show that market makers actively learn from the dealers they trade with and strategically react to the information content of the orders they receive. We identify "hiding" and "experimenting" as main types of market makers' strategies. We show how market makers in order to assess the informational content of the orders they receive. We provide empirical evidence of this, using a unique high-frequency dataset on the Italian Treasury Bond market disaggregated at dealer level.
Note: 1/16/01--previously titled: "Learning and Trading Behavior of Market Makers: Evidence of Strategic Market Making on the Treasury Bond Market"
JEL Classification: G14, G20, D82, D83
Suggested Citation: Suggested Citation