Experimentation in Financial Markets

36 Pages Posted: 4 Nov 1999 Last revised: 2 Sep 2008

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: August 21, 2008

Abstract

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

Massa, Massimo and Simonov, Andrei, Experimentation in Financial Markets (August 21, 2008). Available at SSRN: https://ssrn.com/abstract=176648 or http://dx.doi.org/10.2139/ssrn.176648

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
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France
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+33 1 6072 4045 (Fax)

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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