Market Liquidity after the Financial Crisis
47 Pages Posted: 20 Oct 2016 Last revised: 21 Sep 2017
Date Written: 2016-10-19
This paper examines market liquidity in the post-crisis era in light of concerns that regulatory changes might have reduced dealers’ ability and willingness to make markets. We begin with a discussion of the broader trading environment, including an overview of regulations and their potential effects on dealer balance sheets and market making, but also considering additional drivers of market liquidity. We document a stagnation of dealer balance sheets after the financial crisis of 2007-09, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for U.S. Treasury securities and corporate bonds, we find only limited evidence of a deterioration in market liquidity.
Keywords: liquidity, market making, Treasury market, corporate bonds, regulation
JEL Classification: G12, G21, G28
Suggested Citation: Suggested Citation