Market Liquidity after the Financial Crisis

47 Pages Posted: 20 Oct 2016 Last revised: 21 Sep 2017

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Michael J. Fleming

Federal Reserve Bank of New York

Or Shachar

Federal Reserve Bank of New York

Erik Vogt

Federal Reserve Bank of New York

Multiple version iconThere are 3 versions of this paper

Date Written: 2016-10-19

Abstract

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

Adrian, Tobias and Fleming, Michael J. and Shachar, Or and Vogt, Erik, Market Liquidity after the Financial Crisis (2016-10-19). FRB of NY Staff Report No. 796. Available at SSRN: https://ssrn.com/abstract=2856258

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
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HOME PAGE: http://www.tobiasadrian.com

Michael J. Fleming

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Or Shachar

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-6974 (Phone)
(212) 720-1582 (Fax)

Erik Vogt

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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