market makers
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2022 ◽  
Vol 43 (2) ◽  
Author(s):  
Juan Ignacio Peña ◽  
Rosa Rodríguez

Author(s):  
Gabriel A. Giménez Roche ◽  
Nathalie Janson

Abstract We analyze the transition of central banks from lenders to market makers of last resort. The adoption of unconventional monetary policies characterizes this transition. In their new role as market makers, central banks engage in the latter by extending and reinforcing interventions in other markets than the traditional bank reserves market. We then explain that the difference between the two roles is one of degree rather than kind. In both cases, the prevention of liquidity shortages is a primary concern. As conventional policies become inadequate, central banks resort to unconventional policies to escape a general liquidity shortage at the zero lower bound. However, these unconventional policies do not solve the structural problems in financial and real markets. Both conventional and unconventional monetary policies cause price distortions, in particular on asset markets. The policies of the market maker of last resort prevent necessary readjustments of cyclical divergences between real and financial markets.


2021 ◽  
Vol 7 (2) ◽  
pp. 113-29
Author(s):  
Daniel Souleles

This article presents a close, dialogue-based ethnographic account of a group of contemporary options market makers making a decision about pricing options in Tesla, Inc. Careful attention to their deliberations reveals how the rise of algorithms and automation on financial markets have rendered traders alienated and estranged from the markets they work on for their livelihood. This alienation arises, in part, due to novel cascade effects between futures and underlying equities, which algorithmic and automated trading seems to afford, and which also relate to news events as well as the actions of politicians and prominent business people. Emerging from this alienation, traders produce a critique of how highly automated financial markets allocate capital and how ripe they are for political manipulation.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Dorra Messaoud ◽  
Anis Ben Amar ◽  
Younes Boujelbene

PurposeBehavioral finance and market microstructure studies suggest that the investor sentiment and liquidity are related. This paper aims to examine the aggregate sentiment–liquidity relationship in emerging markets (EMs) for both the sample period and crisis period. Then, it verifies this relationship, using the asymmetric sentiment.Design/methodology/approachThis study uses a sample consisting of stocks listed on the SSE Shanghai composite index (348 stocks), the JKSE (118 stocks), the IPC (14 stocks), the RTS (12 stocks), the WSE (106 stocks) and FTSE/JSE Africa (76 stocks). This is for the period ranging from February, 2002 until March, 2021 (230 monthly observations). We use the panel data and apply generalized method-of-moments (GMM) of dynamic panel estimators.FindingsThe empirical analysis shows the following results: first, it demonstrates a significant relationship between the aggregate investor sentiment and the stock market liquidity for the sample period and crisis one. Second, referring to the asymmetric sentiment, we have empirically given proof that the market is significantly more liquid in times of the optimistic sentiment than it is in times of the pessimistic sentiment. Third, using panel causality tests, we document a unidirectional causality between the investor sentiment and liquidity in a direct manner through the noise traders and the irrational market makers and also a bidirectional causality in an indirect channel.Practical implicationsThe results reported in this paper have implications for regulators and investors in EMs. Firstly, the study informs the regulators that the increases and decreases in the stock market liquidity are related to the investor sentiment, not financial shocks. We empirically evince that the traded value is higher in the crisis. Secondly, we inform insider traders and rational market makers that the persistence of increases in the trading activity in both quiet and turbulent times is associated with investor participants such as noise traders and irrational market makers.Originality/valueThe originality of this work lies in employing the asymmetric sentiment (optimistic/pessimistic) in order to denote the sentiment–liquidity relationship in EMs for the sample period and the 2007–2008 subprime crisis.


2021 ◽  
Vol 14 (12) ◽  
pp. 584
Author(s):  
Thomas Richter

This paper investigates increased liquidity provision by market makers resulting from their ability to reduce balance sheet encumbrance through the use of central counterparties (CCPs). The introduction of the Basel III leverage rule constitutes a shock to market makers’ balance sheets and thus affects their capacity to intermediate trades. Using trade-by-trade data from sovereign bond markets, we show that liquidity provision by CCP members decreased to a lesser extent following the rule change. We attribute these findings to balance sheet reductions due to the netting enabled by CCPs, thereby highlighting their importance in cash markets.


2021 ◽  
pp. 097215092110461
Author(s):  
Aparna Bhat

This article examines the profitability of short volatility strategies in the exchange-traded USDINR options market. Returns from delta-hedged short positions in straddles, strangles and individual call and put options are examined across different trading horizons and volatility regimes. The study finds that short volatility strategies yield significant mean and median returns regardless of the trading horizon and option moneyness before considering transaction costs. This is suggestive of a volatility risk premium priced in USDINR options. However, the returns are found to be insignificant and even negative after accounting for trading costs such as bid-ask spreads and brokerage. The study concludes that although USDINR options appear to be overpriced because of the volatility risk premium, short option strategies can be profitably exploited only by market makers and institutional investors facing low spreads and funding costs. The findings are suggestive of an informationally efficient market.


2021 ◽  
Vol 21 (2) ◽  
pp. 207
Author(s):  
Ainun Naim ◽  
Dwi Hita Darmawan ◽  
Nurafifah Wulandari

<p><strong><em>Abstract</em></strong><em>: Our research focuses on herding behavior and broker summary analysis in the Covid-19 time frame in Indonesia. Herding behavior in the retail exchange community or the general public is considered detrimental due to the irrationality of analysis and promoting euphoria which results in very large losses. Answering the research gap, we offer a broad exploration concept to avoid and create positive returns by utilizing the herding behavior of the retail market community. We tested using multiple methods to ensure the existence of herding behavior in a regression setting of two and took advantage of positive opportunistic returns for exchange play. The first method shows that the research sample detected herding behavior during March 11, 2020 – March 11, 202 and we ensure the resilience of existence through two models. The second method, to get a positive return, we offer bandarmology analysis adopted from Dow theory for trading in a market maker style. Analyzing the movement and following market makers, we can conclude that it creates positive returns and prevents the stock exchange community from the impact of sustainable auto rejects. This study has limitations, for future research we expect the use of empirical models that are simpler and more efficient in revealing herding behavior. Furthermore, for the exploratory method, further research can be carried out in disclosing bandarmology analysis based on stock categorization (blue chip, second liner, and third liner), time horizon of market makers, and detailed analysis of camouflage behavior of market makers using retail securities.</em></p><p><strong><em>Keywords</em></strong><em>: bandarmology</em><em>;</em><em> brokers summary;</em><em> </em><em>herding behavior; market makers </em></p>


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