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Time Variation in Liquidity: The Role of Market-maker Inventories and Revenues

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dc.contributor.authorComerton-Forde, Carole
dc.contributor.authorHendershott, Terrence
dc.contributor.authorJones, Charles M.
dc.contributor.authorMoulton, Pamela
dc.contributor.authorSeaholes, Mark S.
dc.date.accessioned2020-09-12T21:03:06Z
dc.date.available2020-09-12T21:03:06Z
dc.date.issued2010-01-01
dc.description.abstractWe show that market-maker balance sheet and income statement variables explain time variation in liquidity, suggesting liquidity-supplier financing constraints matter. Using 11 years of NYSE specialist inventory positions and trading revenues, we find that aggregate market-level and specialist firm-level spreads widen when specialists have large positions or lose money. The effects are nonlinear and most prominent when inventories are big or trading results have been particularly poor. These sensitivities are smaller after specialist firm mergers, consistent with deep pockets easing financing constraints. Finally, compared to low-volatility stocks, the liquidity of high volatility stocks is more sensitive to inventories and losses.
dc.description.legacydownloadsMoulton6_Time_variation_in_liquidity.pdf: 1564 downloads, before Aug. 1, 2020.
dc.identifier.other4733789
dc.identifier.urihttps://hdl.handle.net/1813/71491
dc.language.isoen_US
dc.relation.doihttps://doi.org/10.1111/j.1540-6261.2009.01530.x
dc.rightsRequired Publisher Statement: © Wiley. Final version published as: Comerton-Forte, C., Hendershott, T., Jones, C. M., Moulton, P. C., & Seasholes, M. S. (2010). Time variation in liquidity: The role of market-maker inventories and revenues. Journal of Finance, 65(1), 295-332. Reprinted with permission. All rights reserved.
dc.subjectmarket-maker
dc.subjectliquidity
dc.subjectinventory
dc.subjectvolatility
dc.titleTime Variation in Liquidity: The Role of Market-maker Inventories and Revenues
dc.typearticle
local.authorAffiliationComerton-Forde, Carole: University of Sydney
local.authorAffiliationHendershott, Terrence: University of California - Berkeley
local.authorAffiliationJones, Charles M.: Columbia University
local.authorAffiliationMoulton, Pamela: pm388@cornell.edu Cornell University School of Hotel Administration
local.authorAffiliationSeaholes, Mark S.: Hong Kong University

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