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on Market Microstructure |
| By: | Schuster, Philipp; Trapp, Monika; Uhrig-Homburg, Marliese |
| Abstract: | We analyze the impact of market frictions on trading volume and liquidity premia for finite maturity assets when investors differ in their investment horizons. In equilibrium, illiquidity spills over from short-term to long-term assets and trading concentrates on assets of intermediate maturity. These effects lead to i) a hump-shaped relation between trading volume and maturity, ii) decreasing trading volume as assets age, iii) an increasing liquidity term structure when considering ask prices, and iv) a liquidity term structure from bid prices that is decreasing or U-shaped. Empirical tests using data for U.S. corporate bonds strongly support our theoretical predictions. -- |
| Keywords: | bond liquidity,term structure of liquidity premia,heterogeneous agents,aging effect,trading volume,equilibrium |
| JEL: | G11 G12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:1305&r=mst |
| By: | Emanuel Kohlscheen; Sandro C. Andrade |
| Abstract: | We use high-frequency data to study the effects of currency swaps auctions by the Brazilian Central Bank on the BRL/USD spot exchange rate. We find that official currency swap auctions impact the level of the exchange rate, even though they do not directly alter the supply of foreign currency in the market. The maximum impact occurs 60 to 70 minutes after the initial official announcement of an auction, and typically shortly after the results of the auctions are made public. The official supply of currency swaps to the market provides an alternative for traders that demand foreign currency for financial (speculative or hedging) rather than transactional reasons, and thus affects the demand for foreign currency and its price. This mechanism is likely to be particularly relevant when forecasters extrapolate exchange rate trends at short-term horizons. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:317&r=mst |