Bessembinder, Hendrik
[VerfasserIn]
;
Carrion, Allen
[Sonstige Person, Familie und Körperschaft];
Tuttle, Laura A.
[Sonstige Person, Familie und Körperschaft];
Venkataraman, Kumar
[Sonstige Person, Familie und Körperschaft]
Liquidity, Resiliency and Market Quality Around Predictable Trades
Anmerkungen:
In: Journal of Financial Economics (JFE), Forthcoming
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 20, 2015 erstellt
Beschreibung:
We extend the theory of strategic trading around a predictable liquidation by considering the role of market resiliency. Our model predicts that even a monopolist strategic trader improves market quality and increases liquidator proceeds if trades' temporary price impacts are quickly reversed. We provide related empirical evidence by studying prices, liquidity, and individual account trading activity around the large and predictable “roll” trades undertaken by the largest ETF tracking crude oil futures prices. The evidence indicates narrower bid-ask spreads, greater order book depth and improved resiliency on roll dates. We find that a larger number of individual trading accounts provide liquidity on roll dates, and do not find evidence of the systematic use of predatory strategies. On balance, the theory and evidence supports that strategic traders choose to provide liquidity to predictable trades in resilient markets. However, the large volume of trading associated with the roll transactions leads to substantial trade execution costs that average three percent per year