Market Liquidity and Trader Welfare in Multiple Dealer Markets: Evidence from Dual Trading Restrictions

Abstract

Sarkar and Wu are grateful to the Office for Futures and Options Research of the University of Illinois at Urbana-Champaign for financial support, and to the Commodity Futures Trading Commission and the Chicago Mercantile Exchange for the provision of data. We also thank the referee, the editor, Paul H. Malatesta, and seminar participants at the Federal Reserve Banks of Atlanta and New York for comments. The views stated here are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of New York, the Federal Reserve System or the Commodity Futures Trading Commission or their respective staffs. All errors and omissions are our responsibility alone.

Do oil shocks impact stock liquidity?

“…Finally, to provide more detailed insights (e.g., Locke et al, 1999), we further segregate our research sample equally into two groups (i.e., high and low) based on their average daily market capitalization 11 across the observation period. The high and low groups represent large and small companies, respectively.…”

A Bayesian Analysis of Dual Trader Informativeness in Futures Markets

“…There are four customer type indicators (CTI), labeled 1 through 4, we focus on the market making trades for personal account (CTI 1) and trades of outside customers (CTI 4). Our definitions of a dual trading day and dual traders follow Locke et al (1999) and Chakravarty and Li (2001, in press). In particular, we calculate a trading ratio d as the proportion of a floor trader's personal trading (CTI 1) volume over the sum of his personal (CTI 1) and his customers' (CTI 4) trading volumes for each day he is active.…”

“…The authors argue that their evidence is inconsistent with the assumption of homogeneous information and homogeneous risk aversion among dual traders. Locke et al (1999), in fact, suggest that traders could be heterogeneous with respect to trading skills, and that the aggregate measures of trading costs, such as average bid -ask spreads, could be misleading. Consistent with the above, they develop a theoretical model based on dealer heterogeneity.…”

“…The empirical literature on dual trading can be broadly classified into three themes. The first theme focuses on the liquidity effects of various dual trading restrictions imposed on the futures markets (Smith and Whaley, 1994;Chang et al, 1994;Chang and Locke, 1996;Locke et al, 1999). The second theme of the empirical literature examines the microstructure of futures markets under competitive market making (Manaster and Mann, 1996;Ferguson and Mann, 2001).…”

The influence of oil price uncertainty on stock liquidity

“…Further, to provide more detailed insights (e.g., Locke et al, 1999), this study segregates the study's firm sample equally into two groups (i.e., large and small) based on their average daily market capitalization 11 across the observation period. 12 For consistency, the grouping is conducted at the full sample level and applied to all analyses (i.e., oil, broad market, oil-related, oil-user, and oil-substitute).…”