Market Liquidity after the Financial Crisis - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Market Liquidity after the Financial Crisis

October 2016 Number 796
Revised June 2017

JEL classification: G12, G21, G28

Authors: Tobias Adrian, Michael Fleming, Or Shachar, and Erik Vogt

This paper examines market liquidity in the post-crisis era in light of concerns that regulatory changes might have reduced dealers’ ability and willingness to make markets. We begin with a discussion of the broader trading environment, including an overview of regulations and their potential effects on dealer balance sheets and market making, but also considering additional drivers of market liquidity. We document a stagnation of dealer balance sheets after the financial crisis of 2007-09, which occurred concurrently with dealer balance sheet deleveraging. However, using high-frequency trade and quote data for U.S. Treasury securities and corporate bonds, we find only limited evidence of a deterioration in market liquidity.

Available only in PDF pdf

45 pages / 1.6 mb
Author disclosure statement(s)

For a published version of this report, see Tobias Adrian, Michael Fleming, Or Shachar, and Erik Vogt, “Market Liquidity after the Financial Crisis,” Annual Review of Financial Economics, 9 (August 2017): 43-83.

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