Market-making costs in Treasury bills: A benchmark for the cost of liquidity

Mark D. Griffiths, James T. Lindley and Drew B. Winters

Journal of Banking & Finance, 2010, vol. 34, issue 9, 2146-2157

Abstract: We focus on market-making costs by examining the daily bid-ask spreads for off-the-run, one-month Treasury bills around two liquidity-changing events. Event one, Salomon Brothers' supply shock, results in a roughly 2.5-basis-point increase in the spread because of an increase in ask prices; and event two, the Long-Term Capital Management demand shock, results in a doubling of the spread because of a decrease in bid prices. Our results provide a benchmark for researchers examining bid-ask spreads of securities that include a liquidity premium, a risk premium, and an asymmetric information premium.

Keywords: Liquidity; Bid-ask; spread; Market-making; costs (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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