Trading networks and liquidity provision

Ethan Cohen-Cole, Andrei Kirilenko and Eleonora Patacchini

Journal of Financial Economics, 2014, vol. 113, issue 2, 235-251

Abstract: We study the profitability of traders in two fully electronic and highly liquid markets: the Dow and Standard & Poor׳s 500 e-mini futures markets. Using unique information that identify counterparties to a transaction, we show and seek to explain the fact that the network pattern of trades captures the relations between behavior in the market and returns. Our approach includes a simple representation of how much a shock is amplified by the network and how widely it is transmitted. This representation provides a possible shorthand for understanding the consequences of a fat-finger trade, a withdrawing of liquidity, or other market shock.

Keywords: Financial interconnections; Contagion; Spatial autoregressive models; Network centrality; Trading limits (search for similar items in EconPapers)
JEL-codes: C21 G10 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:113:y:2014:i:2:p:235-251

DOI: 10.1016/j.jfineco.2014.04.007

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