Dealer behaviour in the Euro money market during times of crisis

Falko Fecht and Stefan Reitz

Applied Economics, 2018, vol. 50, issue 48, 5204-5219

Abstract: This article shows how the recent money market disruptions with elevated counterparty risks and uncertainty about the fundamental value of liquidity influenced the trading behaviour of a key dealer in the Euro money market. The complete trading record in the unsecured segment of the money market for 2007 and 2008 is used to estimate a stylized pricing model, which explicitly accounts for the over-the-counter structure. The empirical results suggest that the market maker learns from order flow, but this information aggregation was increasingly hampered as the crisis unfolded.

Date: 2018
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DOI: 10.1080/00036846.2018.1486014

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