Dealer Trading at the Fix

Carol Osler ()
Additional contact information
Carol Osler: Brandeis University

No 101, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: This paper analyzes dealer trading at 'fixes,' which are benchmark financial prices set at specific times of day. Extreme returns and quick retracements are common around fixes and often prompt suspicions of collusion and market manipulation, but the connections between price dynamics and dealer behavior are poorly understood. I examine a model of trading at the fix in which dealers can engage in three prohibited behaviors: front-running, sharing information about customer orders, and colluding. The model shows that dealers will engage a strategy akin to front-running regardless of whether they compete or collude, causing quick retracements after the fix. Collusion shuts down free-riding among dealers while information sharing intensifies it. Therefore collusion intensifies, and information-sharing reduces, pre-fix volatility, post-fix retracements, and the convexity of the pre-fix price path.

Pages: 43 pages
Date: 2016-03
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP101.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:brd:wpaper:101

Access Statistics for this paper

More papers in Working Papers from Brandeis University, Department of Economics and International Business School Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Luna ().