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Liquidity and Market Quality Around Predictable Trades : Evidence from Crude Oil ETF Rolls *
| Content Provider | Semantic Scholar |
|---|---|
| Author | Bessembinder, Hendrik Richardson, Nela Slovin, Myron B. Solji, Elvira |
| Copyright Year | 2014 |
| Abstract | We extend the theory of strategic trading around a predictable liquidation by considering the role of market resiliency. Our model predicts that strategic trading improves market quality and increases liquidator proceeds when trades’ temporary price impacts are quickly reversed. We provide related empirical evidence by studying prices, liquidity, and individual account trading activity around the large and predictable “roll” trades undertaken by the largest ETF tracking crude oil futures prices. The evidence indicates narrower bid-ask spreads, greater order book depth, improved market resiliency, and more trading accounts provide liquidity on roll dates. However, the large volume of trading associated with the roll transactions leads to substantial trade execution costs that average three percent per year. On balance, the theory and evidence supports that strategic traders choose to provide liquidity rather than exploit predictable trades in resilient markets. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.ou.edu/content/dam/price/Finance/CFS/paper/pdf/Bessembinder%20Paper.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |