Cookies?
Library Header Image
LSE Research Online LSE Library Services

Quantifying preferential trading in the e-MID interbank market

Hatzopoulos, Vasilis, Iori, Giulia, Mantegna, Rosario N., Miccichè, Salvatore and Tumminello, Michele (2015) Quantifying preferential trading in the e-MID interbank market. Quantitative Finance, 15 (4). pp. 693-710. ISSN 1469-7688

Full text not available from this repository.
Identification Number: 10.1080/14697688.2014.969889

Abstract

Interbank markets allow credit institutions to exchange capital for purposes of liquidity management. These markets are among the most liquid markets in the financial system. However, liquidity of interbank markets dropped during the 2007–2008 financial crisis, and such a lack of liquidity influenced the entire economic system. In this paper, we analyse transaction data from the e-MID market which is the only electronic interbank market in the Euro Area and US, over a period of 11 years (1999–2009). We adapt a method developed to detect statistically validated links in a network, in order to reveal preferential trading in a directed network. Preferential trading between banks is detected by comparing empirically observed trading relationships with a null hypothesis that assumes random trading among banks doing a heterogeneous number of transactions. Preferential trading patterns are revealed at time windows of 3-maintenance periods. We show that preferential trading is observed throughout the whole period of analysis and that the number of preferential trading links does not show any significant trend in time, in spite of a decreasing trend in the number of pairs of banks making transactions. We observe that preferential trading connections typically involve large trading volumes. During the crisis, we also observe that transactions occurring between banks with a preferential connection occur at larger interest rates than the complement set—an effect that is not observed before the crisis.

Item Type: Article
Official URL: http://www.tandfonline.com/toc/rquf20/current#.VGM...
Additional Information: © 2015 Rouledge, Taylor & Francis Group Ltd.
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 12 Nov 2014 10:28
Last Modified: 20 Oct 2019 02:08
URI: http://eprints.lse.ac.uk/id/eprint/60146

Actions (login required)

View Item View Item