|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26418
|
| Title: | Leaning against the wind |
| Authors: | Weill, Pierre-Olivier |
| Keywords: | Marketmaking capital
marketmaker inventory management |
| Issue Date: | 20-Feb-2005 |
| Series/Report no.: | FIN-05-017 |
| Abstract: | During financial disruptions, market makers provide liquidity by
absorbing external selling pressure. They buy when the pressure is
large, accumulate inventories, and sell when the pressure alleviates.
This paper studies optimal dynamic liquidity provision in a theoretical
market setting with large and temporary selling pressure, and
order-execution delays. I show that competitive marketmakers offer the
socially optimal amount of liquidity, provided they have access to
sufficient capital. If raising capital is costly, this suggests a policy
role for lenient centralbank lending during financial disruptions. |
| URI: | http://hdl.handle.net/2451/26418 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
