Previous researchers, such as: Fleming and Remolona (1999) and Li et al. (2009), accounted some dealers having private information. On contrary, this study begins with introducing a situation in government bonds and currency forwards markets where all participants always have commonly shared information and make distinct expectations. The circumstance requires that market maker map dealers' expectations. Fluctuating price expectations expose market makers to order flow imbalances and liquidity measures' variations. Later, we develop liquid price models to improve existing liquidity-risk-premium free price models of government bonds and currency forwards and an objective function of liquidity-risk-premium free term structure.
|Journal||Social Science Research Network|
|Publication status||Published - 2 Jan 2017|
- Asymmetric selection cost, Inventory holding cost, Bid-ask spread, Trading volume, Trading frequency, Liquidity innovation