Constrained Dealers and Market Efficiency
نویسندگان
چکیده
We analyse how constraints on dealers’ risk bearing capacity affect market efficiency in the foreign exchange (FX) market. Dealers support by accommodating their customers’ trading demands through elastic liquidity provision normal times but when they face elasticity of weakens. Episodes tight dealer – for instance, due to high leverage, Value-at-Risk, and funding costs turn go hand with price inefficiencies to law one deviations elevated trading costs. rationalise our novel empirical findings a tractable model that sheds light key mechanisms can deteriorate dealers are more constrained.
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ژورنال
عنوان ژورنال: Social Science Research Network
سال: 2021
ISSN: ['1556-5068']
DOI: https://doi.org/10.2139/ssrn.3956582