Do dealer firms manage inventory on a stock-by-stock or a portfolio basis?

• 成果类型: Article
• 署名作者: Naik, NY; Yadav, PK
• 署名单位: University of London; London Business School; University of Strathclyde
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(03)00115-6
• 发表日期: 2003
• 页码: 325-353
• 关键词: dealer firm; equivalent inventory; correlated risk exposure; unhedgeable risk; effective spreads

摘要

This paper investigates whether dealer firms' trading and pricing decisions are governed by their equivalent inventories, based on Ho and Stoll (1983) or Froot and Stein (1998), or by their ordinary inventories. It finds that ordinary inventories best explain dealer firms' quote placement strategy, which dealer firm executes trades, and the quality of execution offered to the trades. This finding is consistent with decentralized nature of market-making where individual dealers focus on the position risk of stocks managed by them and not the position risks of stocks managed by other dealers in the firm. (C) 2003 Elsevier B.V. All rights reserved.