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Market maker

About: Market maker is a research topic. Over the lifetime, 7066 publications have been published within this topic receiving 229264 citations.


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TL;DR: In this paper, the authors test whether innovations in macroeconomic variables are risks that are rewarded in the stock market, and they find that these sources of risk are significantly priced and neither the market portfolio nor aggregate consumption are priced separately.
Abstract: This paper tests whether innovations in macroeconomic variables are risks that are rewarded in the stock market. Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread between long and short interest rates, expected and unexpected inflation, industrial production, and the spread between high- and low-grade bonds. We find that these sources of risk are significantly priced. Furthermore, neither the market portfolio nor aggregate consumption are priced separately. We also find that oil price risk is not separately rewarded in the stock market.

5,266 citations

Journal ArticleDOI
TL;DR: In this article, the authors examined the relation between stock returns and stock market volatility and found that the expected market risk premium (the expected return on a stock portfolio minus the Treasury bill yield) is positively related to the predictable volatility of stock returns.

4,348 citations

Journal ArticleDOI
TL;DR: In this article, the authors studied the causes and consequences of a security's liquidity, especially the effect of future liquidity on the security's current price-equivalently the effect on its required expected rate of return, its cost of capital.
Abstract: This paper shows that revealing public information to reduce information asymmetry can reduce a firm's cost of capital by attracting increased demand from large investors due to increased liquidity of its securities. Large firms will disclose more information since they benefit most. Disclosure also reduces the risk bearing capacity available through market makers. If initial information asymmetry is large, reducing it will increase the current price of the security. However, the maximum current price occurs with some asymmetry of information: further reduction of information asymmetry accentuates the undesirable effects of exit from market making. THIS PAPER STUDIES THE causes and consequences of a security's liquidity, especially the effect of future liquidity on the security's current price-equivalently the effect on its required expected rate of return, its cost of capital. Under conditions that we identify, reducing information asymmetry reduces the cost of capital. Under other (less typical) conditions, this reduced information asymmetry can have the opposite effect. We use public disclosure of information as the means of changing information asymmetry, but the points are more general. Our model is related to those of Kyle (1985), Glosten and Milgrom (1985), and Admati and Pfleiderer (1988). They assume that there is unlimited risk bearing capacity devoted to market making, which implies that changes in future liquidity never influence a security's cost of capital.1 In contrast, we develop a model of trade in an illiquid market with limited risk bearing capacity of risk-averse market makers and examine the effects of private information on the incentives of market makers to provide risk bearing

3,360 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
202331
202270
202193
202079
201966
201896