Journal of Banking & Finance Vol. 34 No. 9 2010
Market-making costs in Treasury bills: A benchmark for the cost of liquidity
Abstract
We focus on market-making costs by examining the daily bid–ask spreads for off-the-run, one-month Treasury bills around two liquidity-changing events. Event one, Salomon Brothers’ supply shock, results in a roughly 2.5-basis-point increase in the spread because of an increase in ask prices; and event two, the Long-Term Capital Management demand shock, results in a doubling of the spread because of a decrease in bid prices. Our results provide a benchmark for researchers examining bid–ask spreads of securities that include a liquidity premium, a risk premium, and an asymmetric information premium.
- DOI
- 10.1016/j.jbankfin.2010.02.004
- Volume
- 34
- Issue
- 9
- Pages
- 2146-2157
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib