2012/07/23 by Caterina Liberati, Liberati, Caterina, Massimiliano Marzo +5
Economics, Econometrics and Finance · #FOS: Economics and business #Statistical Finance (q-fin.ST) #Trading and Market Microstructure (q-fin.TR) #q-fin.ST #q-fin.TR
paper · pdf · doi:10.48550/arxiv.1207.5269
arxiv created 2012/07/23 · arxiv updated 2012/07/24
We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two main issues. First, we characterize the division of roles between borrowers and lenders in long-run relations by providing evidence on network formation at a yearly frequency. Second, we identify the 'key players' in the marketplace and study their behaviour. Key players are 'locally-central banks' within a network that lend (or borrow) large volumes to (from) several counterparties, while borrowing (or lending) small volumes from (to) a small number of institutions. Our results are twofold. We show that the aggregate trading patterns in e-Mid are characterized by largely asymmetric relations. This implies a clear division of roles between lenders and borrowers. Second, the key players do not exploit their position of network leaders by imposing opportunistic pricing policies. We find that only a fraction of the networks composed by big players are characterized by interest rates that are statistically different from the average market rate throughout the turmoil period.