Do inventories matter in dealership markets? Evidence from the London Stock Exchange

Published

Journal Article

Using London Stock Exchange data, we test the central implication of the canonical model of Ho and Stoll (1983) that relative inventory differences determine dealer behavior. We find that relative inventories explain which dealers obtain large trades and show that movements between best ask, best bid, and straddle are highly correlated with both standardized and relative inventory changes. We show that the mean reversion in inventories is highly nonlinear and increasing in inventory levels. We show that a key determinant of variations in interdealer trading is inventories and that interdealer trading plays an important role in managing large inventory positions.

Full Text

Duke Authors

Cited Authors

  • Hansch, O; Naik, NY; Viswanathan, S

Published Date

  • January 1, 1998

Published In

Volume / Issue

  • 53 / 5

Start / End Page

  • 1623 - 1656

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/0022-1082.00067

Citation Source

  • Scopus