Life in the Pits: Competitive Market Making and Inventory Control
We use futures transaction data to investigate cross-sectional relationships between market-maker inventory positions and trade activity. The investigation documents strongly that traders control inventory throughout the trading day. Despite this evidence of inventory management, typical inventory c...
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| Veröffentlicht in: | The Review of financial studies 1996-10, Vol.9 (3), p.953-975 |
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| container_title | The Review of financial studies |
| container_volume | 9 |
| creator | Manaster, Steven Mann, Steven C. |
| description | We use futures transaction data to investigate cross-sectional relationships between market-maker inventory positions and trade activity. The investigation documents strongly that traders control inventory throughout the trading day. Despite this evidence of inventory management, typical inventory control models are contradicted by our data. These inventory models predict that market-maker reservation prices are negatively influenced by inventory. Surprisingly, our evidence shows, as a strong and consistent empirical regularity, that correlations between inventory and reservation prices are positive. We interpret the evidence as consistent with active position taking by futures market floor traders. |
| doi_str_mv | 10.1093/rfs/9.3.953 |
| format | Article |
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The investigation documents strongly that traders control inventory throughout the trading day. Despite this evidence of inventory management, typical inventory control models are contradicted by our data. These inventory models predict that market-maker reservation prices are negatively influenced by inventory. Surprisingly, our evidence shows, as a strong and consistent empirical regularity, that correlations between inventory and reservation prices are positive. 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The investigation documents strongly that traders control inventory throughout the trading day. Despite this evidence of inventory management, typical inventory control models are contradicted by our data. These inventory models predict that market-maker reservation prices are negatively influenced by inventory. Surprisingly, our evidence shows, as a strong and consistent empirical regularity, that correlations between inventory and reservation prices are positive. We interpret the evidence as consistent with active position taking by futures market floor traders.</description><subject>Adverse selection</subject><subject>Audit trails</subject><subject>Competitiveness</subject><subject>Control theory</subject><subject>Correlations</subject><subject>Customers</subject><subject>Futures</subject><subject>Inventories</subject><subject>Inventory</subject><subject>Inventory control</subject><subject>Inventory management</subject><subject>Market prices</subject><subject>Market structure</subject><subject>Modeling</subject><subject>Neutrality</subject><subject>Order flow</subject><subject>Prices</subject><subject>Time series</subject><subject>Trade</subject><subject>Trade finance</subject><subject>Trade volume</subject><issn>0893-9454</issn><issn>1465-7368</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>1996</creationdate><recordtype>article</recordtype><recordid>eNpd0L1PwzAQBXALgUQpTKwMEQsDSmvnHMdmqyo-KhXBALPlpBdwmzrFdiv1v8eoiIHpLT-d3j1CLhkdMapg7NswViMYqRKOyIBxUeYVCHlMBlQqyBUv-Sk5C2FJKWXA6YBM5rbFzLosfmL2amO4y6b9eoPRRrvD7Nn4FcYUK-s-MuMW2czt0MXe75Nz0ffdOTlpTRfw4jeH5P3h_m36lM9fHmfTyTxvoIKYm0XRlGVLAQW2FQqoF9KoskBa8YZh3cgaKdYclJISoa55qQzjijFsREElDMnN4e7G919bDFGvbWiw64zDfhu0BEWBMxBJXv-Ty37rXSqnC1qJSomSJXR7QI3vQ_DY6o23a-P3mlH9M6ZOY2qlQacxk7466GVIv__RQokCmIBvwmtv_A</recordid><startdate>19961001</startdate><enddate>19961001</enddate><creator>Manaster, Steven</creator><creator>Mann, Steven C.</creator><general>Oxford University Press</general><general>Oxford Publishing Limited (England)</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>19961001</creationdate><title>Life in the Pits: Competitive Market Making and Inventory Control</title><author>Manaster, Steven ; Mann, Steven C.</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c373t-ad2c55f03e6ef7e63bd8a952e074c1ebc8be0eb439988e3bb459a14911ec62083</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>1996</creationdate><topic>Adverse selection</topic><topic>Audit trails</topic><topic>Competitiveness</topic><topic>Control theory</topic><topic>Correlations</topic><topic>Customers</topic><topic>Futures</topic><topic>Inventories</topic><topic>Inventory</topic><topic>Inventory control</topic><topic>Inventory management</topic><topic>Market prices</topic><topic>Market structure</topic><topic>Modeling</topic><topic>Neutrality</topic><topic>Order flow</topic><topic>Prices</topic><topic>Time series</topic><topic>Trade</topic><topic>Trade finance</topic><topic>Trade volume</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Manaster, Steven</creatorcontrib><creatorcontrib>Mann, Steven C.</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The Review of financial studies</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Manaster, Steven</au><au>Mann, Steven C.</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Life in the Pits: Competitive Market Making and Inventory Control</atitle><jtitle>The Review of financial studies</jtitle><date>1996-10-01</date><risdate>1996</risdate><volume>9</volume><issue>3</issue><spage>953</spage><epage>975</epage><pages>953-975</pages><issn>0893-9454</issn><eissn>1465-7368</eissn><abstract>We use futures transaction data to investigate cross-sectional relationships between market-maker inventory positions and trade activity. The investigation documents strongly that traders control inventory throughout the trading day. Despite this evidence of inventory management, typical inventory control models are contradicted by our data. These inventory models predict that market-maker reservation prices are negatively influenced by inventory. Surprisingly, our evidence shows, as a strong and consistent empirical regularity, that correlations between inventory and reservation prices are positive. We interpret the evidence as consistent with active position taking by futures market floor traders.</abstract><cop>Oxford</cop><pub>Oxford University Press</pub><doi>10.1093/rfs/9.3.953</doi><tpages>23</tpages></addata></record> |
| fulltext | fulltext |
| identifier | ISSN: 0893-9454 |
| ispartof | The Review of financial studies, 1996-10, Vol.9 (3), p.953-975 |
| issn | 0893-9454 1465-7368 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_839034136 |
| source | EBSCOhost Business Source Complete; Jstor Complete Legacy; Oxford Academic Journals (OUP) |
| subjects | Adverse selection Audit trails Competitiveness Control theory Correlations Customers Futures Inventories Inventory Inventory control Inventory management Market prices Market structure Modeling Neutrality Order flow Prices Time series Trade Trade finance Trade volume |
| title | Life in the Pits: Competitive Market Making and Inventory Control |
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