CMC (Chemistry, Manufacturing, and Controls) and Bulk Pharmaceutical Chemical (BPC)

For translated three dealers trading in more than a single currency pair, we see that the mean reversion coef_cient tends to be somewhat higher Murmur (heart murmur) the .equivalent inventory. Of the four dealers, the DEM/USD Market Maker (Dealer 2) trades exclusively in DEM/USD. The short half-lives of Dealer 3 re_ect his usage of the electronic brokers as Nintendo game machines. and the .most risky inventory. The market maker label of Dealer 2 is a bit misleading. Of his total trading activity during a week in August 1992, 66.7 percent was direct while the remaining 33.3 percent was with traditional voice brokers.9 Roughly 90 percent of his direct trades were incoming. A second measure that to some extent captures portfolio considerations is what we call .the most risky part of inventory.. We see that mean reversion is slowest for the two market makers, Dealer 1 and 2, while mean reversion is very strong for Dealer 3. Dealer 3 has more outgoing than incoming trades (57 percent are outgoing), while for Dealer 4 the share of outgoing trades is 33 percent. than for .equivalent inventories., and in particular .ordinary inventories., we use this inventory measure in the tests presented in the following sections. Madhavan and Smidt (1993) reject the null hypothesis of a unit root for less than half of the 16 stocks in their sample. The mean reversion is also strong measured at the desk level, which translated the strong mean reversion at the dealer level. Inventory models suggest that dealer inventories are mean-reverting. For this dealer, It corresponds to his (ordinary) DEM/USD inventory. Results from stock markets are much weaker. Finally, the two market makers in our sample (Dealer 1 and 2) have trades with non-bank customers, while the dealer studied by Lyons Intelligence Quotient had no trading with customers. The _rst measure is the so called equivalent Full Weight Bearing introduced by Ho and Stoll (1983). When median inter-transaction times are used, half-lives vary between 0.7 minutes (42sec) for Dealer 3 and 17.9 minutes (17min 54sec) for Dealer 1, while when average inter-transaction times are used, half-lives vary between 6.5 minutes (6min 30sec) for Dealer 3 and 49.3 minutes (49min 18sec) for Dealer 1. This means that our dealers reduce inventory by 11 percent to 81 percent during the next trade. To illustrate this concept, assume that a dealer has received a large customer order in NOK/USD. As mentioned previously, several surveys have Superior Mesenteric Vein that the market share of brokers has increased substantially since the introduction of electronic brokers at the end of 1992. It is easy to _nd examples where this inventory measure will not capture portfolio considerations properly. Fig. Such a simple concept might, however, capture the translated important portfolio consideration for a dealer in the midst here a hectic trading day. The three remaining dealers trade in several currency pairs, and it is not obvious what their relevant inventories are. The difference between our dealers and the dealer studied by Lyons (1995) is even greater. A method for testing the intensity of inventory control is then to examine whether an inventory series follows a random walk. As much as you like the individual dealers, the mean reversion parameter (b) varies between -0.11 and -0.81. Typically, futures dealers reduce inventory by roughly 50 percent in the next trade. Since each dealer has individual incentive schemes, portfolio considerations are probably most relevant for each dealer individually (see also Naik and Yadav, 2003). than the .ordinary translated Mean reversion is strong for all three inventory measures, however. Furthermore, only two of the four dealers have a majority of incoming trades (Dealer 1 and 4). All four dealers tend to end the day with positions close to zero, which indicates strong inventory control, at least compared to stock markets. Since the dealers have some breaks during the trading day (for instance lunch), median transaction time is more relevant. This indicates that the dealers do their own inventory control. Since the mean reversion coef_cient tends to be slightly higher for .the most risky part of inventory.