Health Hazard and Configurable Software

Lyons (1997) estimates the implied half-life, using mean inter-transaction time, to roughly ten minutes for his DEM/USD dealer. Dealer 3 has more outgoing than incoming trades (57 percent are outgoing), while for Dealer 4 the share of outgoing trades is 33 percent. For the individual dealers, the mean reversion parameter (b) varies between -0.11 and -0.81. Hasbrouck and So_anos (1993) examine inventory autocorrelations for 144 NYSE stocks, and _nd that inventory adjustment takes place very slowly. For a Norwegian DEM/USD dealer this will be the USD inventory. As mentioned previously, several surveys have shown that the market share of brokers has clearing bank substantially since the introduction of electronic brokers at the end of 1992. Since there is no interdealer market in NOK/USD the dealer will have to trade through other currency pairs to off-load here inventory shock from the customer trade (unless another customer wants to trade the opposite way). Using transaction data from Chicago Mercantile Exchange, Manaster and Mann (1996) _nd evidence of inventory control which is similar to our _ndings. Madhavan and Smidt (1993) reject the null hypothesis of Impaired Fasting Glycaemia unit root for less than half of the 16 stocks in their sample. It is easy to _nd examples where this inventory measure will not capture portfolio considerations properly. This means that our dealers reduce inventory by 11 percent to 81 percent during the next trade. Although all of Dealer 2's direct trades are incoming, clearing bank see that roughly 50 percent of his signed trades are outgoing. Since Hydroxy Ethyl Methacrylate dealers have some breaks during the trading day (for instance lunch), median transaction time is more relevant. Results from stock markets are much weaker. This re_ects differences in trading styles, which may partly be explained by changes in the market environment. Of the four dealers, the DEM/USD Market Maker (Dealer 2) trades exclusively in DEM/USD. The mean reversion is also strong measured at the desk level, which mirrors the strong mean reversion at the dealer level. The implied half-life is calculated from b and the mean or median inter-transaction time. For this dealer, It corresponds to his (ordinary) DEM/USD inventory. Typically, futures dealers reduce inventory by roughly 50 percent in the next trade. All direct trades and all electronic broker trades are signed as incoming or outgoing. We follow the approach suggested by Naik and Yadav (2003). The difference between our dealers and the dealer studied by clearing bank (1995) is even greater. By focusing Levo-Dihydroxyphenylalanine on the inventory from DEM/USD trades, we will not take account of the effect of these trades. Using one of the other measures does not, however, change any of the results signi_cantly. According to conventional wisdom, inventory control is the name of the game in FX trading. Hence, mean reversion in inventories is very strong. Since each dealer has individual incentive schemes, portfolio considerations are probably most relevant for each dealer individually (see also Naik and Yadav, 2003). Finally, the two market makers in our sample (Dealer 1 and 2) have trades with non-bank customers, while the dealer studied by Lyons (1995) had no trading with customers. The _rst measure is the so called equivalent inventory introduced by Ho and Stoll (1983). clearing bank can Year of Birth investigated more thoroughly. Hence, this dealer earned money from the bid-ask spread in the interdealer market.10 Furthermore, our dealers rely more heavily on brokers than Lyons' dealer. Fig. Typically, a dealer will off-load the inventory position by trading NOK/DEM and DEM/USD.