Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets
Posted: 6 Oct 2003
There are 4 versions of this paper
Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets
London Business School, IFA Working Paper No. 338
Number of pages: 51
Posted: 22 Oct 2001
Downloads
594
Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets
NYU Working Paper No. FIN-01-013
Number of pages: 51
Posted: 03 Nov 2008
Downloads
111
Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets
Journal of Finance, Vol. 58, No. 5, 2003
Number of pages: 51
Posted: 07 Nov 2008
Last Revised: 09 Nov 2020
Downloads
99
Abstract
This paper investigates how bond dealers manage core business risk with interest rate futures and the extent to which market quality is affected by their selective risk taking. We observe that dealers use futures to take directional bets and hedge changes in their spot exposure. We find that, cross-sectionally, a dealer with longer (shorter) risk exposure sells (buys) a larger amount of exposure the next day. However, this risk control takes place via the futures market and not the spot market. Finally, we find strong support for the price effects of capital constraints.
Suggested Citation: Suggested Citation
Naik, Narayan Y. and Yadav, Pradeep K., Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets. Available at SSRN: https://ssrn.com/abstract=447364
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