Kiel Working Papers, Kiel Institute for World Economics
No 1766:
Trading Strategies in the Overnight Money Market: Correlations and Clustering on the e-MID Trading Platform
Daniel Fricke
Abstract: We analyze the correlations in patterns of trading for
members of the Italian interbank trading platform e-MID. The trading
strategy of a particular member institution is defined as the sequence of
(intra-) daily net trading volumes within a certain semester. Based on this
definition, we show that there are significant and persistent bilateral
correlations between institutions' trading strategies. In most semesters we
find two clusters, with positive correlations within the clusters and
negative correlations between them. We show that the two clusters mostly
contain continuous net buyers and net sellers of money, respectively, and
that cluster memberships of individual banks are highly persistent.
Additionally, we highlight some problems related to our definition of
trading strategies. Our findings add further evidence on the fact that
preferential lending relationships on the micro-level lead to community
structure on the macro-level
Keywords: interbank market, socio-economic networks, community identification; (follow links to similar papers)
JEL-Codes: G21,; E42; (follow links to similar papers)
29 pages, March 2012
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