A study of the strategies of market makers in the intra dealer market. The authors demonstrate that market makers actively learn from the dealers they trade with and strategically react to the information they receive. This paper reveals that "hiding" and "experimenting" are two of the major strategies of market makers as they trade. Using a high frequency model dataset on the Italian Treasury Bond Market, the authors provide practical information to prove their thesis. Basically an examination of how market makers react not only to information but to one another. An interesting and informative look at the evolution of the e-market and trade psychology, well worth a read. The authors affirm that the goal of their research is "To analyze the way market makers deliberately choose to trade with other market makers in order to experiment about the quality of the information they learn when an order is placed with them" ... download the eBook to read more
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