When Failure is an Option: Fragile Liquidity in Over-the-Counter Markets

Published: 26 April 2024| Version 2 | DOI: 10.17632/ht3ncvtkn2.2
Terrence Hendershott, Dan Li, Dmitry Livdan, Norman Schuerhoff


This repository is a comprehensive resource accompanying the paper "When Failure is an Option: Fragile Liquidity in Over-the-Counter Markets" by Terrence Hendershott, Dan Li, Dmitry Livdan, Norman Schürhoff. It includes source codes and datasets for replicating and extending the study's analysis on the total cost of immediacy (TCI) in over-the-counter markets. To effectively use this repository, users must adjust the directory paths within the Stata code to match their local environment. The repository supports switching between real and simulated data by setting a global variable in the source code. The replicator should expect the code to run for between 3 days and 1 week. Repository contents: 1. Original Stata Source Code: Implements the methodologies for calculating TCI, using both optimal and constrained quantile rotations. This code is the core for reproducing the main results presented in the paper. 2. Simulated Data Generation Code: Written in Stata, this script produces simulated datasets that mimic the data used in the study. It allows for the examination of TCI for different tranches under various hypothetical market conditions. 3. Simulated Input Datasets: Three tranches of pre-generated simulated data are included. These datasets serve as ready-to-use examples for computing TCI, facilitating the analysis without the need for initial data generation. 4. Log File: Contains the output from applying the original source code to the simulated datasets. The log illustrates the expected results and serves as a benchmark for verifying the correct execution of the code.



Federal Reserve Board, Universite de Lausanne, University of California Berkeley


Finance, Financial Market, Financial Econometrics, Econometrics of Auction