文档介绍：Life in the Pits: Competitive
Market Making and
Inventory Control
Steven Manaster
University of Utah
Steven C. Mann
Texas Christian University
We use futures transaction data to investigate
cross-sectional relationships between market-
maker inventory positions and trade activity. The
investigation documents strongly that traders
control inventory throughout the trading day.
Despite this evidence of inventory management,
typical inventory control models are contradict-
ed by our data. These inventory models predict
that market-maker reservation prices are nega-
tively influenced by inventory. Surprisingly, our
evidence shows, as a strong and consistent em-
pirical regularity, that correlations between in-
ventory and reservation prices are positive. We
interpret the evidence as consistent with active
position taking by futures market floor traders.
We thank Chester Spatt (the editor), two anonymous referees, Jeff Coles,
Avner Kalay, Ron Lease, Peter Locke, Uri Loewenstein, Fallaw Sowell, Eliz-
abeth Tashjian, Jaime Zender, and participants at the 1993 Western Finance
Association meetings, the 1994 UCLA/USC/NYSE Microstructure Confer-
ence, the 1994 Chicago Board of Trade Fall Research Seminar, the 1995
SWFA meetings, and seminar participants at the University of Utah, Texas
Christian University, Indiana, Virginia Tech, and New Hampshire for help-
ful discussions ments. We thank Zhiming Zhang for adding to our
understanding of the Brownian bridge process. Appropriately, the authors
retain sole responsibility for any errors. We thank Ron Hobson, Jonathan
Smith, Hans Dutt, and Jay Huhman of modity Futures Trading
Commission for assistance in the provision of the data, and the Utah Su-
puting Institute (particularly Rich Reynolds) for technical support.
Steven C. Mann acknowledges financial support from the Marriner S. Ec-
cles Foundation and the Charles Tandy American Enterprise Center. Address
correspondence to Steven C. Mann, M. J. N