We document low cross-sectional correlations between high-frequency market maker (MM) inventory positions, suggesting poor risk sharing. Using a unique data set on Canadian futures markets, a simple inventory cost estimate is 300% above the optimal benchmark. Our model explains how heterogeneity...

We document low cross-sectional correlations between market maker (MM) inventory positions in Canadian futures markets, suggesting imperfect risk sharing. We build a model to understand how cross-sectional heterogeneity in inventories shapes liquidity provision in time-priority markets. The...

The term structure of equity risk has been shown to be downward sloping. We capture this feature using return dynamics driven by both a transitory and a permanent component. We study the asset allocation and portfolio performance when transitory and permanent components cannot be observed and...