Market Microstructure.

• Position: Bureau News

The NBER's Working Group on Market Microstructure met in Cambridge on May 12. NBER Research Associate Bruce Lehmann of the University of California, San Diego, Duane Seppi of Carnegie Mellon's Tepper School of Business, and Avanidhar Subrahmanyam of the University of California, Los Angeles's Anderson School of Management, organized the meeting. These papers were discussed:

Michael J. Fleming, Federal Reserve Bank of New York, and Monika Piazzesi, University of Chicago and NBER, "Monetary Policy Tick-by-Tick"

Discussant: Clara Vega, University of Rochester

Laura Frieder and Rodolfo Martell, Purdue University, "On Capital Structure and the Liquidity of a Firm's Stock"

Discussant: Naveen Khanna, Michigan State University

Ronald L. Goettler and Christine A. Parlour, Carnegie Mellon University, and Uday Rajan, University of Michigan, "Information Acquisition in a Limit Order Market"

Discussant: Dmitry Livdan, Texas A&M University

Anurag Gupta and Ajai Singh, Case Western Reserve University, and Allan Zebedee, San Diego State University, "Liquidity in the Pricing of Syndicated Loans"

Discussant: Amir Sufi, University of Chicago

Terrence Hendershott and Mark S. Seasholes, University of California, Berkeley, "Market Maker Inventories and Stock Prices"

Discussant: Marc Lipson, University of Virginia

Amrut Nashikkar and Marti Subrahmanyam, New York University, "Latent Liquidity and Corporate Bond Yield Spreads"

Discussant: Michael Piwowar, U.S. Securities and Exchange Commission

Analysis of high-frequency data shows that yields on Treasury notes are highly volatile around FOMC announcements, even though the average effects of fed funds target rate surprises on such yields are fairly modest. Fleming and Piazzesi partially resolve this puzzle by showing that yield changes seem to depend not only on the surprises themselves, but also on the shape of the yield curve at the time of announcement. They also show that the reaction of yields to FOMC announcements is sluggish, but that much of this sluggishness can be attributed to the few inter-meeting moves. Market liquidity around FOMC announcements behaves in a manner generally consistent with that found for other announcements, although the richness of FOMC announcement release practices induces differences in the market-adjustment process.

Earlier literature on the capital structure has only touched on a causal relation between liquidity and leverage (that is, liquidity affects leverage). Frieder and...