Dealer Networks and the Cost of Immediacy

Jens Dick-Nielsen, Thomas Kjær Poulsen, Obaidur Rehman

Publikation: KonferencebidragPaperForskningpeer review

Abstrakt

We show that uninformed corporate bond index trackers pay lower transaction costs when they request immediacy from more central dealers in the network. This centrality discount supports recent network models in which core dealers have a comparative advantage in carrying inventory. Core dealers provide more immediacy and revert deviations from their desired inventory faster. When dealers trade with other dealers, we find a centrality premium consistent with core dealers exploiting their comparative advantage to extract more surplus when bargaining with peripheral dealers. Using trades around index exclusions
rule out alternative explanations based on adverse selection, customer bargaining power, and customer clienteles.
OriginalsprogEngelsk
Publikationsdato2021
Antal sider39
StatusUdgivet - 2021
BegivenhedChina International Conference in Finance 2021 - Online and Onsite, Shanghai, Kina
Varighed: 6 jul. 20219 jul. 2021
https://www.cicfconf.org/2021/m/index.html

Konference

KonferenceChina International Conference in Finance 2021
LokationOnline and Onsite
Land/OmrådeKina
ByShanghai
Periode06/07/202109/07/2021
Internetadresse

Emneord

  • Dealer network
  • Dealer inventory
  • Search frictions
  • Transaction costs

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