The Cost of Immediacy for Corporate Bonds

Jens Dick-Nielsen; Marco Rossi

The Cost of Immediacy for Corporate Bonds

Jens Dick-Nielsen, Marco Rossi

Institut for Finansiering

Texas A&M University

Publikation: Konferencebidrag › Paper › Forskning › peer review

Abstract

Liquidity provision in the corporate bond market has become significantly more expensive after the 2008 credit crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the price of immediacy has doubled for short-term investment grade bonds, and more than tripled for speculative-grade bonds. The increased cost of immediacy is a side-effect of a ban on proprietary trading (Volker Rule) and tighter post-crisis capital regulations, which have resulted in lower aggregate dealer inventories.

Originalsprog	Engelsk
Publikationsdato	2016
Antal sider	42
Status	Udgivet - 2016
Begivenhed	The 14th International Paris December Finance Meeting - Paris, Frankrig Varighed: 20 dec. 2016 → 20 dec. 2016 Konferencens nummer: 14 https://www.eurofidai.org/fr/december2016.html

Konference

Konference	The 14th International Paris December Finance Meeting
Nummer	14
Land/Område	Frankrig
By	Paris
Periode	20/12/2016 → 20/12/2016
Internetadresse	https://www.eurofidai.org/fr/december2016.html

Emneord

Dealer inventory
Lehman/Barclay bond index
Market making
Transaction costs
Dodd-Frank Act

Adgang til dokumentet

https://www.eurofidai.org/sites/default/files/pdf/parismeeting/2016/Dick_Nielsen_2016.pdfLicens: Ikke-specificeret

Handle.net

Persistent link

Citationsformater

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AU - Rossi, Marco

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N2 - Liquidity provision in the corporate bond market has become significantly more expensive after the 2008 credit crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the price of immediacy has doubled for short-term investment grade bonds, and more than tripled for speculative-grade bonds. The increased cost of immediacy is a side-effect of a ban on proprietary trading (Volker Rule) and tighter post-crisis capital regulations, which have resulted in lower aggregate dealer inventories.

AB - Liquidity provision in the corporate bond market has become significantly more expensive after the 2008 credit crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the price of immediacy has doubled for short-term investment grade bonds, and more than tripled for speculative-grade bonds. The increased cost of immediacy is a side-effect of a ban on proprietary trading (Volker Rule) and tighter post-crisis capital regulations, which have resulted in lower aggregate dealer inventories.

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KW - Lehman/Barclay bond index

KW - Market making

KW - Transaction costs

KW - Dodd-Frank Act

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KW - Lehman/Barclay bond index

KW - Market making

KW - Transaction costs

KW - Dodd-Frank Act

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