Abstract
We show that uninformed corporate bond index trackers pay lower transaction costs when they request immediacy from dealers with central network positions. This centrality discount supports recent network models in which core dealers have a comparative advantage in carrying inventory. We show that 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. We rule out alternative explanations based on adverse selection and customer clienteles by using trades from uninformed index trackers
Original language | English |
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Publication date | 2022 |
Number of pages | 48 |
Publication status | Published - 2022 |
Event | The 82nd Annual Meeting of American Finance Association. AFA 2022: Part of the ASSA 2022 Virtual Annual Meeting - , WWW Duration: 7 Jan 2022 → 9 Jan 2022 Conference number: 82 https://www.aeaweb.org/conference/ |
Conference
Conference | The 82nd Annual Meeting of American Finance Association. AFA 2022 |
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Number | 82 |
Country/Territory | WWW |
Period | 07/01/2022 → 09/01/2022 |
Internet address |
Keywords
- Dealer network
- Dealer inventory
- Search frictions
- transaction costs