The Cost of Immediacy for Corporate Bonds

Jens Dick-Nielsen; Marco Rossi

The Cost of Immediacy for Corporate Bonds

Jens Dick-Nielsen, Marco Rossi

Department of Finance

Texas A&M University

Research output: Contribution to conference › Paper › Research › 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.

Original language	English
Publication date	2016
Number of pages	42
Publication status	Published - 2016
Event	The 14th International Paris December Finance Meeting - Paris, France Duration: 20 Dec 2016 → 20 Dec 2016 Conference number: 14 https://www.eurofidai.org/fr/december2016.html

Conference

Conference	The 14th International Paris December Finance Meeting
Number	14
Country/Territory	France
City	Paris
Period	20/12/2016 → 20/12/2016
Internet address	https://www.eurofidai.org/fr/december2016.html

Keywords

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

Access to Document

https://www.eurofidai.org/sites/default/files/pdf/parismeeting/2016/Dick_Nielsen_2016.pdfLicence: Unspecified

Handle.net

Persistent link

Cite this

@conference{93a56e94fd45435ea6df5f794e755563,

title = "The Cost of Immediacy for Corporate Bonds",

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.",

keywords = "Dealer inventory, Lehman/Barclay bond index, Market making, Transaction costs, Dodd-Frank Act, Dealer inventory, Lehman/Barclay bond index, Market making, Transaction costs, Dodd-Frank Act",

author = "Jens Dick-Nielsen and Marco Rossi",

year = "2016",

language = "English",

note = "The 14th International Paris December Finance Meeting ; Conference date: 20-12-2016 Through 20-12-2016",

url = "https://www.eurofidai.org/fr/december2016.html",

}

TY - CONF

T1 - The Cost of Immediacy for Corporate Bonds

AU - Dick-Nielsen, Jens

AU - Rossi, Marco

N1 - Conference code: 14

PY - 2016

Y1 - 2016

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.

KW - Dealer inventory

KW - Lehman/Barclay bond index

KW - Market making

KW - Transaction costs

KW - Dodd-Frank Act

KW - Dealer inventory

KW - Lehman/Barclay bond index

KW - Market making

KW - Transaction costs

KW - Dodd-Frank Act

M3 - Paper

T2 - The 14th International Paris December Finance Meeting

Y2 - 20 December 2016 through 20 December 2016

ER -