The Cost of Immediacy for Corporate Bonds

Jens Dick-Nielsen, Marco Rossi

Research output: Contribution to conferencePaperResearchpeer-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 languageEnglish
Publication date2016
Number of pages42
Publication statusPublished - 2016
EventThe 14th International Paris December Finance Meeting - Paris, France
Duration: 20 Dec 201620 Dec 2016
Conference number: 14
https://www.eurofidai.org/fr/december2016.html

Conference

ConferenceThe 14th International Paris December Finance Meeting
Number14
CountryFrance
CityParis
Period20/12/201620/12/2016
Internet address

Keywords

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

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