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 date2017
Number of pages38
Publication statusPublished - 2017
EventThe 77th Annual Meeting of American Finance Association. AFA 2017 - Sheraton Grand Chicago, Chicago, United States
Duration: 6 Jan 20178 Jan 2017
Conference number: 77
http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html

Conference

ConferenceThe 77th Annual Meeting of American Finance Association. AFA 2017
Number77
LocationSheraton Grand Chicago
CountryUnited States
CityChicago
Period06/01/201708/01/2017
Internet address

Keywords

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

Cite this

Dick-Nielsen, J., & Rossi, M. (2017). The Cost of Immediacy for Corporate Bonds. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States.