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 | 2017 |
| Number of pages | 38 |
| Publication status | Published - 2017 |
| Event | The 77th Annual Meeting of American Finance Association. AFA 2017 - Sheraton Grand Chicago, Chicago, United States Duration: 6 Jan 2017 → 8 Jan 2017 Conference number: 77 http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html |
Conference
| Conference | The 77th Annual Meeting of American Finance Association. AFA 2017 |
|---|---|
| Number | 77 |
| Location | Sheraton Grand Chicago |
| Country/Territory | United States |
| City | Chicago |
| Period | 06/01/2017 → 08/01/2017 |
| Internet address |
Keywords
- Dealer inventory
- Lehman/Barclay bond index
- Market making
- Transaction costs
- Dodd-Frank Act