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.
Dick-Nielsen, Jens ; Rossi, Marco. / The Cost of Immediacy for Corporate Bonds. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States.38 p.
@conference{0f08dba6be904ed7af0acafe833d2a69,
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 = "2017",
language = "English",
note = "null ; Conference date: 06-01-2017 Through 08-01-2017",
url = "http://www.afajof.org/details/page/8672741/Paper-Submission-2017.html",

}

Dick-Nielsen, J & Rossi, M 2017, 'The Cost of Immediacy for Corporate Bonds' Paper presented at, Chicago, United States, 06/01/2017 - 08/01/2017, .

The Cost of Immediacy for Corporate Bonds. / Dick-Nielsen, Jens; Rossi, Marco.

2017. Paper presented at The 77th Annual Meeting of American Finance Association. AFA 2017, Chicago, United States.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - The Cost of Immediacy for Corporate Bonds

AU - Dick-Nielsen, Jens

AU - Rossi, Marco

PY - 2017

Y1 - 2017

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

ER -

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