Price Discovery in the Stock, OTC Corporate Bond, and NYSE Corporate Bond Markets PDF Download

Author: Craig W. Holden
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

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Book Description
This paper examines intraday price discovery in three closely-related U.S. markets: stocks, Over-The-Counter (OTC) corporate bonds, and New York Stock Exchange (NYSE) electronically-traded corporate bonds. We calculate the Hasbrouck (1995) information shares of these three markets over five years. We find that OTC corporate bond trades have a 5.7% information share, despite zero pre-trade transparency in the OTC market. Further, NYSE corporate bonds have a 45.8% information share, despite having a tiny market share, because of publicly-displayed, frequently-updated bid-ask quotes that can be traded at any time. OTC corporate bond information shares are inversely related to credit quality and are relatively constant over time. This is consistent with multi-security informed trading theory and the Merton (1974) corporate bond model. NYSE corporate bond information shares are positively related to their update frequency. Thus, the subset of NYSE bonds that are updated more frequently are more informative.

Author: Yifei Mao
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

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Book Description
This paper uses intraday U.S. bond transaction and stock quote data to investigate whether corporate bonds lead stocks in price discovery of underlying firm value. I use Hasbrouck's (1995) "information share" approach to determine the relative contribution of corporate bonds to price discovery. Based on a sample of 214 firms, I find that corporate bond markets contribute 12.6% on average to price discovery from 2009 to 2011. Corporate bond market price discovery increases with the riskiness of the underlying firm value, and is related to contemporaneous market conditions. The findings are consistent with the informed trading theory and Merton (1973) model.

Author: Anand Srinivasan
Publisher:
ISBN:
Category :
Languages : en
Pages : 16

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Book Description
This is the first exploratory field study of the U.S. inter-dealer OTC corporate bond market. We do this by analyzing the trades of a major bond dealer and through interviews with personnel at the trading desk of this dealer. We document the competitive structure of the market in terms of the number of active dealers, the mechanism used to facilitate trades etc. We find that the mechanism of trading closely resembles a first price sealed bid auction. The number of active dealers is quite small - only 9 dealers account for a large fraction of the trades. We examine potential differences between different segments of the market. We develop a measure of competition for this bidding market based on the theory of auctions. This is the difference between the best and second best bid in a given trade. Our measure of competition indicates that competition is highest in US investment grade corporate bonds and lowest in junk bonds. We also examine the effect of size of the trade on this measure of competition. Surprisingly, large trades do not suffer from any adverse market impact. Lastly, we examine the effect of exclusion of individual bidders on the level of competition. The effect does not appear very large.

Author: Li L. Ong
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781451861716
Category :
Languages : en
Pages : 25

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Book Description
The objective of this paper is to discuss the key issues relating to the development of local corporate bond markets. We examine the requirements for local corporate bond market development, and compare and contrast experiences across both mature and emerging markets. We suggest that core aspects such as benchmarking, corporate governance and disclosure, credit risk pricing, the availability of reliable trading systems, and the development of hedging instruments are fundamental for improving the breadth and depth of corporate debt markets. The demand and supply of corporate bonds are dependent on factors such as the investor base, both local and foreign, and government policies toward the issuance process and associated costs, as well as the taxation regime. The sequencing of reforms is key to market development.

Author: Menachem (Meni) Abudy
Publisher:
ISBN:
Category :
Languages : en
Pages : 45

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Book Description
We investigate the trading of corporate bonds (c-bonds) by an open limit order book (LOB) mechanism. To do so, we use the case of the Tel Aviv Stock Exchange (TASE) as a laboratory, in which both stocks and c-bonds are traded by an LOB mechanism. Contrary to the OTC market in the US, the TASE c-bond market is liquid with narrow spreads and low price dispersion. The short-term traders (STT), who are the analog of the market makers in the LOB, have small trading rents and unconcentrated activity (a low Herfindahl index). In the cross-section of bonds, the low concentration is related to low spreads, low price dispersion and small STT rents. The non-STT (including retail investors, whose participation is significant) compete with the STT on quotation and tend to tighter quotes. Retail investors' activity contributes to narrower spreads.

Author: Tavy Ronen
Publisher:
ISBN:
Category :
Languages : en
Pages : 44

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Book Description
This paper examines shifting liquidity in the corporate bond market and illustrates how cross market comparisons can lead to misleading inferences regarding market efficiency when liquidity and trading patterns are ignored. For example, when institutional trade dominance and other bond trading features are accounted for, stock leads evidenced in earlier studies are surprisingly reversed. Moreover, bond prices often fully adjust to news before equity market open. Informational advantages are most pronounced during low equity market liquidity and price discovery periods. Finally, dynamic liquidity patterns give rise to lsquo;top bonds', which are those attracting most institutional sized trades after news and are shown to play an important role in the price discovery process. These bonds shift identity over time but exhibit common ex-ante identifiable characteristics.

Author: Fan Chen
Publisher:
ISBN:
Category :
Languages : en
Pages : 55

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Book Description
Using bond transaction data from TRACE from 2005 to 2015, we investigate the impact of pre-trade transparency on over-the-counter bond markets, and find that NYSE pre-trade transparency reduces US corporate bond transaction costs by $846 million per year. NYSE pre-trade transparent bonds also maintain smaller standard deviation in bid-ask spreads and institutional investors face smaller bid-ask spreads when trading the pre-trade transparent bonds, suggesting that pre-trade transparency tends to favor traders rather than dealers by enhancing traders' bargaining capability.

Author: Yakov Amihud
Publisher: Now Publishers Inc
ISBN: 1933019123
Category : Business & Economics
Languages : en
Pages : 109

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Book Description
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.

Author: Jean-Pierre Casey
Publisher: CEPS
ISBN: 9290795964
Category : Business & Economics
Languages : en
Pages : 142

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Book Description
Assessing regulatory measures taken at the EU level that impact European bond markets, this book examines the desirability, utility, and feasibility of certain policy measures.

Author: T. Todd Smith
Publisher: International Monetary Fund
ISBN: 1451848870
Category : Business & Economics
Languages : en
Pages : 88

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Book Description
This paper surveys markets for corporate debt securities in the major industrial countries and the international markets. The discussion includes a comparison of the sizes of the markets for various products, as well as the key operational, institutional, and legal features of primary and secondary markets. Although there are some signs that debt markets may be emphasized in the future by some countries, it remains true that North American debt markets are the most active and liquid in the world. The international debt markets are, however, growing in importance. The paper also investigates some of the reasons for the underdevelopment of domestic bond markets and the consequences of firms shifting their debt financing needs from banks to securities markets.