Author: Jens Dick-Nielsen Publisher: ISBN: 9788759384473 Category : Languages : en Pages : 122
Book Description
The three essays study the US corporate bond market with special attention to bond liquidity. All essays are empirical studies which rely heavily on the availability of transactions data. Earlier studies had to use quoted bond prices for empirical studies, but with the introduction of the TRACE system and with the following dissemination of transaction prices the data quality on corporate bonds has improved immensely. In the years after 2000 a range of studies assessed the performance of structural credit risk models and found that they were not able to fully explain the size of the average credit spread for corporate bonds. Huang and Huang (2003) suggested (among others) that the remaining non-default-component of the credit spread was an illiquidity premium. Using transaction data this thesis studies the impact of illiquidity and trading frictions on corporate bonds.
Author: Brittany M.- Cole Publisher: ISBN: Category : Languages : en Pages : 183
Book Description
In Part 1, we study the impact of bond exchange listing in the US publicly traded corporate bond market. Overall, we find that listed corporate bonds have lower bid-ask spreads than unlisted corporate bonds. We specifically show that listed bond spreads are $0.14 lower than unlisted bond spreads. We find that execution venue matters for listed bonds, and that listed bond trades that execute on the NYSE have higher trading costs than listed bond trades that execute off-NYSE. We show that listed bonds are more volatile than unlisted bonds. Lastly, we study bond trading around earnings announcements. We find no evidence that listing influences institutional (or large trading) activity in bonds. In Part 2, we study municipal bond market activity before, during, and after natural disasters (tornados, wildfires, and hurricanes/tropical storms). Using a sample of municipal bond trades from 2010 to 2013, we find that natural disasters influence municipal bond trading. Specifically, we show that spreads are lower on both tornado and wildfire event days and during following five trading days than during the preceding five trading days. While we do not document a relation between hurricane events and spreads, we show that spreads fall during the five days following the hurricane compared to the five trading days before the event. Generally, we document an increase in dollar volume in the five trading days following all three types of natural disasters. We also determine that linkages exist between the bonds affected by natural disasters and related bonds. In Part 3, we study municipal bond trading activity before, during, and after announcements of government officials’ misconduct. Using a sample of over 39,000,000 trades in nearly 500,000 bonds, we find that spreads are higher on news, indictment announcement, and trial verdict announcement days than other trading days. Spreads remain elevated through the five trading days following the announcement. We also find that large bond trades account for the majority of price discovery on event days. Overall, our results establish a link between government officials, their misconduct, and municipal bond markets.
Author: Jiang Zhang Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
This dissertation research comprises three essays. In the first essay, we study the impact of high-frequency trading on market fairness and efficiency. The implementation of the Arrowhead Renewal on the Tokyo Stock Exchange (TSE) in 2015 reduced latency from 1 millisecond to less than 0.5 milliseconds and led to an increase in high-frequency tradingas proxied by the cancel-to-trade ratioof 34%, We find that the number of incidents of marking-the-close declined by 17%, indicating that market fairness improves. We find that for high-tick-size and high-market-capitalization stocks market efficiency improves, but for low-tick-size and low-market-capitalization stocks, it does not. In the second essay, we test the implications of competing theories on liquidity dynamics during extreme price movements (EPMs). Our findings indicate that market makers strategically allow for price pressures and earn compensation from pricing errors. As a result, liquidity provision intensifies towards the end of an average EPM. This goes counter to a widespread concern that market-making constraints cause the deterioration of liquidity as EPMs develop. Finally, we demonstrate that limit order book dynamics during EPMs are in line with a socially beneficial equilibrium. In the third essay, we revisit the tax-loss selling hypothesis as a potential explanation of the well-known January effect in securities markets. We expand the empirical evidence from municipal bond closed-end funds by extending the sample period by almost 20 years and adding exchange-traded funds to the sample. Our updated sample covers the recent growth of municipal bond ETFs and a significant increase in municipal bond trading volume and liquidity. Both developments reduce arbitrage costs and thus are expected to increase tax-loss selling in the funds and increase the transmission of price effects to the underlying bonds. We find that the January effect of municipal bond closed-end funds becomes stronger in more recent years, and show evidence that largely supports the tax-loss hypothesis. We also find some evidence indicating a smaller discrepancy between the abnormal returns of the funds and underlying bonds..
Author: Long Chen Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
The three essays can be regarded as studies on the basis risk of fixed income securities. They investigate the spreads among different bonds. The first essay, Market Risk and Credit Risk in a General Equilibrium Model, assumes perfect liquidity and focuses on the credit spread. By incorporating credit risk into the standard asset pricing models, it provides one of the first studies on how credit spread relates to market risk, including equity risk, interest risk, and inflation risk. The second essay, Illiquidity and Expected Return of Treasury Securities, focuses on Treasury bonds with zero default risk. The yield spreads among the bonds are solely due to liquidity difference. We derive, quantitatively, how this spread is related to the bid-ask spread, brokerage fee, bond maturity, and investors? expected holding period. It is one of the first theoretical models on the liquidity of treasury securities. The third essay, An Indirect Estimation of the Transaction Costs of Corporate Bonds, is an empirical estimation of the transaction costs of corporate bonds. It is observed that bonds with less liquidity tend to be the ones with lower credit rating quality. Liquidity risk and credit risk are thus intertwined. We are able to separate their effects and obtain estimates for liquidity spreads and credit spreads. In summary, the first essay studies credit risk; the second studies liquidity risk, and the third, as an empirical study, investigates both issues. They jointly contribute to the understanding of the basis risk of fixed income securities.
Author: Jens Dick-Nielsen
Author: Amrut Nashikkar
Author: Brittany M.- Cole
Author: Brian Mattmann
Author: Gergana Jostova
Author: DongJoon Jeong
Author: Jan Wilimzig
Author: Jeng-Hong Chen
Author: Jiang Zhang
Author: Long Chen