Trading Activity and Price Volatility in the Municipal Bond Market
By Chris Downing, Frank Zhang. 2004
123 citations recorded by the source corpus.
Utilizing a comprehensive database of transactions in municipal bonds, we investigate the volume-volatility relation in the municipal bond market. We find a positive relation between the number of transactions and a bond's price volatility. In contrast to previous studies, we find a "negative" relation between average deal size and price volatility. These results are found to be robust throughout the sample. Our results are inconsistent with current theoretical models of the volume-volatility relation. These inconsistencies may arise because current models fail to account for the effects of overall market liquidity on the costs of large transactions. Copyright 2004 by The American Finance Association.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/2d73266292cdc09f733c9a6d33da6ee051273f3f
How researchers see this paper
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In Economics and Econometrics
In Finance
- Lawrence E. Harris
- Michael S. Piwowar
- Zhiguo He
- Amy K. Edwards
- Marti G. Subrahmanyam
- R. Jankowitsch
- H. Bessembinder
Citations in the corpus
- Secondary Trading Costs in the Municipal Bond Market (2006, background): “…Amihud and Mendelson (1991), Blume, Keim, and Patel (1991), Cornell and Green (1991), Warga (1992), Elton and Green (1998), Alexander, Edwards, and Ferri (2000a and 2000b), Hotchkiss and Ronen (2002), Hotchkiss, Warga, and Jostova (2002), Kalimpalli and Warga (2002), and Downing and Zhang (2003).”
- Consequences of GAAP Disclosure Regulation: Evidence from Municipal Debt Issues (2008, unknown): “examples, existing studies posit relatively less liquidity (Downing and Zhang 2004) and higher”
- Liquidity, Default, Taxes and Yields on Municipal Bonds (2008, unknown): “First, the municipal bond market is a very thin market; many municipal bonds are traded only a few times after issuance (see Downing and Zhang, 2004).”
- Corporate Bond Market Transparency and Transaction Costs (2004, unknown): “For municipal bonds, Downing and Zhang (2004) find increases in volatility with more credit risk and Harris and Piwowar (2005) find that bonds with higher credit risk are more expensive to trade.”