The Volcker Rule and Market-Making in Times of Stress
By Jack Bao, Maureen O’Hara, Xing Zhou. 2016
217 citations recorded by the source corpus.
Focusing on downgrades as stress events that drive the selling of corporate bonds, we document that the illiquidity of stressed bonds has increased after the Volcker Rule. Dealers regulated by the Rule have decreased their market-making activities while non-Volcker-affected dealers have stepped in to provide some additional liquidity. Furthermore, even Volcker-affected dealers that are not constrained by Basel III and CCAR regulations change their behavior, inconsistent with the effects being driven by these other regulations. Since Volcker-affected dealers have been the main liquidity providers, the net effect is that bonds are less liquid during times of stress due to the Volcker Rule.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/2f3c0140a694a17b43bc9c4e4869ac1df55a451d
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Citations in the corpus
- Corporate Bond Liquidity during the COVID-19 Crisis (2020, background): “For example, Bao et al. (2018) document that dealer-banks subject to the Volcker rule shifted a considerable amount of trades from fast, risky-principal trades to slower, agency trades after the implementation of 4 For example, according to Scaggs (2020), funds investing in investment-grade corporat”
- Dealer balance sheets and bond liquidity provision (2016, unknown): “Given the clustering of the timing of many of the regulations, our empirical methodology is similar to Bessembinder et al. (2016) and Bao et al.”