Capital Commitment and Illiquidity in Corporate Bonds
By H. Bessembinder, Stacey E. Jacobsen, William F. Maxwell, K. Venkataraman. Journal of Finance, 2017
276 citations recorded by the source corpus.
We study trading costs and dealer behavior in U.S. corporate bond markets from 2006 to 2016. Despite a temporary spike during the financial crisis, average trade execution costs have not increased notably over time. However, dealer capital commitment, turnover, block trade frequency, and average trade size decreased during the financial crisis and thereafter. These declines are attributable to bank‐affiliated dealers, as nonbank dealers have increased their market commitment. Our evidence indicates that liquidity provision in the corporate bond markets is evolving away from the commitment of bank‐affiliated dealer capital to absorb customer imbalances, and that postcrisis banking regulations likely contribute.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/89787e254029ad382a806d17294df0372218e5d0
How researchers see this paper
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In Accounting
In Economics and Econometrics
- Diego Zúñiga
- Pierre-Olivier Weill
- Mahyar Kargar
- David Lindsay
- Benjamin Lester
- Shuo Liu
- Darrell Duffie
- Nicolae Gârleanu
In Finance
- Diego Zúñiga
- Pierre-Olivier Weill
- Mahyar Kargar
- David Lindsay
- Benjamin Lester
- Shuo Liu
- Darrell Duffie
- Nicolae Gârleanu
Citations in the corpus
- The Volcker Rule and Market-Making in Times of Stress (2016, unknown): “Other research (e.g., Bessembinder et al. (2016) and Dick-Nielsen and Rossi (2016) has argued that anticipation of new regulation implementation could lead to earlier changes in dealer behavior.”
- Climate Risk and Capital Structure (2019, unknown): “Bessembinder et al. (2018) define small corporate bonds as those with an issue size under $500 million.”
- Corporate Bond Liquidity during the COVID-19 Crisis (2020, background): “1For recent work that studies the distinction between risky-principal and agency trades, see Schultz (2017), Bao, O’Hara, and Zhou (2018), Choi and Huh (2018), Bessembinder et al. (2018), and Goldstein and Hotchkiss (2020). To the best of our knowledge, we are the first (and only) paper to draw this”
- Dealer balance sheets and bond liquidity provision (2016, unknown): “…of the regulations, our empirical methodology is similar to Bessembinder et al. (2016) and Bao et al. (2016), yet our paper considers a different dimension of dealers’ willingness to intermediate compared to Bessembinder et al. (2016), and a much broader set of bonds compared to Bao et al. (2016).”