The Cost of Immediacy for Corporate Bonds

By Jens Dick‐Nielsen, Marco Rossi. The Review of financial studies, 2018

155 citations recorded by the source corpus.

Liquidity provision in the corporate bond market has become significantly more expensive after the 2008 credit crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the price of immediacy has doubled for short-term investment-grade bonds, and more than tripled for speculative-grade bonds. In addition to this level effect, after the crisis, the supply of immediacy has become more elastic with respect to its price. These results are consistent with Duffie (2012)’s prediction that the post-crisis regulatory environment would hinder market making.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/ebccfd31b3dfcceac648593875d7921e05b4daf2

Citations in the corpus

• Providing liquidity in an illiquid market: Dealer behavior in US corporate bonds (2020, unknown): “Dick-Nielsen and Rossi (2016) show that the price of immediacy following forced selling of bonds has substantially increased post-crisis.”
• 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.”