An Empirical Study of Bond Market Transactions

Hong, Gwangheon; Warga, Arthur

doi:10.2469/faj.v56.n2.2342

Cited by 293 publications

(166 citation statements)

References 17 publications

Supporting

Mentioning

151

Contrasting

Order By: Relevance

“…Among the bond features, issue size is found to affect liquidity positively (Alexander et al, 2000;Hong and Warga, 2000;Hotchkiss and Jostova, 2007;. This result is consistent with the market microstructure inventory models (transaction costs associated with large issues are low because dealers may easily manage their inventory costs).…”

Section: The Determinants Of Corporate Bond Liquidity: a Survey Of Thsupporting

confidence: 81%

The Liquidity of Dual-Listed Corporate Bonds. Empirical Evidence from Italian Markets

et al. 2014

View full text Add to dashboard Cite

We compute some indicators (zero-trade, turnover ratio, Amihud price impact, and Roll bid-ask spread) to examine the liquidity conditions of corporate bonds traded on the main Italian retail bond markets from January 2010 to June 2013. In order to compare market liquidity for identical securities, our analysis focuses on fragmented bonds, i.e. bonds traded concurrently on two different venues: either DomesticMOT and EuroTLX, or ExtraMOT and EuroTLX. As for bonds traded on DomesticMOT and EuroTLX, the Amihud and the Roll statistics suggest EuroTLX being more liquid. Moreover, irrespective of the trading venue, on average bank bonds are less liquid than bonds issued by non-financial companies, especially from 2011 due to the impact of the sovereign debt crisis. With regard to bonds traded across ExtraMOT and EuroTLX, the latter is characterized by better liquidity conditions, with bank bonds being more liquid than non-financial ones. Furthermore, we find evidence of better liquidity figures for Italian bonds (nationality), structured bonds (complexity), and securities with greater minimum trading size (MTS). We also find that bonds' features (issuers' nationality and industry; bonds' residual maturity, complexity, rating, etc…) affect liquidity differently depending upon the trading venue, thus supporting the view that market microstructure may play a relevant role. Finally, we investigate the effect of fragmentation by comparing the liquidity of dual-listed bank bonds fragmented across DomesticMOT and EuroTLX with otherwise similar bank bonds traded exclusively on DomesticMOT. Italian fragmented bank bonds turn out to be slightly more liquid than similar Italian bonds traded exclusively on DomesticMOT; whereas, the opposite holds for foreign bank bonds. However, overall there is not a clear-cut evidence on the effect of fragmentation on bond liquidity, probably because it is intertwined with bonds' attributes, such as the issue size (in our sample, higher for the Italian bank bonds).JEL Classification: G01, G10, G12, G18

show abstract

Section: The Determinants Of Corporate Bond Liquidity: a Survey Of Thsupporting

confidence: 81%

The Liquidity of Dual-Listed Corporate Bonds. Empirical Evidence from Italian Markets

et al. 2014

View full text Add to dashboard Cite

show abstract

“…This is the well known on-therun versus off-the-run effect (see for instance Sarig and Warga (1989), Warga (1992), Chakravarty and Sarkar (1999), Hong and Warga (2000), Schultz (2001), and Hotchkiss, Warga, and Jostava (2002)). When a bond is initially issued, it is on-the-run and has much higher liquidity than some time later, after it has been outstanding for a while and becomes off-the-run.…”

Section: Latent Liquiditymentioning

confidence: 68%

“…Also, they may not qualify for inclusion in the popular bond indices. The link between issue size and liquidity has also been identified as important by other researchers such as Hong and Warga (2000), Alexander, Edwards, and Ferri (2000), and Hotchkiss, Warga, and Jostava (2002).…”

Section: Latent Liquiditymentioning

confidence: 79%

“…2 Chakravarty and Sarkar (1999), Hong and Warga (2000), Schultz (2001), and Hotchkiss, Warga, and Jostava (2002) use the National Association of Insurance Commissioners (NAIC) database to study bid-ask spreads and trading volume in corporate bonds. Hotchkiss and Ronen (1999) and Alexander, Edwards, and Ferri (2000) use the Fixed Income Pricing System (FIPS) database of high-yield bonds, collected by the National Association of Securities Dealers (NASD) to study various aspects of corporate bond liquidity.…”

Section: Article In Pressmentioning

confidence: 99%

See 1 more Smart Citation

Latent liquidity: A new measure of liquidity, with an application to corporate bonds

Mahanti¹,

Nashikkar

Subrahmanyam

et al. 2008

Journal of Financial Economics

198

View full text Add to dashboard Cite

We present a new measure of liquidity known as ''latent liquidity'' and apply it to a unique corporate bond database. Latent liquidity is defined as the weighted average turnover of investors who hold a bond, in which the weights are the fractional investor holdings. It can be used to measure liquidity in markets with sparse transactions data. For bonds that trade frequently, our measure has predictive power for both transaction costs and the price impact of trading, over and above trading activity and bond-specific characteristics thought to be related to liquidity. Additionally, this measure exhibits relationships with bond characteristics similar to those of other trade-based measures. r

show abstract

“…The first is on a given day to average sell prices and subtract average buy prices (Hong and Warga (2000) and Chakravarty and Sarkar (2003)). The second is a regressionbased methodology where each transaction price is regressed on a benchmark price and a buy/sell indicator (Schultz (2001), Bessembinder et al (2006), Goldstein et al (2007), and Edwards et al (2007)).…”

Section: Estimation Methodologymentioning

confidence: 99%

The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures

Feldhütter¹

2011

Rev. Financ. Stud.

352

113

View full text Add to dashboard Cite

I model how corporate bond prices are affected by search frictions and occasional selling pressures and test my predictions empirically. A key prediction is that in a distressed market with more sellers than buyers, prices paid by institutional investors decrease more than those of retail investors. Using a structural estimation, the model is able to identify liquidity crises (i.e. high number of forced sellers) based on the relative prices of institutional and retail investors. New light is shed on two crises, the downgrade of GM and Ford in 2005 and the current crisis. The model also explains why the spread between corporate bond yields and Treasury yields is so large, the so-called credit spread puzzle. * I am very grateful to David Lando and Lasse Heje Pedersen for many helpful comments and discussions and to Jens Dick-Nielsen for discussions regarding the TRACE database. I also thank Viral

show abstract

An Empirical Study of Bond Market Transactions

Cited by 293 publications

References 17 publications

The Liquidity of Dual-Listed Corporate Bonds. Empirical Evidence from Italian Markets

The Liquidity of Dual-Listed Corporate Bonds. Empirical Evidence from Italian Markets

Latent liquidity: A new measure of liquidity, with an application to corporate bonds

The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures

Contact Info

Product

Resources

About