Centralized Trading of Corporate Bonds

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIn the post-crisis period, increased regulation of financial intermediaries led to a significant decline in corporate bond market liquidity. In order to stabilize these markets, policy makers recently proposed that the trading of corporate bonds should be more centralized. In this paper, we show that a centralization of corporate bond markets always leads to an inferior outcome when compared with the initial over-the-counter structure. The regulator may achieve a superior allocation only if it is feasible for him to also affect market liquidity, by either increasing or decreasing it.

On the optimal quantity of liquid bonds

“…Using these expressions to replace ∂K/∂m c and ∂K/∂m p and (5) updated one period, we obtain (22). 30 Derivation of (29). The derivation of (29) is equal to the derivation of (23) and is not repeated here.…”

“…See Geromichalos and Herrenbrueck (2016a) for a more detailed analysis of the conditions which must hold for a liquidity premium to exist in the primary bond market.14 It is easy to show that under competitive pricing, the type-I equilibrium coincides with the type-I equilibrium under Kalai bargaining for η = 1 (seeBerentsen et al, 2014, 2016, and Huber and Kim, 2016. With δ = 1 and η = 1, the type-I equilibrium only exists at the Friedman rule (γ12 = β); i.e., the efficient allocation, u (q * ) = 1, is only attainable at γ = β.…”