Dealer balance sheets and bond liquidity provision

Zabczyk, Pawel; Boyarchenko, Nina; Shachar, Or

doi:10.1016/j.jmoneco.2017.03.011

Cited by 114 publications

(53 citation statements)

References 30 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…At the same time, these price-based liquidity metrics do not reflect trades that do not take place because of diminished liquidity. Anderson and Stulz (2017) provide ample evidence of a sharp postcrisis decrease in turnover, partly associated with constraints to broker-dealer balance sheets discussed by Adrian, Boyarchenko, and Shachar (2017). that are not associated with consumption, we also introduce a residual fac-…”

Section: Iic the Role Of Consumptionmentioning

confidence: 99%

Safety, Liquidity, and the Natural Rate of Interest

Negro¹,

Giannone²,

Giannoni³

et al. 2017

Brookings Papers on Economic Activity

250

218

View full text Add to dashboard Cite

Why are interest rates so low in the Unites States? We find that they are low primarily because the premium for safety and liquidity has increased since the late 1990s, and to a lesser extent because economic growth has slowed. We reach this conclusion using two complementary perspectives: a flexible time series model of trends in Treasury and corporate yields, inflation, and long-term survey expectations; and a medium-scale dynamic stochastic general equilibrium model. We discuss the implications of this finding for the natural rate of interest.

show abstract

Section: Iic the Role Of Consumptionmentioning

confidence: 99%

Safety, Liquidity, and the Natural Rate of Interest

Negro¹,

Giannone²,

Giannoni³

et al. 2017

Brookings Papers on Economic Activity

250

218

View full text Add to dashboard Cite

show abstract

“…A Identifying Trades with Affiliates Adrian, Boyarchenko and Shachar (2017) notes that there is an increasing practice of dealers transferring bonds to their non-FINRA affiliates for bookkeeping purposes. These trades usually appear as the dealer trading with a counterparty, and then trading with the affiliate at the same price within one minute or less.…”

Section: Appendixmentioning

confidence: 99%

Customer Liquidity Provision: Implications for Corporate Bond Transaction Costs

Choi

Huh

2017

FEDS

View full text Add to dashboard Cite

The convention in calculating trading costs in corporate bond markets is to assume that dealers provide liquidity to non-dealers (customers) and to calculate average bidask spreads that customers pay dealers. We show that customers often provide liquidity in corporate bond markets, and thus, average bid-ask spreads underestimate trading costs that customers demanding liquidity pay. Since the periods before the 2008 financial crisis, substantial amounts of liquidity provision have moved from the dealer sector to the non-dealer sector, consistent with decreased dealer risk capacity. Among trades where customers are demanding liquidity, we find that these customers pay 35 to 50 percent higher spreads than before the crisis. Our results indicate that liquidity decreased in corporate bond markets and can help explain why, despite the decrease in dealers' risk capacity, average bid-ask spread estimates remain low.

show abstract

“…Bessembinder, Maxwell, and Venkataraman (2006), Edwards, Harris, and Piwowar (2007), and Goldstein, Hotchkiss, and Sirri (2007) study the impact of posttrade transparency due to the introduction of TRACE on transaction costs. More recently, several studies investigate market making and postcrisis implications (Adrian, Boyarchenko, and Shachar (2017) provide detailed discussions). Bessembinder et al (2018) examine trading costs and dealers' capital commitment, arguing that, postcrisis, dealers commit less capital to inventory management.…”

mentioning

confidence: 99%

Over‐the‐Counter Market Frictions and Yield Spread Changes

Friewald¹,

Nagler²

2019

The Journal of Finance

View full text Add to dashboard Cite

We empirically study whether systematic over‐the‐counter (OTC) market frictions drive the large unexplained common factor in yield spread changes. Using transaction data on U.S. corporate bonds, we find that marketwide inventory, search, and bargaining frictions explain 23.4% of the variation in the common component. Systematic OTC frictions thus substantially improve the explanatory power of yield spread changes and account for one‐third of their total explained variation. Search and bargaining frictions combined explain more in the common dynamics of yield spread changes than inventory frictions. Our findings support the implications of leading theories of intermediation frictions in OTC markets.

show abstract

Dealer balance sheets and bond liquidity provision

Cited by 114 publications

References 30 publications

Safety, Liquidity, and the Natural Rate of Interest

Safety, Liquidity, and the Natural Rate of Interest

Customer Liquidity Provision: Implications for Corporate Bond Transaction Costs

Over‐the‐Counter Market Frictions and Yield Spread Changes

Contact Info

Product

Resources

About