Regulation and Market Liquidity

Xiao, Kairong

doi:10.3386/w21739

Cited by 35 publications

(26 citation statements)

References 51 publications

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“…Recent literature has looked at this important question on how market liquidity has changed after the global financial crisis. There is a strand of the literature that claims that alternative measures of liquidity did not worsen after the crisis (Trebbi and Xiao, 2017;Adrian, Fleming, Shachar, and Vogt, 2017;Anderson and Stulz, 2017). The findings of these papers seem puzzling, especially given that the large financial dealers are less active in cash bond (Choi and Huh, 2018), and derivatives markets (Feldhütter, Gehde-Trapp, and Gündüz, 2017) due to regulatory constraints and their own risk-bearing capacity (Bessembinder, Jacobsen, Maxwell, and Venkataraman, 2018;Bao, O'Hara, and Zhou, 2018).…”

Section: Determinants Of Transaction Costs In the Cross-sectionmentioning

confidence: 99%

Lighting up the Dark: Liquidity in the German Corporate Bond Market

et al. 2018

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We study the impact of transparency on liquidity in OTC markets. We do so by providing an analysis of liquidity in a corporate bond market without trade transparency (Germany), and comparing our findings to a market with full post-trade disclosure (the U.S.). We employ a unique regulatory dataset of transactions of German financial institutions from 2008 until 2014 to find that: First, overall trading activity is much lower in the German market than in the U.S. Second, similar to the U.S., the determinants of German corporate bond liquidity are in line with search theories of OTC markets. Third, surprisingly, frequently traded German bonds have transaction costs that are 39-61 bp lower than a matched sample of bonds in the U.S. Our results support the notion that, while market liquidity is generally higher in transparent markets, a subset of bonds could be more liquid in more opaque markets because of investors "crowding" their demand into a small number of more actively traded securities.

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Section: Determinants Of Transaction Costs In the Cross-sectionmentioning

confidence: 99%

Lighting up the Dark: Liquidity in the German Corporate Bond Market

et al. 2018

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“…These findings are consistent with two recent working papers that present coarser estimates of trading costs. Trebbi and Xiao () examine U.S. data, Aquilina and Suntheim () examine U.K. data, each reporting that execution costs are not higher in recent years.…”

mentioning

confidence: 99%

Capital Commitment and Illiquidity in Corporate Bonds

Bessembinder¹,

Jacobsen

Maxwell

et al. 2018

The Journal of Finance

282

120

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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.

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“…At this time, the price decline has the characteristics of leverage adjustment. In the real world, there is a combination of deleveraging and changing market information [13] , as well as people picking up stocks when the price has fallen by the daily limit, and rice adjustments are often mixed. By distinguishing between the two parts of price adjustment Δ 1 and Δ 2 empirically, we can get the total price adjustment Δ = Δ 1 + Δ 2.…”

Section: Theoretical Analysismentioning

confidence: 99%