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Click or Call? Auction Versus Search in the Over-the-Counter MarketTerrence HendershottUniversity of California, Berkeley - Haas School of Business Ananth MadhavanBlackRock, Inc. September 4, 2012 Abstract: Firms predominately raise capital with corporate bonds traded in over-the-counter (OTC) mar-kets characterized by bilateral negotiations with dealers. We study an innovation in electronic trading technology that allows investors to simultaneously query many dealers in an auction format as opposed to traditional sequential search. Auctions increase competition among deal-ers, but may result in faster information leakage about investors’ trading intentions. Using unique data identifying auction usage in all US corporate bond trades from January 2010 through April 2011 we analyze the value of an electronic auction process, endogenous venue selection, and the determinants of bond trading costs. We identify bond characteristics and market conditions that increase dealers’ propensity to bid and hence the value of the auction process.
Number of Pages in PDF File: 42 working papers seriesDate posted: November 19, 2011 ; Last revised: September 5, 2012Suggested Citation |
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