Abstract

http://ssrn.com/abstract=593823
 
 

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Corporate Bond Market Transparency and Transaction Costs


Amy K. Edwards


Securities and Exchange Commission (SEC)

Lawrence Harris


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Michael S. Piwowar


Government of the United States of America - Banking Committee

September 21, 2004

Fifteenth Annual Utah Winter Finance Conference

Abstract:     
Using TRACE data - a complete record of all US OTC secondary trades in corporate bonds - we estimate average transaction cost as a function of trade size for each bond that traded more than nine times in 2003. We find that transaction costs are higher than in equities and decrease significantly with trade size. Highly rated bonds, recently issued bonds, and bonds that will soon mature have lower transaction costs than do other bonds. Costs are lower for bonds with publicly disseminated trade prices, and they drop when the TRACE system starts to publicly disseminate their prices. The results suggest that public traders would significantly benefit if bond prices were made more transparent.

Number of Pages in PDF File: 41

Keywords: Corporate bonds, fixed income, liquidity, transaction cost measurement, effective spreads, TRACE, price transparency, market microstructure, dealers

JEL Classification: G14, G18, G24

working papers series


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Date posted: September 22, 2004  

Suggested Citation

Edwards, Amy K. and Harris, Lawrence and Piwowar, Michael S., Corporate Bond Market Transparency and Transaction Costs (September 21, 2004). Fifteenth Annual Utah Winter Finance Conference. Available at SSRN: http://ssrn.com/abstract=593823 or http://dx.doi.org/10.2139/ssrn.593823

Contact Information

Amy K. Edwards (Contact Author)
Securities and Exchange Commission (SEC) ( email )
100 F St NE
Washington, DC 20549-1105
United States
202-551-6663 (Phone)
Lawrence Harris
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)
Michael S. Piwowar
Government of the United States of America - Banking Committee ( email )
Washington, DC
United States
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