Information and Liquidity of Over-the-Counter Securities: Evidence from Public Registration of Rule 144A Bonds

Theory offers equivocal guidance on how enhanced corporate disclosure and transparency impact underlying liquidity. We examine the market liquidity effects of enhanced information induced by the public registration of 144A bonds, a significant and growing segment of the U.S. bond market. Using the regulatory version of TRACE data for the period 2002-2013, and employing two sets of difference-in-difference analyses, we find that liquidity measures improve consistently for higher ex-ante information asymmetry issues following public registration of 144A bonds. Our results support that disclosure reduces information risk and hence improves liquidity in the OTC bond market.

Keywords: Rule 144A bond, broker-dealers, public registration, liquidity, information disclosure

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Han, Song and Huang, Alan G. and Kalimipalli, Madhu and Wang, Ke, Information and Liquidity of Over-the-Counter Securities: Evidence from Public Registration of Rule 144A Bonds (November 20, 2019). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2913865 or http://dx.doi.org/10.2139/ssrn.2913865