Financial Networks and Trading in Bond Markets

40 Pages Posted: 17 Mar 2008 Last revised: 16 Sep 2009

Umit G. Gurun

University of Texas at Dallas - Naveen Jindal School of Management

G. Geoffrey Booth

Michigan State University - Department of Finance

Harold H. Zhang

University of Texas at Dallas - Naveen Jindal School of Management; China Academy of Financial Research (CAFR)

Date Written: September 10, 2009

Abstract

This paper examines how financial networks influence asset prices and trading performance. Consistent with theoretical studies on the role of communication networks in information dissemination, we posit that financial institutions with more extensive financial networks can more efficiently acquire and process information pertaining to asset trading thus have better trading performance than financial institutions with limited financial networks. Using transaction-level Turkish government bond trading data, we find that financial institutions with global financial networks exhibit a stronger tendency to trade in the more liquid bonds and consistently trade at more favorable prices suggesting that global financial institutions have information advantages. They enjoy better trading performance than local financial institutions on informed trades. The information advantage afforded global financial institutions tends to decline over time suggesting possible learning by local financial institutions as a result of trading with global financial institutions.

Keywords: Global Financial Networks, Information, Bond

JEL Classification: G15, G21, F21

Suggested Citation

Gurun, Umit G. and Booth, G. Geoffrey and Zhang, Harold H., Financial Networks and Trading in Bond Markets (September 10, 2009). Available at SSRN: https://ssrn.com/abstract=1105962 or http://dx.doi.org/10.2139/ssrn.1105962

Umit G. Gurun (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

G. Geoffrey Booth

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States
(517) 353-1745 (Phone)
(517) 432-1080 (Fax)

Harold Huibing Zhang

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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