Corporate Bond Trading Costs and Practices: A Peek Behind the Curtain
Posted: 9 Dec 1998
Date Written: November 1998
I examine institutional bond trading costs and practices using a data set of 192,000 trades of corporate bonds over 1993-1995. I find that institutional bond trades are typically much larger than institutional equity trades, but trading costs are a much smaller proportion of the trade's value. Trading costs decline with the size of the trade. Larger, more active institutions pay less to trade even after adjusting for the size of their trades. Institutions seem to develop relationships with particular dealers, as evidenced by a disproportionate number of trades between the institution and the dealer. However, trading costs are not lower when an institution has established a relationship with a dealer.
JEL Classification: G10, G18, G20, G28
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