Pre-Trade Transparency in Over-the-Counter Bond Markets

55 Pages Posted: 4 Mar 2012 Last revised: 3 Nov 2018

See all articles by Fan Chen

Fan Chen

University of Oklahoma - Michael F. Price College of Business - Division of Finance

Zhuo Zhong

University of Melbourne - Department of Finance

Date Written: June 27, 2016

Abstract

Using bond transaction data from TRACE from 2005 to 2015, we investigate the impact of pre-trade transparency on over-the-counter bond markets, and find that NYSE pre-trade transparency reduces US corporate bond transaction costs by $846 million per year. NYSE pre-trade transparent bonds also maintain smaller standard deviation in bid-ask spreads and institutional investors face smaller bid-ask spreads when trading the pre-trade transparent bonds, suggesting that pre-trade transparency tends to favor traders rather than dealers by enhancing traders’ bargaining capability.

Keywords: Pre-trade transparency; OTC bond markets; Bond transaction cost

JEL Classification: G14; G19

Suggested Citation

Chen, Fan and Zhong, Zhuo, Pre-Trade Transparency in Over-the-Counter Bond Markets (June 27, 2016). Pacific-Basin Finance Journal, Vol. 45, 2017, Available at SSRN: https://ssrn.com/abstract=2015694 or http://dx.doi.org/10.2139/ssrn.2015694

Fan Chen (Contact Author)

University of Oklahoma - Michael F. Price College of Business - Division of Finance ( email )

Norman, OK 73019
United States
4055689358 (Phone)

Zhuo Zhong

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

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