The Cost of Immediacy for Corporate Bonds

74 Pages Posted: 2 Sep 2012 Last revised: 20 Feb 2018

See all articles by Jens Dick-Nielsen

Jens Dick-Nielsen

Copenhagen Business School - Department of Finance

Marco Rossi

Texas A&M

Multiple version iconThere are 2 versions of this paper

Date Written: February 19, 2018

Abstract

Liquidity provision for corporate bonds has become significantly more expensive after the 2008 crisis. Using index exclusions as a natural experiment during which uninformed index trackers request immediacy, we find that the cost of immediacy has more than doubled. In addition, the supply of immediacy has become more elastic with respect to its price. Consistent with a stringent regulatory environment incentivizing smaller dealer inventories, we also fi nd that dealers revert deviations from their target inventory more quickly after the crisis. Finally, we investigate the pricing impact of information, changes in ownership structure, and differences between bank and non-bank dealers.

Keywords: Dealer inventory, Lehman/Barclay bond index, Market making, Transaction costs, Dodd-Frank Act

JEL Classification: C23, G12

Suggested Citation

Dick-Nielsen, Jens and Rossi, Marco, The Cost of Immediacy for Corporate Bonds (February 19, 2018). Available at SSRN: https://ssrn.com/abstract=2139403 or http://dx.doi.org/10.2139/ssrn.2139403

Jens Dick-Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

Marco Rossi

Texas A&M ( email )

360S Wehner
College Station, TX 77843-4218
United States

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