The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market

54 Pages Posted: 5 Sep 2013 Last revised: 9 Apr 2019

See all articles by Paul Asquith

Paul Asquith

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER)

Thomas Covert

University of Chicago - Booth School of Business

Parag A. Pathak

Massachusetts Institute of Technology (MIT) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 8, 2019

Abstract

In July 2002, FINRA began mandatory dissemination of price and volume information for corporate bond trades. This paper, using recently released data, measures transparency’s effect on trading activity and costs for the entire corporate bond market. Even though trading costs decrease significantly across all types of bonds, trading activity does not increase and, by one measure, decreases. Transparency affects high-yield bonds differently than investment grade bonds. High-yield bonds have the largest decrease in trading activity, 71.1%, and in trading costs, 22.9%. High-yield bonds also disproportionately contribute to the estimated reduction in total trading costs of $600 million a year.

Keywords: transparency, corporate bonds, regulation, Dodd-Frank

JEL Classification: D47, G14, G18, L51

Suggested Citation

Asquith, Paul and Covert, Thomas and Pathak, Parag A., The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market (April 8, 2019). Available at SSRN: https://ssrn.com/abstract=2320623 or http://dx.doi.org/10.2139/ssrn.2320623

Paul Asquith (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas Covert

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Parag A. Pathak

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

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