Market Transparency and the Marking Precision of Bond Mutual Fund Managers

29 Pages Posted: 24 Oct 2013

See all articles by Gjergji Cici

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

Yalin Gündüz

Deutsche Bundesbank

John J. Merrick, Jr.

Raymond A. Mason School of Business - William & Mary

Multiple version iconThere are 2 versions of this paper

Date Written: September 3, 2013

Abstract

We analyze the dispersion of month-end prices simultaneously placed on identical corporate bonds by different US mutual fund managers before and after initiations of TRACE and introductions of issuers into Markit’s CDS database. Disseminated bonds show large and statistically significant decreases in mark dispersion around three key TRACE system rollout events, including important spillover effects for non-disseminated bonds. Dispersion for large, investment grade bonds fell 20% to 83% after the start of TRACE reporting. A difference-in-differences regression analysis of the two-stage rollout of BBB-rated bonds provides clearer evidence suggesting that TRACE led to a decrease in mark dispersion for all bonds via a matrix pricing channel in addition to any direct dissemination impact. TRACE-associated improvement in bond valuation precision provides indirect support for Bessembinder, Maxwell, and Venkataraman’s (2006) information-based channel relating transparency and pricing. During the pre-TRACE period, we also find some evidence that mark dispersion fell for investment grade issuers after introductions into Markit’s database.

Keywords: TRACE, CDS, bonds, transparency, marks

JEL Classification: G12, G14, G23

Suggested Citation

Cici, Gjergji and Gibson, George Scott and Gündüz, Yalin and Merrick, Jr., John J., Market Transparency and the Marking Precision of Bond Mutual Fund Managers (September 3, 2013). Available at SSRN: https://ssrn.com/abstract=2341882 or http://dx.doi.org/10.2139/ssrn.2341882

Gjergji Cici

University of Kansas - School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-3873 (Phone)

HOME PAGE: http://business.ku.edu/gjergji-cici

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States
757/221-1673 (Phone)

Yalin Gündüz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

John J. Merrick, Jr. (Contact Author)

Raymond A. Mason School of Business - William & Mary ( email )

Williamsburg, VA 23187
United States
757-221-2721 (Phone)

HOME PAGE: http://https://mason.wm.edu/faculty/directory/full-time-faculty/merrick_j.php

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