Bid-Ask Spreads, Trading Networks and the Pricing of Securitizations

Review of Financial Studies, Forthcoming.

64 Pages Posted: 9 Sep 2014 Last revised: 13 Jan 2017

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business

Artem Neklyudov

HEC Lausanne and SFI

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business

Date Written: December 27, 2016

Abstract

The Financial Industry Regulatory Authority began to collect transaction data from broker-dealers in 2011 as a step towards enhancing its understanding of securitization markets. We use transaction data to document the importance of the interdealer network structure for market quality. Some dealers are relatively central in the network and trade with many dealers, while others are more peripheral. Core dealers receive relatively lower and less dispersed spreads than peripheral dealers. We develop a model in which core and peripheral dealers trade with different customer clienteles and argue that the presence of relatively sophisticated customers in securitization markets explains these facts.

Keywords: Securitization; sophisticated investors; Rule 144A; network analysis; price discovery; OTC markets; bid-ask spreads; core dealers; peripheral dealers

JEL Classification: G12, G14, G23

Suggested Citation

Hollifield, Burton and Neklyudov, Artem and Spatt, Chester S., Bid-Ask Spreads, Trading Networks and the Pricing of Securitizations (December 27, 2016). Review of Financial Studies, Forthcoming.. Available at SSRN: https://ssrn.com/abstract=2493244 or http://dx.doi.org/10.2139/ssrn.2493244

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-6505 (Phone)
(412) 268-6837 (Fax)

Artem Neklyudov (Contact Author)

HEC Lausanne and SFI ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Chester S. Spatt

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-8834 (Phone)
412-268-6689 (Fax)

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